September, 2023
The S&P/ASX Small Ordinaries Accumulation Index finished 1.9% lower in the September quarter with industrials and resources performing in line with each other (although resources were well in front over the last month).
Global markets turned sour in September, dragging the quarter into the red. Rapidly rising bond yields and concerns about China’s growth rate were the key reasons for the bearish sentiment. Large caps outperformed smalls later in the quarter and the Australian equity market fared better than most other international markets.
In the US, the S&P 500 declined 3.7% and the Nasdaq 4.1% but within the Nasdaq large tech continued to outperform the broader index. The Dow (-2.6%) was a little better but helped by the strong performance in energy stocks. European markets were mixed, with Germany and France weak, but the UK FTSE managed a 1.0% rise. Asian markets were also weak with China and Hong Kong down 2.9% and 5.9% respectively. Japan was down 4% and Korea 3.9%. NZ has been a notable struggler with the market down for the quarter, half and full year (sadly on its own with that stat…).
Commodities were all over the place with gold down 3.7% (not helped by a strong USD), but WTI oil was up 28.9%, thermal coal up 25.0%, iron ore up 5.3% and aluminium up 10.1%. Clearly, markets aren’t convinced it’s sustainable as the resources sectors were down for both the month and quarter – perhaps lithium was the focus, it has many grades and pricing formats, but all were exceptionally weak over the quarter.
The pivotal move over the quarter and especially the last month has been the sharp rise in bond yields – and with the exception of a brief period before the GFC, the US 10 year reached a 20 year high. While not helped by rising energy prices and US debt ceiling politics, markets were pricing a higher for longer inflation outlook. The same dynamics are the case in most advanced economies – China being the obvious exception. The converse is that economic news is generally strong and corporate profitability is hanging in there. Seems that Goldilocks is potentially being ignored.
For smaller companies, the general consensus is that the higher rates, rising costs and an iffy consumer means there is no reason to consider them, but we believe the market is wrong to take a blanket approach to the sector. Money has come out of small-caps and with less liquidity it has meant that there have been many companies with good growth prospects that have been over-sold and provide excellent upside. If confidence in the earning outlook improves and investor confidence lifts, it is this asset class that will move.
It is easy to sit in a TD yielding 4% but with a 3% yield and good earnings growth that will manifest itself in capital growth, we believe investors should keep an eye closely on the small-cap sector.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-30.09.23.pdfJune, 2023
The S&P/ASX Small Ordinaries Accumulation Index finished 0.54% lower in the June quarter with industrials outperforming resources by almost 10%.
US tech stocks once again took the lead with the 12.8% rise in the Nasdaq driven by a small number of large companies. In contrast, the Dow Jones posted a more modest 3.4% rise as cyclicals struggled. This was despite most US economic releases being stronger than expected leading to the assumption of more aggressive interest rate rises by the Fed. US June quarter profit releases will be fascinating.
Other global markets were generally positive with the Japanese Nikkei jumping a massive 18.4% in the quarter. Taiwan and Korea were also strong but in contrast, China and Hong Kong were down 2.2% and 7.3% respectively. European markets were little changed. In contrast to equity markets, commodity markets were a sea of misery. Gold was the best of them with a fall of 2.9%. Oil (WTI) fell 6.9%, Copper 8.1% and other base metals down over 10%. Thermal coal fell 27.8%, iron ore 10.6% and it’s time to fatten the animals, corn is now 24.8% cheaper…
It is clear that this year’s economic performance from China has been disappointing. Consumer spending post Covid lockdowns has been more modest than expected and savings rates are exceptionally high. Stimulus from the Government has been insipid and exports sluggish. And now there is talk of deflation. All grim. We expect stimulus measures and an improvement in economic conditions over the remainder of this year but are aware that social cohesion is as much a focus as economic growth. Any fall in employment and wages will focus authorities on kick starting growth.
The Australian economy remains a balancing act. While the RBA paused, they still pointed to further rises being likely. There is clear evidence from companies we speak to that consumer demand in some areas is beginning to slow, whereas others remain surprisingly buoyant. A number of discretionary retailers (many that are ex-ASX 100 stocks) have downgraded profit expectations on both lower demand and higher costs.
Media companies have seen lower ad spending from certain sectors and the challenges in the home building industry are well known. That’s the bad stuff.
The flip side is that the certain industries are doing well. Travel & tourism, healthcare and aged care are still recovering from the Covid period, infrastructure is still strong and with the energy transition taking place, will continue to be. Certain financial services are also in good health as is mining capital expenditure, transport, automotive and agriculture.
Sentiment will be whipped around by short term economic releases, but we continue to be focussed on companies that have good growth prospects, well managed and have low debt and low capital needs. That’s reflected in the 38 investments in our portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-30.06.23-1.pdfMay, 2023
The Fund returned -4.4% in May, -1.1% below the benchmark return of -3.3%.
Key Contributors:
Billing software company Gentrack Group (+29.5%) announced their 1H23 result, which exceeded expectations, while both FY23 and FY24 revenue guidance was upgraded. A relatively new holding to the Fund, Gentrack has undergone a significant turnaround and investment phase, which is now seeing the company win new utilities customers globally, many of whom operate on archaic systems in critical need of upgrade. The addressable market for the company globally is substantial, and currently serviced mostly by SAP and Oracle who have legacy solutions ill-fit for the modern needs of utilities customers. A partnership with Salesforce is helping win new business.
Bus and tourism operator Kelsian Group (+11.5%) rallied without specific new news but rather a reminder to investors (via a conference presentation) that they have a number of favourable attributes, particularly in this environment; namely that costs are well hedged through their contracts, that a rebound in tourism is benefitting their Marine and Tourism businesses, and that a strong tender pipeline of bus contract opportunities exists. The recent major acquisition of All Aboard America! was also due to settle imminently, with early indications suggesting that the acquisition should at least deliver to expectations.
Private health insurer NIB Holdings (+9.5%) also presented at a conference revealing net policyholder growth and net margins remained robust. The company also acquired its fourth National Disability Insurance Scheme (NDIS) plan manager, Port Macquarie based All Disability Plan Management. NIB made its first acquisition in the NDIS space only in November 2022, and has been focused on growing this capability under its Thrive brand. Several other acquisitions are under consideration, which if successful, would see Thrive become a top three plan manager in the NDIS. Similarly, fund incubator Pinnacle Investment Management (+8.8%) presented at a couple of conferences and provided updated FUM and flow data to 31 March 2023. Despite a cautious stance across their institutional, financial adviser and individual investor base, net inflows were seen. Markets were positive over the March quarter as well, helping increase FUM levels.
