September, 2023
The Fund fell 3.6%1 (net of fees) in September, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, decreasing by 4.0%. Since inception (May 1998) the Fund’s return is 11.6%1 p.a. (net of all fees), against the Index’s 5.2% p.a.
Aussie Broadband(ABB) rose 15.1% in September, with the stock climbing higher as a resolution appears increasingly likely to the extended NBN Co SAU variation process. In August, management highlighted a renewed focus on potential acquisitions after the successful integration of Over The Wire and swiftly followed through with a non-binding indicative offer for Symbio Holdings (SYM) late in the month. ABB’s $3.15 per share cash and scrip bid secured 3 weeks exclusivity with competing bidder Superloop (SLC) confirming their Best and Final Offer has lapsed. The accretive acquisition would significantly boost ABB’s capability and scale in the voice space and add a number of large enterprise customers, furthering the company’s diversification away from core broadband into a complete telco offering.
Domain Holdings Australia (DHG) rose 3.9% in September. The stock drifted higher off the back of positive revisions to market expectations for FY24 new listings following positive recent data points from CoreLogic and PropTrack. The Australian property market experienced an unseasonably strong winter with YoY growth in national listings turning from -5% in July to +4% in August with further improvement likely in September. The market recovery has been led by Sydney and Melbourne which saw listings growth of +18% and +21% respectively in August, areas where DHG overindexes. The outlook remains positive into the key spring selling season with stability in interest rates likely to support strengthening consumer confidence.
Deterra Royalties (DRR) rose 7.6% and Champion Iron (CIA) 3.5%, as growing expectations of People’s Bank of China stimulus held up the iron ore price over the month. DRR continues to provide long-term exposure to long-term royalty cash flow out of BHP’s flagship Mining Area C, while also receiving one-off payments as production reaches nameplate capacity. CIA offers exposure to high-grade iron ore out of their Bloom Lake project that should be a substantial beneficiary of a decarbonisation of the steel industry.
Bellevue Gold (BGL) fell 18.1% upon a drop in the gold price. During the month, BGL provided a strong drilling update, also confirming they remain on track for first production in the upcoming December quarter. The update also noted the second campaign of toll treating is underway, which should alleviate any funding concerns. We remain positively disposed to the attractive economics of the project and its tier-1 location.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/205264277.pdfAugust, 2023
The Fund rose 0.4%1 (net of fees) in August, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, decreasing by 1.3%. Since inception (May 1998) the Fund’s return is 11.8%1 p.a. (net of all fees), against the Index’s 5.4% p.a.
Aussie Broadband (ABB) rose 29.8% in August. The company reported $89.6m EBITDA (guidance: $85-90m), with their continuing growth trajectory supporting forward guidance for $100- 110m FY24 EBITDA. Management highlighted the high margin opportunity into FY24 from Enterprise & Government with $10m new unbilled revenue and a growing sales pipeline. During the month NBN Co also lodged their latest SAU variation which dictates their wholesale pricing. NBN Co selected ABB’s preferred “Option 2” pricing structure and received positive early feedback from the ACCC suggesting the SAU could be implemented before the end of 2023. This should provide cost certainty for retailers and specifically benefit ABB through reduced costs for higher speed plans.
Redox (RDX) rose 12.5% in August, with the share price performance driven by a pleasing maiden earnings report. The FY23 result was ahead of Prospectus forecasts on almost all lines of the income statement, resulting in underlying NPAT of $89.1m coming in 10% ahead of Prospectus of $81.3m. Moreover the strong FY23 result augurs well for another Prospectus beat in FY24. We remain attracted to Redox, as it is a family-founder led company, with a long track record of earnings growth, net cash balance sheet and trading at an undemanding valuation.
Nick Scali(NCK) rose 16.9% over the month of August on the back of a strong FY23 result that exceeded market expectations. Despite a deteriorating consumer backdrop, the result highlighted that management are doing a good job controlling the factors they can control – disciplined cost management, integration of Plush and tight management of inventory. NCK remains a high-quality retailer with a strong balance that we believe will continue to find ways to grow.
Judo Capital (JDO) closed the month down 32.6%. Despite meeting strong loan growth targets the stock saw an uptick in arrears and past due loans. Market concerns remain around how higher rates will translate into loan losses and impact future capital levels. The use of higher cost wholesale funding in the short term to repay the term funding facility (versus term deposits) will see FY24 net interest margins (NIM) decline below the targeted 300bp level. Ongoing securitisation issuance should see a more even balance of funding by FY25 and drive a NIM recovery to levels back above 300bp. JDO looks undervalued.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/204158730.pdfJuly, 2023
The Fund rose 4.9%1 (net of fees) in July, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, increasing by 3.5%. Since inception (May 1998) the Fund’s return is 11.8%1 p.a. (net of all fees), against the Index’s 5.5% p.a.