Key Detractors:
The key disappointment for the Fund over May was engineering and manufacturing group Austin Engineering (-25.6%). The company materially downgraded its FY23 earnings guidance, primarily due to their largest customer delaying orders of truck trays. While the contract is signed, actual purchase orders have been delayed; a separate announcement later in the month suggested that 85% of the purchase orders had been received, however the lead times mean that these orders will benefit revenue in the 2024 financial year. Hence, not lost earnings but deferred. Invoice financing firm Earlypay (-24.1%) gave up the gains from the previous month on no news. Earlypay is emblematic of many microcap stocks currently, where perceived risk and illiquidity has resulted in a lack of investor appetite. For stocks tracking near 12-month lows, tax-loss selling has exacerbated poor performance further.
The three remaining key detractors are similar in that they are resources companies (which as mentioned had a tough month). This is despite some positive stock developments. Emerging mineral sands producer Strandline Resources (- 15.3%) has been in the process of ramping up production at its Coburn Project in WA, with its sixth shipment of Heavy Mineral Concentrate (HMC) being completed. ~$60m of revenue has been generated from these shipments to date, with a steady rate of one shipment per month being expected going forward. Remarkably, product is being sold at 40% more than what their feasibility study was based on, given prevailing market prices, a terrific outcome for revenues.
File:April, 2023
The Small Ords Accumulation Index edged its way to a 2.78% gain in April, outperforming large caps by over 1.0%. Industrials performed better than resources, not surprising given the weakness in a number of commodity prices over the month. Sector returns were mixed with REITs making a comeback, technology continuing to improve but consumer discretionary and energy once again lagging the market. Global equity markets had a solid month despite mixed economic news and greater volatility in bond and commodity markets. In the US the Nasdaq took a breather and finished square while the Dow Jones added 2.5% and the S&P500 up 1.5%.
European markets continued to move higher with the UK FTSE up 3.1%. Germany and France added 1.9% and 2.3% respectively, and outside the Nasdaq have been the two best performing major markets over the past year - who picked that? Asian markets also had a solid month with Japan up 2.9%, China 1.5%, Korea 1.0% but Hong Kong slipping 2.5%. Commodities were mixed but the prominent feature was the 17.3% fall in the iron ore price which was driven by easing steel prices and demand both in the US and China.
Gold was steady, as was oil after dipping toward the end of the month. Soft commodities were also particularly weak, with wheat and cotton now losing over 40% each in the past year. In an interesting development in global energy markets, US gas prices hit a 30 year low late in the month and European gas prices are now lower than the wholesale spot price in Australia. Again, who would have picked that? Despite investment markets still changing direction suddenly on economic releases, there has been more underlying consistency.
Bond yields came back on the US bank issues and interest rate rises are clearly biting in most OECD countries but not enough to cause unemployment to rise significantly. While every economy has its nuances, Australia would seem little different. Credit is tighter, the consumer is watchful with spending but still has an income. The budget with its ‘cost of living’ allowances will be slightly stimulatory again.
File:March, 2023
The S&P/ASX Small Ordinaries Accumulation Index finished 1.88% higher in the March quarter with resources slightly outperforming industrials. Large caps fared slightly better than smalls with the ASX100 rising 3.50% for the quarter.
With the lead from large US tech stocks (the Nasdaq was up a robust 16.8% for the quarter) local technology stocks did well together with the gold sector which recovered very strongly. Consumer facing stocks (with the exception of travel related companies) continued to struggle, as did financials and REITs.
Australia was a laggard amongst global markets over the quarter. European markets were particularly strong with France and Germany up 13.1% and 12.3% respectively. The UK still can’t get out of its own way – only up 2.4%. Asian markets were also very strong, Japan up 7.5%, China up 5.9%, Korea and Taiwan up 10-12% each. Commodities were all over the place. Notable rises were gold (up 8.8%) on US Dollar weakness and flight to safety, and iron ore (up 8.1%) but the energy complex, including gas, oil and especially coal was very weak. Soft commodities were also under pressure – both these sector moves will be very important in bringing down inflation in the coming months.
Economic releases were generally stronger than expected during the quarter – as were a number of inflation indicators. This led to bond yields rising on the expectation of continued Central Bank moves. That trend came to an abrupt halt with the collapse of Silicon Valley Bank (SVB) and runs on a number of smaller regional US banks, then UBS having to subsume Credit Suisse, all in March. In that month alone, US 10-year yields moved to a high of 4.036% on inflation fears to a low of 3.330% on banking sector fears before finishing the quarter at 3.573%. So, has fear subsided? Well, it would seem so for the time being. Prompt action by banking regulators and central banks seems to have settled that industry and inflation is clearly coming down. Not surprising that markets finished the quarter on a more optimistic tone.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-31.03.23.pdfFebruary, 2023
The Fund returned -3.18% in February, 0.52% above the benchmark which fell 3.70%.
Key Contributors: Insurance broker, AUB Holdings (+17.4%) continues to perform well. The company released a strong half yearly profit report driven by improving insurance rates in Australia and a solid contribution from its newly acquired Tysers insurance business in the UK. We expect further improvement in the current half from both the domestic business and Tysers as the insurance rate cycle continues to be supportive.
After a poor month in January following a profit update that included a costly contract write-down, utilities services group, Service Stream (+12.9%) released an interim result that provided evidence that the underlying businesses are performing well. This was highlighted by the growth in its telecommunications division that is seeing increased spending by NBN and mobile operators now beginning to roll out their 5G services beyond inner urban areas. While the utilities business dragged on first half margins, fewer weather interruptions this half will see profitability improve.
Bus, ferry and tourism operator, Kelsian (+12.5%) released a solid interim profit result with an exceptional performance from its marine and tourism businesses. It also announced it had been awarded two more Sydney bus concessions that will make it the largest operator in the Sydney metro area for the next seven years. While the stock has been a strong performer for the Fund over the quarter, it’s improving outlook and further contract opportunities gives us confidence of more upside this year. Building services provider, Johns Lyng Group (+7.3%) also released a solid interim.
The stronger than expected result was driven by a large lift in profitability from its catastrophe division with increased work from floods in NSW and Victoria and a contribution from the US following Hurricane Ian. The US based Reconstruction Experts business also performed well with its business pipeline up 20% in the half.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-28.02.23.pdfJanuary, 2023
The Fund returned 5.54% in January, 1.02% below the benchmark which rose 6.56%. Key Contributors: Multi affiliate funds management group, Pinnacle Investment Management Group (+19.1%) bounced strongly in January after a lacklustre couple of months. While higher equity markets helped funds under management, the company has a much broader suite of asset classes and revenue diversity than it did a number of years ago.
Despite this, the Pinnacle share price does seem to trade as a global growth stock proxy due to its holding in Hyperion Asset Management which is a growth focussed equity manager, but only 12% of group FUM. Mining equipment manufacturer, Austin Engineering (+22.8%) performed well in January in line with a number of other mining contractors that continue to see strong demand for product and better pricing. The company is focused on better utilising its presence in the Americas and Indonesia, keeping costs under control and integrating the recent Mainetec excavation bucket acquisition.
Late in the month the company announced an increased manufacturing deal to supply RIO which doubles its order pipeline from a year ago out to late 2024. Debt collector and unsecured lender, Credit Corp Group (+15.1%) also had a strong month. The company has a growing collection business in the US where the credit cycle is much more advanced than Australia, debt books are readily available from credit card lenders and at attractive yields.
This is offsetting the domestic business where credit quality remains sound and credit card balances are exceptionally low. Interestingly, demand for loans from the low credit score part of the market has picked up in Australia which would suggest that inflationary pressures are belatedly starting to bite that sector. As mentioned, most resource companies performed well in January. Copper producer, Sandfire Resources (+14.9%) continued to outperform. The company is progressing well towards early production from its Motheo project in Botswana. First production is still expected before the end of June, a good outcome in an industry environment of cost blowouts and delays. Lithium developer, Liontown Resources (+18.9%) recovered after a rocky December despite announcing significant cost over-runs expected at its large Kathleen Valley project in WA. While the capacity of the project has risen from 2.5 million tonnes per annum to 3 million tonnes under the new specifications, the cost has ballooned from $593m to $895m which results in a funding shortfall of close to $200m that has to be covered over the next year – modest in the project context but the company will have to reassure the market that the revised costs are realistic and conservative.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.01.23.pdfDecember, 2022
The Fund returned 3.76% in the December quarter, 3.77% below the benchmark return of 7.54%.
Key Contributors:
Given the month to month (let alone week to week) volatility in markets and the AGM season, it wasn’t surprising that there were some aggressive stock moves – in both directions. Copper mining company, Sandfire Resources (+47.4%) benefitted from the 9.7% rise in copper prices over the quarter but of more importance was a modest capital raise that addresses the funding of its Motheo project development in Botswana and working capital to explore and expand its reserves at its Spanish MATSA project. These are both long life assets that will provide significant growth for the company over future years and replace the DeGrussa project that is effectively finished. The production infrastructure could be sold to another regional gold/copper operator. Another positive for the company has been the recent decline in European energy prices that has helped lower operating costs at both mine and production facilities at MATSA.
Continuing recovery in the travel sector has seen online travel services company, Webjet (+29.8%) re-rate over recent months. The company released a very strong half year profit report in November that showed bookings already approaching pre-pandemic levels in Australia and European earnings also close to pre-pandemic levels. Pleasingly, the company hasn’t wasted a crisis, with operational improvements and efficiencies being demonstrated in the better margins delivered. The company also produced outstanding cash generation which was used to pay down term debt and return to normal covenant testing well ahead of schedule. Also re-rating over the quarter, was retirement village developer and operator, Lifestyle Communities (+25.7%). Despite the weakness in the overall property market due to rising rates, at the November AGM, the company confirmed that unit sales remained strong, construction was still on track despite the wet weather and pricing also remained solid. Graphite producer, Syrah Resources (+25.6%) had a good quarter despite losing some ground in December. The company announced an extension of its supply agreement of active anode material (AAM, high spec graphite for lithium batteries) to Tesla on completion of their US based Vidalia AAM facility. This will see Tesla account for 37% of the company’s total output along with supply arrangements with both Ford and LG Chemical. Syrah also announced that it had been selected by the US Department of Energy for a grant of up to US$220m to fund the expansion of Vidalia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-31.12.22.pdfNovember, 2022
The Fund returned 6.42% in November, 1.49% above the benchmark which rose 4.92%.
Key Contributors:
Pleasingly, November saw a healthy spread of contributors from a range of different industries and stock attributes. We’ve made mention recently of the increasing level of M&A activity in smaller companies and one of our holdings, software provider, Readytech Holdings (+21.9%) was bid for by private equity manager, Pacific Equity Partners (PEP). The company is still over 10% below the $4.50/s bid price due to uncertainty over the position of its largest shareholder, another private equity firm, Pemba and PEP going through due diligence. We expect a resolution over the next few weeks.
The stronger copper price gave a boost to Sandfire Resources (+45.2%) but it also benefitted from raising capital during the month. While this would normally be counter-intuitive, the issue was entitlement only (to existing shareholders), which meant that the company is well funded for the development of its Motheo copper project in Botswana and repaid a corporate debt facility that was due at the end of 2022. All viewed as positive outcomes for the company. The rise in the gold price saw Gold Road Resources (+29.2%) perform strongly. While the gold price has been weak in US dollars this year, in AUD it’s been remarkably stable and for Australian miners with good projects and low costs (like Gold Road Resources), their profitability has been very strong. The recent strength in the gold price will only help that further.
Key Detractors:
Diversified agricultural services company Elders (-18.5%) released a strong full year profit report in November but a combination of a cautious outlook statement and its longstanding CEO, Mark Allison announcing his retirement, saw the stock sold off aggressively. The caution was based on the potential of wet weather continuing to hinder farmers in the key QLD and NSW markets. The reaction to the CEO’s retirement was probably exacerbated by the loss of the company CFO earlier this year.