Credit Corp (CCP) rose 19.2% during the month, with the strong performance driven by industry feedback that the pricing of new debt ledger purchasers in the US had begun to soften, boding well for CCP’s future earnings in that segment. The strong performance in July was somewhat offset at the beginning of August when CCP reported its FY23 result . While the FY23 result was solid, meeting market expectations, the outlook for FY24 was weaker than expected due to what we view as extremely conservative guidance.
Monadelphous Group (MND) rose 16.2% in July. The company announced a series of key contract wins with $150m awarded across new and extended contracts with FMG, BHP and RIO, followed by a $200m award by Albemarle for SMPEI work on the expansion of the Kemerton lithium hydroxide plant. We remain positive on the forward pipeline for MND supported by management commentary that the Albemarle contract is “the first in a new wave of major construction projects to come to market”. MND disclosed their intention to vigorously defend a $80m claim against them by UnityWater in relation to design and construction of an upgrade to the Kawana Sewerage Treatment Plant.
PSC Insurance (PSI) declined 14.5% in July on the back of an unusual +16.2% Junemove. Removing the financial year end noise it rose a more normalised 1% over the last 2 months. In early August, PSC announced $111m EBITDA for FY23, up a strong 19%. PSC also guided to $122-127m of EBITDA in FY24 excluding any acquisitions. The interesting element of the FY24 guidance is that it is consistent with the earnings anticipated when PSC believed they would complete the proposed acquisition of 50% of Tysers in the UK. Core business performance and ongoing acquisitions have filled the earnings gap post AUB reneging on the Tysers deal.
Judo Capital (JDO) rose 15.2% in July post announcing the company had hit $8.9bn in gross loans as at 30th June. This 46% growth over the last 12 months was driven by increased banker activity and ongoing market share growth. While current market conditions are likely to see loan losses increase for the system, we believe that Judo is well placed to navigate these headwinds and use the well capitalised balance sheet to fund future growth.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/203647327.pdfJune, 2023
The Fund rose 3.5%1 (net of fees) in June, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, flat for the month. Since inception (May 1998) the Fund’s return is 11.7%1 p.a. (net of all fees), against the Index’s 5.3% p.a.
FleetPartners Group (FPR) rallied 18.4% during June. The stock has benefited from positive sentiment around the EV transition across Aust & NZ. The Electric Car Discount policy, providing FBT exemption for EVs in company fleets and novated leases, has also had a halo effect on increased awareness of the advantages of novated leasing. The ongoing buy-back program continues to support the share price with $43m undertaken in 2H23.
Credit Corp (CCP) rose 16.2% over the month as sentiment around the stock improved. The US debt purchasing business is benefitting from macro tailwinds with Q123 US credit card and revolving balances 14% above pre-pandemic levels. Ongoing increases in delinquency rates are expected to result in higher charge-offs and increased purchased debt ledger supply. In Australia, Q123 Equifax data showed total unsecured credit applications +7.5% and credit card applications +20.9%.
NRW Holdings (NWH) rose 16.1% in June. NWH continued a run of new work award announcements with a letter of intent signed with Allkem to provide mining services work at the Mt Cattlin lithium mine in Western Australia. The contract has an estimated value of $332m over 36 months. This was well received by the market as investors gained increased comfort that the delays in new contract awards (highlighted by management at the 1H23 result in February) are now being resolved and the enormous pipeline of work across the industry can begin working towards being realised. We remain positive on NWH and expect further new contract wins to be announced over the months ahead.
Infomedia (IFM) rose 14.3% over the month of June. IFM announced the appointment of Chantell Revie as CFO (from deputy CFO). Former CFO Gareth Turner was appointed to the newly created role of Chief Commercial Officer to focus on pricing strategy, contract management and automated business systems.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/202174261.pdfMay, 2023
The Fund fell 3.4%1 (net of fees) in May, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, decreasing by 3.3% over the month. Since inception (May 1998) the Fund’s return is 11.5%1 p.a. (net of all fees), against the Index’s 5.4% p.a.
Omni Bridgeway (OBL) rose 17.5% following the release of their Q3 update and the announcement of a further secondary market sale. OBL’s estimated portfolio value was up 4.4% over the quarter with 72% of their FY23 commitments target having now been achieved. The US$38m secondary market sale highlights the ongoing process of OBL managing duration across their funds.
NIB Holdings (NHF) rallied 9.5% on the back of a strong operational update and further expansion into NDIS plan management. NHF upgraded FY23 Australian residents’ health insurance net policyholder growth to 4-5% (from 3-4%) and New Zealand net policyholder growth to 4-5% (from 3-5%). Travel and International businesses continue to be strong. In the month NHF acquired All Disability, a Port Macquarie-based NDIS plan manager.