International plus size retailer, City Chic Collective (-39.1%) disappointed the market yet again with a trading update at their AGM during the month. Discounting in the US and higher than anticipated fulfilment (transport and handling) costs have had a material effect on margins and while these costs are being addressed, the US online market remains competitive and driven by promotions. In contrast, the Australian ‘bricks and mortar’ store operations showed solid growth and should also have a solid second half – but not enough to offset the difficult trading conditions in the US and Europe.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-30.11.22.pdfOctober, 2022
The Fund returned 3.37% in October, against the benchmark which rose 6.46%.
Key Contributors:
October was a particularly strong month for battery material stocks. While most commodity prices declined (and mining companies with them), the prices of lithium and graphite continued to firm, underpinning those stock prices. The best of which was graphite producer Syrah Resources (+45.7%). As well as overcoming some labour issues at its Balama graphite mine in Mozambique, the company announced a grant from the US Dept. of Energy under the strategic minerals program for US$220m to expand and complete its battery grade graphite facility in Vidalia, Louisiana. This was the largest and most flexible grant under the program and along with offtake agreements with Tesla and LG, places the company as the preeminent natural graphite producer for batteries outside China.
Also benefitting was lithium developer, Liontown Resources (+26.5%). While the company announced a final investment decision in June and two thirds of construction tenders have been issued, early in the month WA regulatory bodies approved all mine plans and construction of the project. This will see it well on the path to producing spodumene concentrate in 2024 from its very significant Kathleen Valley project. Software developer, Readytech Holdings (+13.3%) provides services to businesses and Government with a focus on education and local government. The company has been growing market share and has also made a number of strategic acquisitions in recent years to now be a serious challenger to a number of incumbent operators. For some time, it has traded at a significant discount to its larger peers despite its superior growth, customer acceptance and good management team. We continue to see good upside in the stock. A better month for the property sector helped retirement village developer, Lifestyle Communities (+15.7%) in October. The company is still seeing healthy demand for its product and has an excellent pipeline of both developments and sales opportunities over the next five years. There is also a very different wealth demographic to its customer base that will insulate it from potential mortgage stress in other parts of the market over the next year.
Key Detractors:
Negative surprises are a regular event amongst smaller companies but that doesn’t make copping one that’s held in the portfolio any less frustrating. Electronics and communications manufacturer Codan (-31.7%) did just that with a profit (or lack of it) update at their recent AGM. The mainstay of the company’s earnings over the past few years has been the international sales of its industry leading metal detection units – especially semi-professional units into Africa. A combination of the residual impact of Covid and political instability in some markets has held back sales recovery and led to increased costs. The strong performance from the communications division has not been enough to rescue this year’s profitability. A disappointing outcome.
Also disappointing was the profit warning from infant products retailer, Baby Bunting (-25.9%). The company has faced cost pressures from staffing and logistics but so have many other retailers that have managed them better. These costs were exacerbated by the poor implementation of a new online customer loyalty system that led to higher than expected redemption volumes – further hurting margins. Nickel producer, Panoramic Resources (-23.7%) weakened despite nickel outperforming most metals in October. The company is still in the early stages of production and perhaps there was some worry about its shipment and cashflow profile. Pleasingly, the September quarterly report released towards the end of the month reaffirmed previous guidance supporting a recovery in the stock over the first few days of November. And in a similar vein, domestic gas producer, Cooper Energy (-17.7%) came under pressure during the month. Perhaps it was the politics around gas prices or a short-term dip in daily production but most of its gas is secured on long term contracts and the expected recovery in volumes this month give us confidence in our assessed upside in the stock.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.10.22.pdfSeptember, 2022
The Fund returned 0.62% in the September quarter, 1.09% above the benchmark return of -0.47%.
Key Contributors:
The quarter contained a number of chunky stock moves in both directions, not surprising in a market that has been so volatile on a month-by-month basis and a period that contained the full year reporting season. Mining and infrastructure contractor, NRW Holdings (+44.5%) was a standout contributor over the quarter. The company produced a solid profit for the 2022 financial year and pointed to a good pipeline of contracts and opportunities that will provide growth this year and next. Importantly, management seems to have arrested a number of the cost pressures that were impacting industry margins in the December half of 2021. Another strong performer was lithium company, Liontown Resources (+41.2%). We added Liontown to the portfolio in June after the stock had been sold down to well below our valuation. While not yet producing, the company is fully funded through its development phase and has offtake agreements with some of the worlds leading battery and EV producers. The company’s Kathleen Valley project in WA is one of the world’s larger high grade hard rock lithium deposits with a significant mine life. Our other battery material stock, graphite producer, Syrah Resources (+32.8%) also performed strongly. While still constrained by shipping capacity from their East African port facility, graphite pricing has been rising steadily over the year and with Chinese production (that dominates global production) slowing over the northern winter, that price strength will likely continue.
Pinnacle Investment Management (+20.7%) was a contributor over the quarter despite a 19.4% fall in September with weak global equity markets. The stock almost trades like a geared equity instrument in volatile markets despite having an enviable spread of asset classes and growing businesses amongst its affiliates. Any recovery in markets should see it rerate quickly. And lastly, mineral sands company, Strandline Resources (+22.7%) is now on the cusp of production and cashflow (in the next three months) from its Coburn project in WA. Like Liontown, the project is fully funded, large and has a long mine life. Strandline will become a significant player in the industry having offtake agreements with a number of global customers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-30.09.22.pdfAugust, 2022
The Small Ords Accumulation Index rose a modest 0.58% in August, consolidating the strong rise in July. Resources strongly outperformed industrials despite commodities coming under pressure later in the month.
Global markets were generally weaker with the Nasdaq, Dow Jones and S&P500 all falling just over 4%, European markets posting similar declines and Asian markets holding up better with rises of around 1 %. Commodities (with the usual exception of coal and gas) showed signs of cracking with oil (Brent) down 12.3%, base metals slightly lower and iron ore down 16%. The weakness was largely driven by continued soggy economic data out of China but also the expectation of slowing economic conditions in the US and Europe. All should help reduce the upward pressures on inflation, but Russia's disruptions to European gas supply continues to keep seaborne electricity fuel sources (LNG and thermal coal) at elevated levels in those countries.