Smartgroup Corporation (SIQ) rose 8.0% in May post a Q1 update noting positive momentum with growing electric vehicle demand. EVs accounted for +20% of total novated leasing quotes in Q1, up from 15% in 4Q22 and <1% a year earlier(both direct and corporate customers). The Q1 NPATA run rate was in line with 2H22, a particularly strong result given the loss of major client DET Victoria last year and ongoing automotive supply constraints. Lifestyle Communities (LIC) fell 11.4% in May post revised settlement guidance down 40 to 355-365. The weaker housing market sentiment causing customers to hesitate listing their existing homes. Despite this reduction to FY23, LIC reiterated their guidance for FY23-25 of 1,400-1,700 new home settlements implying a significant ramp up over the next two years. Average cap rates in their preliminary portfolio valuation were essentially flat (-4bps to 5.14%), reflecting the resilience of the land lease sector. Eagers Automotive (APE) fell 12.7% over the month, on the back of a softer AGM trading update. Despite maintaining full-year guidance of $9.5b -$10b in sales, PBT was flat for the period to April. This compared to consensus expectations of 13% growth over the half, leading to subsequent FY23 earnings downgrades. While the company pointed to ongoing challenges in vehicle supply and cost pressures across the broader economy, we believe these will be transitory. We remain of the view that an elevated orderbook and the EV JV with BYD will support earnings over the medium term.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/200878298.pdfApril, 2023
The Fund rose 2.4%1 (net of fees) in April, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, increasingby 2.8% over the month. Since inception (May 1998) the Fund’s return is 11.7%1 p.a. (net of all fees), against the Index’s 5.5% p.a.
MA Financial(MAF) rose 16.7% during April as investors’ concerns regarding the future of Significant Investment Visa (SIV) inflows eased. The review noted the relative strength of outcomes of the SIV program relative to the broader Business Innovation and Investment Program. MAF also announced the acquisition of the d’Albora marina portfolio for $225m as part of the launch of their new MA Marina Fund. The sellers, Balmain Corp. chose to remain invested via the new fund, underwriting the attractiveness of the proposal.
IPH (IPH) rose 9.7% in April following better than expected updates in late March and mid-April regarding the cyber incident discovered earlier in March. IPH’s investigation found downloaded data was limited to a small number of Spruson & Ferguson clients with most IPH member firms unaffected. Further to this, IPH was able to quickly return to normal operations with key system functionality restored on new network infrastructure. IPH quantified the impact of the cyber incident to date announcing a $4.4m March revenue shortfall and $2-2.5m estimated one-off costs in FY23. IPH also confirmed Smart & Biggar achieved the full earn-out payment of C$66m reflecting strong performance post-acquisition.
NIB Holdings (NHF) rallied 9.5% over the month following ongoing expansion into the NDIS that was announced in late March. NHF purchased Brisbane-based Connect Plan Management and entered into an agreement to purchase All Disability Plan Management. The company expects to be the plan manager of approximately 50,000 participants by FY25 under their nib Thrive banner. Given the increased scrutiny of the NDIS, NHF’s entry into the space should provide a welcome improvement in oversight, controls, and the overall quality of outcomes for participants.
United Malt Group (UMG) fell 7.4% in April following a downgrade of 1H23 underlying EBITDA guidance. Previous guidance of $58- 66m most recently reaffirmed at their February AGM was reduced to $51m primarily driven by lower volume partially offset by improved commercial terms (-$4m) and a 2-month delay to the new Inverness facility start up (-$3m). Despite this weakness, UMG reaffirmed FY23 underlying EBITDA guidance of $140-160m supported by improving volume and margin trends through 2Q23. Following the $5.00 per share bid by Malteries Soufflet last month we exited the majority of our position at higher levels
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/200130319.pdfMarch, 2023
]The Fund fell 1.2%1 (net of fees) in March, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, decreasing by 0.7% over the month. Since inception (May 1998) the Fund’s return is 11.7%1 p.a. (net of all fees), against the Index’s 5.4% p.a.
United Malt Group (UMG) rose 33.1% in March after receiving a conditional, non-binding and indicative proposal to acquire all ordinary shares for $5.00 cash (+45.3% to last close) from Malteries Soufflet, the second largest maltster globally. The bid was the fourth received by UMG over the last 4 months post a period of share price underperformance. It highlights the significant strategic value in UMG’s global asset footprint in a period of broader industry consolidation. Malteries Soufflet has been granted an exclusive 10- week due diligence period to assist it in providing a binding proposal.
Global financial sector instability saw the AUD gold price rally to record highs, resulting in domestic miners Silver Lake Resources (SLR) and Gold Road Resources (GOR) rising 16.4% and 16.0% respectively. Our focus remains on production growth out of SLR's Deflector asset as well as the operational turnaround at the recently acquired Sugar Zone project. Additionally, GOR's prospects are promising with improving grade at Gruyere and the investment in De Grey Mining (DEG) offering strong upside potential.
Monadelphous Group (MND) rose 6.6% in March. The company announced $125m of new contracts and contract extensions with work across the lithium, iron ore and LNG sectors in WA, bringing total contract wins in FY23 to approximately $1.1b. MND also announced the closure of Buildtek, their 90% owned Chilean construction and maintenance services business. The Chilean resources sector has been significantly impacted by COVID which impacted Buildtek’s financial performance and significantly increased its working capital requirements. Buildtek contributed 5% of total revenues in FY22 and thus the cessation of operations isn’t expected to have a material impact on net assets or FY23 earnings. MND reiterated their previous FY23 guidance provided at the 1H23 result.
NRW Holdings (NWH) fell 1.8% in March. During the month the company announced the acquisition of OFI Group, a specialist in electrical engineering services and integration for $4m. OFI Group has an established history working with NWH’s RCR business and should enhance the capabilities of the METS division with expected FY24 revenue contribution of $40m. Additionally, NWH announced 2 new contracts won by the METS division with Fortescue Metals Group (FMG) with a total value of $64m.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/198666326.pdfFebruary, 2023
The Fund fell 4.8%1 (net of fees) in February, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, decreasing by 3.7% over the month. Since inception (May 1998) the Fund’s return is 11.8%1 p.a. (net of all fees), against the Index’s 5.5% p.a.
Listed car dealers Eagers Automotive (APE) and Autosports Group (ASG) rose 19.9% & 0.5% respectively off the back of strong earnings results in February. APE delivered Profit Before Tax (PBT) (adj) of $405.2m, in-line with expectations and set a FY23 revenue target of $9.5 - $10b, underpinned by FY22 acquisitions, BYD Auto sales, and organic growth initiatives. ASG delivered PBT of $52m, 9.9% ahead of expectations. No quantified guidance was provided, but the company noted continued momentum in 2h23. We remain positively disposed to both stocks. We believe both companies will continue to benefit from an elevated orderbook that should provide high earnings visibility over the next 12 - 24m.
Infomedia (IFM) rose 26.7% over the month, with the 1h23 result pointing to sales re-acceleration, good progress on cost control and a healthy sales pipeline. IFM delivered sales growth across all regions (hoh) and made solid progress in reshaping the cost base. The company disclosed $15m of potential annualrecurring revenue opportunities, and while they still have to be won, it highlighted a refocus on client engagement by the new management team. The balance sheet is net cash and IFM should see ongoing improved performance.
Australian Clinical Labs (ACL) rallied 16.5% during the month following a 1h23 result that beat market expectations. Although Covid revenue was down (PCR testing volumes) the core business revenue grew 18%. Management demonstrated strong cost control and maintained an operating profit margin of 11%, in line with previous guidance. Looking ahead, 2h23 has started strongly with Jan 23 LFL revenue growth of 22%. ACL is an appealing exposure to a defensive industry and remains cheap versus listed peers.
Omni Bridgeway (OBL) fell 25.0% on a weak result and the announcement of the retirement of the long-term CEO.Completions in the half were significantly lower than expected and operating costs were materially higher. With $304m of commitments during the period OBL are on track to achieve their FY23 target of $550m. We think the result and completions remain a timing issue.
NRW Holdings (NWH) fell 16.8% in February post a slightly softer than expected earnings result impacted by weather, delay of new contract awards and investment in North America. Cash conversion was softer driven by projects working capital releases and requirements. NWH reiteratedFY23 guidance of$2.6-2.7b revenue and $162-172m EBITA with normalising cash flow. NWH’s group pipeline is a strong $19.3b with orderbook up +$0.9bn to $4.9b.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/197598174.pdfDecember, 2022
The Fund declined 2.8%1 (net of fees) in December, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 3.7% over the month. Since inception (May 1998) the Fund’s return is 11.8%1 p.a. (net of all fees), against the Index’s 5.4% p.a.
Smartgroup Corporation (SIQ) rose 6.5% in December, recovering from oversold levels in November post a weaker than expected earnings update. The company noted that while they had experienced positive momentum with respect to novated leasing leads, a continued lack of new car supply into Australia saw further delays in settlement volumes. Regardless of the level of earnings, SIQ is a high cash conversion business, which it returns to shareholders via dividends. As such, the current share price is underwritten by an attractive dividend yield in our view.