August also saw bond yields head back toward the highs of mid-June with the US Fed reiterating its steely focus on lowering inflation whilst data pointed to strong employment, wages and retail spending. A case of the better the economic news, the further the Fed has to squeeze rates up to strangle inflation. The situation in Australia is similar; solid consumer spending and strong employment has been evident during the August profit reporting season, meaning the RBA won't pause its rate rises for some time yet.
So, onto reporting season. In a nutshell, better earnings than expected (off a lowered base) but with cautious commentary leading to downgraded profit forecasts for the 2023 and 2024 financial years. Consensus figures are now expecting a very modest 4.7% growth in Small Ordinaries EPS for the 2023 financial year sharply down from the 16.9% EPS growth posted in FY 2022. While the decline in growth is impacted by a sharp contraction in resource company earnings (down from 57.0% growth in FY22 to a forecast 8.0% growth in FY23), small industrials have seen a steady decline in FY23 EPS growth forecasts from 15.2% to just 3.2% over the past three months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.08.22.pdfJuly, 2022
The Small Ords Accumulation Index bounced 11.4% in July – its highest gain since April 2020 which followed the Covid melt-down in March that year. Industrials performed slightly better than resources, with healthcare, technology and financials leading. In the market bounce, small caps outperformed large caps (ASX100) by over 6% for the month. Global markets recovered with the S&P500 rising 9.1% and the Nasdaq 12.3%. European and Asian markets were also firm with the clear exception of China which retreated 4.3% on subdued economic releases and property sector weakness. The bounce in the US was triggered by a reversal in bond yields, and after the sharp rises of May and June where US 10-year yields reached close to 3.5%, weak US domestic data saw them tumble back to almost 2.5% at the end of June – a catalyst for a rally in tech stocks.
Commodities stabilised after also being very weak in May and June, leading to the recovery in mining equities later in the month and the AUD had a late recovery to finish at US$0.6980
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.07.22.pdfJune, 2022
The S&P/ASX Small Ordinaries Accumulation Index reached another all-time high late in June to finish 8.5% higher over the quarter. Over the twelve months to June 30th, the gain was an impressive 33.2%. The Flinders Emerging Companies Fund rose 8.5% and 37.8% respectively over those periods.
Resource stocks led the market (Small Resources index rising 13.6%) with base metals, battery materials, iron ore and coal prices all strong over the quarter. The top 100 stocks were in line with smaller stocks over the quarter but over the year, smalls outperformed by 5.3%. Global markets continued to rise with both the US and Europe particularly strong on the back of increasing activity levels and bond yields easing. Asian markets by contrast were more subdued with Japan and Singapore posting slight declines over the quarter. Commodities continued to rise with only gold lacking lustre (down 7.2%). Iron ore and coal were standouts rising 30.1% and 41.6% respectively.
Probably the most surprising outcome over the quarter was the retracement in global long bond yields. At the end of March, the US 10 year bond yield was 1.74% with a shrill chorus calling it through 2.00% and inflation pressure beyond doubt. Not to be. Soothing words from the Fed about inflation being transitory, a couple of ho-hum economic releases and yields spent the June quarter in gentle decline to close at 1.47%. Good news for equity valuations, growth stocks and long dated assets
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-30.06.21-1-1.pdfMay, 2022
The Small Ords Accumulation Index was crushed 7.0% in May with technology, battery material and consumer discretionary stocks all very weak. Energy and agriculture stocks performed strongly. Notably, large caps outperformed smalls by a large margin (S&P ASX100 Accumulation only fell 2.2%), creating attractive valuation opportunities.
Global markets fared better with the S&P500 flat on the month, China up 4.6%, Hong Kong up 1.5% and most European markets stronger. Bond yields spiked early in the month but eased on global growth fears to generally finish lower than they started May. The stand-out moves were that of the energy complex – both here and offshore.
International energy prices were on the rise before the invasion of Ukraine. But with a combination of sanctions, bulk coal carrier shortages, Chinese port closures, Australian floods and general energy demand increases, oil, gas and especially coal markets have tightened significantly. Thermal coal rose 31% in May; it is now up 56% for the quarter and 290% for the year. Given that the majority of Australia’s electricity generation is coal fired, and even allowing for long term contracts, the cost of producing power is rising.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.05.22.pdfApril, 2022
The Small Ords Accumulation Index slipped 1.50% in April, with resources once again outperforming industrials - but not to the same degree as in previous months. It was the more defensive sectors that performed well, utilities and consumer staples in particular, while technology and consumer discretionary stocks struggled.
Global equity markets were led lower by the sharp drop in the Nasdaq in the US which was down 13.3% for the month. Even the broader S&P 500 fell 8.8%. Some lacklustre quarterly results from large tech companies plus rising rates and inflationary pressures all impacting sentiment. US 10 year bond yields, which spooked markets when they went through 2.0% in March, looked likely to breach 3.0% by the end of April, undermining long term valuations on ‘high growth’ tech and healthcare stocks around the world.
Other global equity markets struggled with the same underlying trends. Chinese and Hong Kong stocks were particularly weak but, they had the added impact of significant Covid lockdowns. European markets held up better and the UK FTSE was marginally higher over April. Commodity prices were mixed. Base metals drifted off (although aluminium was down 13%), but thermal coal continued to rise strongly, up 24% for the month (now up 255% for the 12 months) on supply constraints
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-30.04.22.pdfFebruary, 2022
The Fund returned -3.19% in February, -3.19% behind of the benchmark which returned -0.01%. A challenging month in the small cap space with a number of stocks moving very sharply on profit results that were often only marginally above or below analyst expectations.
Key Contributors: Construction and engineering contractors had performed poorly over the past six months, largely on fears of higher costs and supply chain issues with materials, despite demand being high for their services. While this was true, some stocks seemed to have de-rated far too hard. We added mining and infrastructure contractor, NRW Holdings (+36.3%) into the portfolio in December on that basis, with added confidence post the company’s AGM update in late November. It operates in key sectors that are seeing solid growth in expenditure. Management have addressed contract risk to better reflect underlying cost pressures and are winning new business. We expect the stock to continue to perform well into 2023 with their current book of business and to win more.