NIB Holdings (NHF) rose 6.2% for the month. After completing a $158m equity raise in November to expand into the National Disability Insurance Scheme (NDIS) industry by acquiring plan manager Maple Plan, the market refocussed its attention on the underlying strength of the Australian Residents Health Insurance division, with earnings growth across the group to be enhanced by a continued recovery in its Travel Insurance and International Inbound Health Insurance divisions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/195468850.pdfNovember, 2022
The Fund rose 2.7%1 (net of fees) in November, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 4.9% over the month. Since inception (May 1998) the Fund’s return is 12.0%1 pa, net of all fees, against the Index’s 5.6% pa.
A weakening USD saw a rebound in the gold price, as miners Silver
Lake Resources (SLR) and Gold Road Resources (GOR) rallied 9.0% and 29.2% respectively over the month. Both companies provide low-cost gold exposure, operate in tier-1 mining jurisdictions and are led by experienced management teams. We are attracted to the production growth out of SLR’s Mount Monger and Deflector assets while their recently acquired Sugar Zone mine provides strong upside. Similarly, GOR presents an attractive growth profile through increasing grade at Gruyere, and their investment in De
Grey Mining (DEG) offers significant growth optionality.
Judo Capital Holdings (JDO) rose 18.4% during the month, off the back of a strong AGM update at the back end of October. The update confirmed JDO appear to be on track to reach their at-scale metrics, with the loan book growing to $6.8b. Despite broader recessionary fears, JDO’s asset quality remains solid with no material uptick in arrears and the company remains well-capitalised with a 19.5% CET1 ratio, well in excess of the major banks benchmark of c10.5%. Additionally, the company announced the appointment of Chris Bayliss to the role of Deputy CEO and Chief
Relationship Officer with Andrew Leslie taking over as CFO
October, 2022
The Fund rose 3.5%1 (net of fees) in October, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 6.5% over the month. Since inception (May 1998) the Fund’s return is 11.9%1 pa, net of all fees, against the Index’s 5.4% pa.
During the month, Omni Bridgeway (OBL) rallied 19.6% as the September quarterly report confirmed ongoing consistent performance. Income conversion for the quarter was lower than expected as a Fund 5 investment was realised earlier than the previously forecast FY27, resulting in an internal rate of return (IRR) of 152%. Estimated portfolio value (EPV) in FY23 experienced normal slippage to outer years although pleasingly total EPV increased by 4.4% on the June quarter. Commitments of $69m and indicative investment opportunities of $214m imply the business is on track to meet FY23 commitments guidance.
Lifestyle Communities (LIC) rose 15.7%
in October post the announcement that the company had secured additional debt capacity. LIC increased its facility size from $375m to $525m, secured as a $150m, 5-year tranche. The total facility now has staged expiries over mid 2025 to late 2027. The debt is earmarked for ongoing land acquisitions and development costs as the business scales up to enable the sale of 2 communities per annum to move towards 3 over the next few years.
August, 2022
The Fund rose 1.2%1 (net of fees) in August, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 0.6% over the month. Since inception (May 1998) the Fund’s return is 12.3%1 pa, net of all fees, against the Index’s 5.7% pa.
NRW Holdings (NWH) rose 26.0% this month after delivering a strong FY22 result. The company delivered earnings ahead of guidance despite sector-wide shortages in labour and equipment and a broader backdrop of cost inflation. In addition, net debt levels have been significantly reduced via strong operating cash flows during the year, and the divestment of excess plant & equipment. The company also flagged a robust outlook, noting a near-term tender pipeline of $19.8bn, compared to $14.5bn this time last year. NWH in the month approached MLD with an opportunistic nonbinding acquisition proposal to acquire underutilised assets. Post a higher counter offer from Theiss, NWH have withdrawn their offer.
PSC Insurance (PSI) rallied 18.2% during August, off the back of a FY22 result that exceeded both market expectations and previous company guidance. Underlying EBITDA grew 30% over the year to $94m, driven by strong organic growth and supplemented by the ongoing M&A strategy. Management provided some further clarity on their medium-term target which includes growing EBITDA to $130m-140m by FY25. Pleasingly the company is fully funded to achieve this goal and as such remains an attractive investment capable of generating growing, defensive and long-term cash flows.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/191170631.pdfJuly, 2022
The Fund rose 11.9%1 (net of fees) in July, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 11.4% over the month. Since inception (May 1998) the Fund’s return is 12.3%1 pa, net of all fees, against the Index’s 5.7% pa.
July was yet again another volatile month in financial markets as risk on views firmed towards interest rates nearing their peak. The Small Ordinaries Accum. Index rose 11.4% on the back of a 13.1% decline in June. Similarly, the ASX100 Accum. Index rose 5.3% having declined by 8.3% only a month earlier. Interestingly the divergence in index sub sector performance was less pronounced in July than it has been over the last four months.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189909829.pdfJune, 2022
The Fund fell 9.9% (net of fees) in June, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 13.1% over the month. Since inception (May 1998) the Fund’s return is 11.8% pa, net of all fees, against the Index’s 5.2% pa. Pacific Smiles Group (PSQ) rallied 15.8% following a positive monthly patient fee update highlighting the Covid-19 impact on patient attendance and staff absenteeism has begun to abate. PSQ’s same centre patient fees for May 2022 were up 2.8% on pcp while total patient fees were up 7.4%. PSQ also extended its $40m CBA loan facility for a further 3 years. Pleasingly, the Board confirmed that due to the headroom in the facility and the improving operating outlook, the company is adequately funded and has no need or desire to raise capital.
IRESS (IRE) rose 9.9% over the month of June, outperforming the broader ASX 200 technology sector which fell 11.0%. While there were no new announcements of note, we remain positively disposed to management’s renewed focus to its capital base and delivery on FY25 targets. Looking ahead, we believe the nature of IRE’s recurring revenues, its cash flow generation and defensive qualities will provide ballast in a macro environment where earnings predictability has become increasingly difficult
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189094284.pdfMay, 2022
The Fund fell 6.5% (net of fees) in May, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 7.0% over the month. Since inception (May 1998) the Fund’s return is 12.3% pa, net of all fees, against the Index’s 5.9% pa.
Auto aftermarket software solutions provider Infomedia (IFM) rose 35.7% during the month on the back of takeover activity. On May 13, IFM announced that a consortium, led by TA Associates, had made a $1.70 bid for IFM, which represented a 33% premium to the prior closing share price. Subsequently, on May 27, Battery Ventures lodged a $1.75 bid. Further, media speculation suggests other bidders are also stalking IFM. While both bids to are nonbinding and conditional, the number of participants actively interested in acquiring IFM suggests a high probability of a deal successfully concluding
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/188011872.pdfFebruary, 2022
The Fund rose 0.5% (net of fees) in February, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index flat for the month. Since inception (May 1998) the Fund’s return is 12.8% pa, net of all fees, against the Index’s 6.1% pa
Smartgroup Corporation (SIQ) rose 17.2% off the back of a strong full year result. Despite Omnicom and vehicle supply chain challenges, SIQ showed continued momentum in organic growth and improved efficiency. As a result, they were able to deliver a special dividend of 30cps making the total dividend more than double that of consensus. Renewal rates were strong in FY21 with SIQ renewing all top 20 contracts out for tender; moreover Management expressed confidence in renewing two of the top 10 contracts that are up for renewal before June 2022. SIQ’s implementation of its Smart Futures strategy is also going well and Management reaffirmed that they are on track to achieve the $15- 20m guided EBITDA improvement above its organic growth by FY24.
Integral Diagnostics (IDX) fell 13.7% in the month due to a weak 1H22 result that was reflective of extremely difficult trading conditions. Reduced patient activity, staff shortages and delays to equipment repairs all contributed to a 22% decline in operating NPAT. The company also announced the acquisition of Peloton Radiology, a 9-clinic radiology network located in the high-growth corridor of Southeast Queensland.
The upfront purchase price of $67m was funded via a $90m equity raise, implying a multiple of 8.8x pro forma FY22 EBITDA with the remaining funds expected to be used for further acquisitions. As the outlook for the operating environment improves, we believe the recent acquisitions and ongoing growth capex will see IDX emerge as a stronger and more diversified business.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/184841242.pdfJanuary, 2022
The Fund fell 9.5% (net of fees) in January, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 9.0%. Since inception (May 1998) the Fund’s return is 12.8% pa, net of all fees, against the Index’s 6.1% pa.
Credit Corp (CCP) held up well in January, rising 1.2% in a weak market. CCP reported 8% 1H22 profit growth on 1st February. The US business grew market share, as strong debt purchasing and increased collections productivity resulted in 31% profit growth despite difficult labour market conditions. The domestic lending business was negatively impacted by lockdowns earlier in the period but saw a rebound in demand over the December quarter. Domestic PDL purchasing volumes remain subdued, with the Radio Rentals acquisition expected to sustain collection levels as volumes return. CCP is well positioned for a recovery in debt charge-offs and the new lending products launched during the period should drive additional growth in the business.