Utilities and telecommunications service provider, Service Stream (+19.9%) released a solid interim profit result and confirmed earnings guidance for the full 2022 financial year. Concerns that the company would struggle to contain costs and incur delays and staffing issues during lockdowns and Omicron has kept the stock subdued recently but the company is integrating the acquisition of Lend Lease Services well and successfully growing other parts of its business. Gold companies Silver Lake Resources (+25.9%) and Ramelius Resources (+13.9%) both performed strongly with the move up in the gold price. Both are in the portfolio for their growth prospects, consistently good use of capital and excellent cash generation. The improving gold price is a bonus. Both remain undervalued.
Key Detractors: February saw an acceleration in the sell-off of unprofitable companies as risk aversion increased. Medical imaging software company, 4Dmedical (-36.4%) was one we own in the portfolio. The company has exceptional technology which captures lung scans while a patient is breathing which greatly improves the ability to diagnose lung disease and infection. The company has FDA approval in the US where it is working with the Department of Veteran Affairs and TGA approval in Australia where it is currently introducing its technology into the national imaging group, iMed. The company has a solid cash balance and will sign more distribution deals throughout this year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-28.02.22.pdfJanuary, 2022
The Fund returned -7.44% in January, 1.55% ahead of the benchmark which returned -9.00%. A challenging month in markets with a sharp lift in volatility and sectoral shifts. In general, not being overweight expensive names or unprofitable and speculative companies has helped our relative performance in the last couple of months. Key Contributors: With the global jump in energy prices, it wasn’t surprising to see our two domestic gas producers, Beach Energy (+17.5%) and Cooper Energy (+7.1%) were amongst our best performers in January. While Beach has contracts that are linked to the oil price, most of its production is based on the domestic wholesale gas price (which has also been strong in recent months). Cooper’s contracts are purely domestic gas price based. One international factor that does impact the domestic gas price is the global price of LNG. With significant production of LNG from the QLD coalseam fields, high global prices result in less gas from those fields being sold into the East Coast local market, forcing prices up. This is expected to be the case for some time yet.
Also continuing to perform well was medical industry consumables company, Trajan Group Holdings (+7.7%). The company announced three acquisitions through November and December, all which will add to the company’s future growth profile in high end products into the medical equipment industry. They also broaden the company’s offering in the US market and with the acquisition of Axel Semrau, give the company a valuable strategic foothold into the European market.
Nickel and lithium producer IGO Limited (+2.4%) benefitted from the continued strength of its major two commodities as the demand for electric vehicles (and hence Li-Ion batteries) continued to rise. Sales of EVs in 2021 reached 6.5 million, more than twice the 3.1m sold in 2020. Further strong growth is expected this year along with supply constraints in a number of key materials
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.01.22.pdfDecember, 2021
The Fund returned 1.04% in the December quarter, 0.99% below the benchmark return of 2.03%.
Key Contributors:
The stand-out performer for the quarter was graphite producer, Syrah Resources (+70.0%). A good deal of the price rise came in December when the company announced an off take agreement for future battery anode graphite production with Tesla. Syrah already produces refined natural graphite from its Balama mine and production facility in Mozambique. It is the largest high grade graphite deposit in the world and the only one of significance outside China. The company is now close to final investment decision (FID) on manufacturing battery grade graphite at its US plant using its Balama graphite as a feedstock. We expect the Tesla agreement to be the first of more supply deals, but certainly the largest.
Following a significant acquisition in the US, property services company Johns Lyng Group (+49.1%) continued to rerate (the stock is up 190% for the year). In December the company announced the acquisition of US based Reconstruction Experts (RE) for US$144m plus earnout provisions. Like Johns Lyng, RE is a provider of insurance focused repair services to residential properties. Operating in 4 of the most populous states in the US, the business is profitable, growing, has an established and experienced management team and is highly accretive to Johns Lyng at the acquisition price.
Nickel and Lithium producer, IGO Limited (+29.2%) performed well with strong prices for both basic and refined lithium products continuing. The company also announced the agreed acquisition of fellow WA nickel producer, Western Areas (WSA). While in the short term there is limited value added from the merger of both company’s nickel operations, WSA’s significant Odysseus/Cosmos project will add over 10 years of low-cost production from 2023. Medical device and consumables manufacturer, Trajan (+25.8%) had another strong period driven by a number of complimentary and strategic acquisitions enhancing its position as a growing international supplier of high-end consumable products to the diagnostics industry. The largest of the companies acquired, Axel Semrau, based in Germany specialises in laboratory chromatography software and detection – similar to products currently manufactured by Trajan. Importantly, it gives them a European presence to add to their Australian, Malaysian and US operations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-31.12.21.pdfNovember, 2021
The Fund returned -2.06% in November, 1.75% behind the benchmark which returned -0.31%. November was almost as much about what wasn’t in the portfolio as opposed to what was.
Key Contributors:
Payments technology and card solutions company, EML Payments (+22.0%) bounced following an update as to the discussions with the Central Bank of Ireland (CBI), it’s European regulator. The CBI has been investigating EML’s European card and payments subsidiary for regulatory compliance and it now seems that the majority of those investigations and new regulatory details are close to finalisation. This is important as the company has significant growth opportunities in re-loadable cards, loyalty programs and other payment systems in Europe. The market had sold down the stock on fears that licences to operate would be lost. This is clearly not the case, and the share price is now recovering to more reflect opportunities in Europe, the US and Australia.
Building services provider, Johns Lyng Group (+14.8%) continued to perform well with its underlying services division growing strongly but also a number of significant insurance events hitting the East coast of Australia in November; floods in NSW and QLD and damaging storms in Victoria. While the company doesn’t forecast catastrophe work and separates these earnings from underlying services, it continues to prove a consistent source of cash flow. Residential development broadband provider, Uniti Group (+8.9%) continues to perform well for the portfolio. The company provided a business update at its AGM during the month which suggested that activity and connections are continuing to grow strongly and customer acquisition is also on track. Uniti continues to win market share from NBN in new developments and is now moving into new commercial developments with success – a significant growth market.