Eclipx Group (ECX) fell 5.0% in January, better than the broader market move. The company proposed major changes to the remuneration structure which on balance, we believe will bode well for shareholders. The introduction of a minimum shareholding amount across management personnel is a positive and strengthens alignment. In addition, the introduction of a EPS hurdle of 6.5% p.a. over three-years (normalised for Covid-19 impacts), if achieved would allow full compensation for the CEO and imply material upgrades to current consensus expectations. While end-oflease income may continue driving short-term earnings, we believe via an improved balance sheet and buyback program, ECX is better positioned to grow as vehicle supply issues abate.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/184346131.pdfDecember, 2021
The Fund rose by 1.3% in December, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 1.4%. Since inception (May 1998) the Fund’s return is 13.4% pa, net of all fees, against the Index’s 6.5% pa.
HT&E (HT1) rose 18.3% over the month after partially divesting its 7.26% share in Luxury Escapes. The divestment of 4.1m shares frees up capital, with HT&E receiving $14.4m in cash proceeds. It is also reflective of HT1’s strategy to unlock value in its core radio business. Expanding its radio network by 58 stations, HT&E recently completed its acquisition of Grant Broadcasters for $307m. Alison Cameron, CEO of Grant Broadcasters, will join HT1’s board from 5 January 22. This acquisition allows HT1 to bolster its radio capabilities, target new markets and expand their regional footprint. Money3 (MNY) rose 14.5% over the month following positive Q1 commentary at an investor presentation and announcements regarding additional funding. The investor presentation noted a significant rebound in demand following the lifting of lockdowns, stability in the used car market and reiterated their previously announced FY22 profit guidance of $50m (up nearly 30% on FY21). The announcements related to the securing of mezzanine funding from MA Financial Group (MAF) and a 20% increase in the Credit Suisse warehouse debt facility along with a reduction in the cost of funds. The additional funding will support MNY achieving their FY22 targeted gross loan book figure of $800m and the addition of MAF diversifies MNY’s funding base.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/182658000.pdfNovember, 2021
The Fund fell by 1.6% in November, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 0.3%. Since inception (May 1998) the Fund’s return is 13.4% pa, net of all fees, against the Index’s 6.5% pa.
Judo Capital Holdings (JDO) popped 9.5% on the back of its initial public offering on 1 November, making it the first Australian bank float in 25 years. Acquiring its ADI licence in April 2019, JDO focuses on relationship banking with the resilient yet “underbanked” SME sector. It has a goal to significantly scale up its loan book from $3.5b as of 30 June 2021 to $15-20b in the “medium term”. JDO recently received an earlier than expected BBB- rating from credit rating agency S&P granting it access to cheaper deposit funding. JDO has strong customer relationships, fast turnaround times which underpin high satisfaction levels. We see these as sustainable competitive advantages which are likely to underpin JDO’s plans to achieve a net interest margin of +3%. We believe that JDO’s experienced management team will be able to execute on its expansion plan and continue to grow its loan book.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181788353.pdfOctober, 2021
The Fund rose by 0.5%1 in October, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasingby 0.9%. Since inception (May 1998) the Fund’s return is 13.5% pa1 , net of all fees, against the Index’s 6.5% pa.
HT&E (HT1) rose 17.7% in October. During the month, the company announced it has reached an agreement with the Australian Tax Office (ATO) in relation to a $195m tax claim from 2018. The matter settled for $71m, a significant upside surprise for the market. As most of this balance has been already paid via a deposit to the ATO, the residual impost has only had a modest impact on HT1’s balance sheet. This settlement allows HT1 ongoing capital flexibility, leaving it well-placed for core business investment and sector consolidation.
During the month, Nick Scali (NCK) rallied 29.6% after announcing a positive AGM update and the acquisition of the Plush Sofas retail chain. The acquisition price of $103m represents 4x FY21 EV/EBITDA and will be funded through existing cash and debt. Plush will expand NCK’s store footprint to 108 showrooms with the potential for 190 – 200 in total. We believe there are significant synergies from Plush available under NCK’s control, predominately from their expertise in logistics and purchasing. In terms of the AGM update, although written sales orders were negatively impacted by lockdowns, margins have been held in line with the previous year despite supply disruptions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/180942271-1.pdfSeptember, 2021
The Fund fell by 2.7% in September, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index decreasing by 2.1%. Since inception (May 1998) the Fund’s return is 13.5% pa1 net of all fees, against the Index’s 6.5% pa.
The RBA continues to state that it will maintain highly supportive monetary conditions to achieve a return to full employment and an inflation rate that is consistent with its target range of 2% to 3%. The RBA’s scenario analysis suggests that there is currently no need for the cash rate to increase, and that the preconditions to a rate increase are unlikely till 2024.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179853566.pdfAugust, 2021
August reporting season saw a very strong move in the Small Ords, which rose 5.0% for the month. This was a significant outperformance vs the ASX 100 which was weighed down by the iron ore miners & finished the month up only 2.3%. Global markets were strong, driven by US Fed “transitory inflation” reiteration and talk about later QE tapering. Small Industrials were the standout performer up 6.1% significantly outperforming the Small Resources (0.7%). Gold and iron ore exposed small stocks were weaker with strong increases recorded in the lithium exposed names.