Lithium and nickel producer IGO Limited (+9.3%) had another strong month. The company is benefitting from higher commodity prices (both nickel and lithium have risen considerably this year) and it continues to look at growth opportunities through acquisition. IGO is particularly well placed to benefit from the growth in electric vehicles and energy storage with both its major products being a vital part of battery production. And unlike many of its high-flying peers, it already has production of both commodities from world-class, low-cost assets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-30.11.21.pdfOctober, 2021
The Fund returned -0.94% in October, 1.86% behind the benchmark which returned 0.92%. October was a frustrating month for the Fund as a small number of our stocks had business updates leading to some hefty share price falls. Frustrating in that most of the portfolio performed solidly. Switching the usual format, we will start with the key detractors as they are at the core of the underperformance for the month and need explaining
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.10.21.pdfAugust, 2021
The Fund returned 2.33% in August, 2.64% behind the benchmark which returned 4.98%. The bulk of the holdings in the Fund met or exceeded expectations during reporting season, however two temporary factors impacted relative performance: 1. The resource companies in our portfolio (as part of the sector generally) took a breather on the back of weaker commodity prices; and 2. uncertainty around the impact of lockdowns on near term earnings forecasts for some of our stocks resulted in share price weakness. In our view, these are transitionary events and hence we have selectively added to our positions where we believe a mispricing opportunity exists.
Key Contributors: Fund manager umbrella group, Pinnacle Investment Management Group (+32.4%) continued to perform well for the Fund as markets moved higher but most importantly, many of their fund affiliates saw strong fund inflow and generated performance fees. This is expected to continue in the current half. With a broadening number of asset classes in the group and many with significant capacity, we see continued strong growth from the company. Also continuing recent strong performance was telco infrastructure company, Uniti Group (+24.4%). Their full year profit result exceeded expectations and the outlook for the 2022 year (and certainly beyond) is strong with a pipeline of new dwelling and commercial developments, plus market share gains from NBN with a number of property groups. The attraction of their long-term assets (optic fibre direct to premises) with minimal forward capital expenditure has seen the market re-rate the company in line with more traditional fixed infrastructure valuations.
Key Detractors: Trans-Tasman childcare operator, Evolve Education Group (-17.8%) released their interim profit result which was in line with expectations, however the company unsurprisingly withdrew CY21 guidance given recent lockdowns in New Zealand, Sydney and Melbourne. Given last years’ experience, we can reasonably say that governments will support what is considered an imperative industry, yet the stock came under pressure, nonetheless. Importantly, the company is well capitalised and we expect acquisitions to continue. The previous CY22 earnings guidance was retained, highlighting the earnings power of the current asset base. Another holding that is suffering from the lockdowns is radiology and imaging company, Integral Diagnostics (-12.8%), due to lower patient numbers as people defer scans for elective surgery. That combined with a level of fixed costs that are difficult to reduce and higher radiologist costs have crimped margins. That said, the company will certainly benefit from opening up next year, is well run, and has the capacity to make further acquisitions if market opportunities arise.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.08.21.pdfJuly, 2021
The Fund returned 2.08% in July, 1.40% outperforming the benchmark which returned 0.68%.
Key Contributors: In the past few months we have participated in a number of IPOs that stood out as companies we are happy to invest in – not because we thought there might be a short-term trade. Good market positions, experienced management teams and coming to the market for the right reason – to access growth capital. And attractive valuations to finish the tick sheet. One of those companies, Trajan Group (+35.4%) was an excellent contributor to performance in July. Trajan is a Melbourne based developer and manufacturer of specialised consumable components for medical equipment. It has R&D teams and manufacturing in Melbourne and the US and further manufacturing in Malaysia. It has grown organically and by strategic acquisitions and continues to be founder-led. We gained a starting position through the IPO process and bought stock on market in the first days of listing to our required holding.
We mentioned battery related stocks earlier in the report and the sector has done remarkably well. However, some of the stocks are on valuations that imply commodity prices (mainly lithium but also cobalt) that we consider unrealistic despite the enormous growth in electric vehicles and battery storage expected over the next two decades. We currently have three stocks in the portfolio exposed to that industry (to varying degrees), IGO (+22.0%), Syrah Resources (+35.7%) and Mineral Resources (+17.3%). All have valuation upside with modest commodity assumptions and in all cases, they are currently producers that are growing. And importantly, all are capitalised appropriately for their growth plans – which is rare amongst their peers.
Key Detractors:
Online ready to cook meal provider, Marley Spoon (-30.7%) fell as it released quarterly figures suggesting that despite strong revenue and subscriber numbers, expenses were running above expectations. This was particularly evident in the US where wage pressures, logistical challenges, and price inflation in other inputs reduced margins. The company has also been investing in new facilities to service the growth opportunities they have – resulting in a period of negative cashflow. However, some of these factors are transitory, and the company has pricing power with its products, so we expect a reversal in the December half, and the company has ample cash availability.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.07.21.pdfJune, 2021
The S&P/ASX Small Ordinaries Accumulation Index reached another all-time high late in June to finish 8.5% higher over the quarter. Over the twelve months to June 30th, the gain was an impressive 33.2%. The Flinders Emerging Companies Fund rose 8.5% and 37.8% respectively over those periods.
Resource stocks led the market (Small Resources index rising 13.6%) with base metals, battery materials, iron ore and coal prices all strong over the quarter. The top 100 stocks were in line with smaller stocks over the quarter but over the year, smalls outperformed by 5.3%. Global markets continued to rise with both the US and Europe particularly strong on the back of increasing activity levels and bond yields easing. Asian markets by contrast were more subdued with Japan and Singapore posting slight declines over the quarter. Commodities continued to rise with only gold lacking lustre (down 7.2%). Iron ore and coal were standouts rising 30.1% and 41.6% respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Quarterly-30.06.21-1.pdfMay, 2021
The Fund returned -0.05% in May, marginally behind the benchmark which returned 0.27%.
Key Contributors: Unsecured consumer lending company, Wisr (+30.6%) announced a positive quarterly update late in April. The company had grown its loan book by 26% in the March quarter over the December quarter to $346m, and revenue was 27% higher over the three months and 275% higher than the same period last year. In a separate announcement in May, Wisr securitised $225m of consumer personal loans (of which the top tranche was rated AAA by Moody’s) which were offered to various fixed income institutional investors; this development provides strong validation to the quality of the business operations and underwriting performance, and effectively reduces the cost of funds to Wisr. Two of our gold stocks, Ramelius Resources (+15.9%) and Silver Lake Resources (+15.2%) performed in lockstep as the gold price recovered over the month. Both released quarterly reports largely in line with expectations at the end of April, which was quite a good outcome given the disappointing quarterlies from many other gold producers.
Telecommunications infrastructure operator, Uniti Group (+7.9%) continued to rerate (it is up 39.1% in the past quarter). Given that most of its business is fibre cable in new developments, the current housing industry strength is no doubt helping. Its increased scale following the acquisition of OptiComm and Telstra Velocity will be making a large difference in its ability to work with major developers and compete successfully with NBN. We also feel that NBN’s current issues with systems and managing new connections, plus the new expansion program replacing the fibre to the node network, will provide opportunity for Uniti to push more aggressively into the new development market.
And lastly, domestic gas producer Cooper Energy (+12.2%) had a good month after a difficult previous quarter. The problematic production issues at APA’s Orbost gas treatment plant (where all Cooper’s Sole gas it treated) have not been solved but at least a more consistent (albeit lower) production rate has been reached.
We also expect APA to keep working to lift throughput levels to the contract agreement in order to avoid continued compensation payments to Cooper. Key Detractors: When a central bank informs a financial services company that they have major issues with their money laundering and terrorist financing regulation compliance, it will always send a shiver through investor’s questionable spines. Gift, loyalty and reloadable card issuer and open banking aspirant, EML Payments (-41.9%) received just that letter from the Irish central bank. EML’s purchase last year of UK based PFS had recently moved domicile to Ireland from the UK to provide regulatory supervision for all its EU operations following Brexit.
While these issues are extremely important, the outcomes are not without precedents and the procedures are not unusual. We would expect an outcome within a quarter and a fine the most likely result. Loss of 40% of the company’s value (over 50% at one stage) would look considerably overdone. We have been buyers of the stock at these levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-31.05.21.pdfApril, 2021
The Fund returned 5.94% in April, 0.96% ahead of the benchmark which returned 4.98%.
Key Contributors: Think Childcare (+33.8%) received what looks like a final (recommended by the TNK board) bid from UK based childcare operator, Busy Bees. The $3.20 per share offer is 52% above their previous bid of $2.10 and 300% above the level the stock was trading in the middle of 2020. A good result for our investors. Also helping performance was copper producer, Sandfire Resources (+25.8%). While the copper price has been strong, Sandfire had badly lagged its peer producers. This has largely been due to the short mine life at its DeGrussa project in WA. With the recent announcement that the company’s Botswanan Motheo copper project had reached FID, plus the exceptional cash generation from DeGrussa to fund it, we see the company in a significantly improved longer term position.
Emerging telecommunications infrastructure company, Uniti Group (+20.4%) performed well as it confirmed that the integration of the recent acquisitions of OptiComm and Telstra Velocity were going as planned and had provided much improved market exposure for them to win new projects. Given their focus on rolling out fibre cable in new housing developments and the strength of that sector, we expect the opportunity to win new infrastructure build contracts to rise sharply. Iron ore and lithium processor and miner, Mineral Resources (+25.6%) continues to go from strength to strength with its exposure to both iron ore volumes in its processing business and price through its producing assets. Added to that is the rising price of lithium and what we would expect to be the re-start of production from its significant Pilbara Wodgina project in the not-too-distant future.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Flinders-Monthly-30.04.21.pdfNovember, 2020
The Fund returned 9.1% in November, 1.1% behind the benchmark rise of 10.3%
Key Contributors:
We certainly don’t hold stocks in the portfolio for a potential takeover, but with a focus on growing companies that we think have considerable valuation upside, it will occasionally happen. Think Childcare (+63.4%), is a company we have had in the portfolio for some time and had been recently adding to. It received takeover bids from two different companies in November. With the childcare industry stabilising and enrolments rising again, a number of the listed operators had seen their share prices left behind. Think Childcare had been an extreme example of this. Despite the seemingly large premium in the bid, we still feel there is value in the stock and continue to hold it in the portfolio. Online travel company, Webjet (+65.3%) rose sharply following the announcements from vaccine developers that scale production would be likely early in the new year. With domestic borders opening and travel bookings rising, revenues will be rising and better conditions within the European market next northern summer is also likely.
Infrastructure and mining contractor, NRW Holdings (+21.6%) saw support after announcing the proposed acquisition of listed engineering company, Primero Group. The $100m price is a 50/50 split of cash and scrip and is earnings accretive. Continued high levels of investment activity in mining and infrastructure also helped confidence in the company’s outlook. Debt collector and unsecured lender, Credit Corp Group (+29.8%) had a very strong month as confidence in the domestic economic recovery grew and financial stocks re-rated.
With debt relief in decline, banks will be increasing the sale of past due accounts for recovery – increasing activity levels for Credit Corp. This will continue to gather pace into 2021 and with fewer players left in the debt recovery market due to consolidation, we expect the company to return to a healthy growth profile.
Key Detractors:
Gold stocks sold off aggressively late in the month as the gold price eased. As often happens, the selling in gold equities (not helped by ETF redemptions) far outweighs the real impact from a weaker bullion price. The three gold stocks in our portfolio, Ramelius Resources (-12.7%), Silver lake Resources (-16.1%) and Gold Road Resources (-9.5%) collectively had the largest negative impact on performance during the month although we remained underweight the overall gold sector. Perhaps linked to the weaker gold price was the performance of electronic product developer and manufacturer, Codan (-10.1%). One of its three main divisions develops metal detectors – often used by artisanal gold miners. The company is going exceptionally well, has solid valuation upside and we hardly think a 5% dip in the gold price is going to change the buying habit of a prospector.
Pre-prepared meal ingredient company, Marley Spoon (-18.7%) came under selling pressure following a dilutive capital raising late in October and also negative sentiment associated with the announcement of a Covid vaccine. While the company saw improved sales due to lockdown measures earlier this year, sales have continued to grow in its key markets when these measures have been withdrawn. We remain confident that the company has a significant global growth path in an emerging industry.
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Flinders Emerging Companies B is designed to provide medium to long term capital growth potential and seeks to outperform the S&P/ASX Small Ordinaries Accumulation Index by 5% per annum before fees over rolling three year period. The fund will invest in a diversified portfolio of stocks comprising listed companies that are outside the S&P/ASX 100 Index (90%-100% of the fund) with the remainder of the fund in cash(0%-10%).
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