On a sectoral basis, financials were strong on higher earnings that showed little in the way of provision release support. Consumer discretionary lagged the broader market increase despite strong profit reporting from names like Baby Bunting, Breville and ARB. Some concern still lingers around a possible FY22 profit impact for the sector, as locked down Australians emerge to spend their cash potentially on services. Much of the market fervour was driven by the lockdown positive sectors of Teleco. and Consumer Staples which were up > 8% in Aug. Real estate enjoyed a month in the sun with the broader ASX200 AREIT index up 6.3% despite the reintroduction of the rent deferring leasing code in Victoria and NSW.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179476081.pdfJuly, 2021
The Fund fell by 1.1% n July, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 0.7%. Since inception (May 1998) the Fund’s return is 13.5% pa1 , net of all fees,against the Index’s 6.5% pa.
Diversified mining services group, and recent portfolio addition, NRW Holdings (NWH) rose 16.4% in July. In the month, NWH announced that it had been awarded 2 contracts by RIO commencing in FY22 and increasing the order book by ~$90m. The RIO contract follows on from the June 2021 awarding of a 5 year agreement (commencing March 2022) with Karara Mining, worth ~$700m over the contracts life. During July, NWH also updated the market as to the sale of $81m in plant and equipment to Idemitsu Group, owner of the Boggabri Coal Mine.
The asset sale will dilute NWH earnings by less than 2%, and will move pro-forma 30 June 2021 net debt to $34m, compared to $115m pre-transaction. We remain positively disposed to NWH given the diminished risk profile of its current order book, and its positive earnings trajectory over the next 24-36 months.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/176293198.pdfJune, 2021
The Fund rose by 4.6%1 in June, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 3.1%. Since inception (May 1998) the Fund’s return is 13.6% pa1 , net of all fees, against the Index’s 6.4% pa.
Iress (IRE) rose 20.8% over June driven by speculation of a proposed takeover bid from an unknown buyer. While IRE announced it had not been formally approached, it reaffirmed fullyear profit guidance and announced a series of new initiatives from a strategic review, overseen by incoming Chairman Roger Sharp. Most significant was the potential divestment of its UK mortgage sales & originations business.
Given IRE’s unique position in the financial data space, renewed focus on accelerating earnings and driving improving ROIC we remain positively disposed to the stock. Hansen Technologies (HSN) rose 17.0% in June after a takeover offer from BGH Capital (“BGH”) to acquire all ordinary shares for $6.50 per share. Andrew Hansen (HSN CEO) has agreed to work together exclusively with BGH to roll over his 17% stake as part of a co-operation agreement and he intends to vote in favour of any scheme of arrangement.
The Board has determined that progressing the Proposal is in the interests of all shareholders and has formed an Independent Board Committee who will engage an independent expert to make an assessment of the offer.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/174207910.pdfApril, 2021
The Fund rose 7.1% in April, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 5.0%. Since inception (May 1998) the Fund’s return is 13.6% pa1 , net of all fees,
against the Index’s 6.3% pa. Monadelphous (MND) rose 22.6% in April after reaching an out-ofcourt settlement with Rio Tinto over a fire at RIO’s Cape Lambert iron ore processing facility. MND maintains a strong long-term business relationship with RIO, having worked with the company for over 40 years. The Cape Lambert matter is now concluded and the settlement is covered by the proceeds of insurance.
Codan (CDA) rose 15.7% after announcing its acquisition of Zetron for US$45m, implying an FY22e EBITDA multiple of 7.4x. Zetron is a provider of critical communications systems for regional first responders in North America, primarily the US. The acquisition will complement CDA’s existing portfolio in creating an end-to-end solution for public sector critical communications, specifically the growing ‘Next Generation 911’ market that will be a beneficiary of the Biden administration’s proposed $2 trillion infrastructure bill. Eagers Automotive (APE) rose 12.0% following an impressive 1Q trading update resulting from strong market dynamics and continued benefits of FY20 cost-out programs.
APE also continues to execute on its simplification strategy, announcing the completion of the sale of its Daimler Truck Operations. Steadfast (SDF) rose 9.5% in April, following a positive trading update which saw an upgrade in guidance for underlying EBITA ($259-266m vs $245-255m) and EPS growth (15-20% vs 10-15%). As anticipated, initial guidance for FY21 was conservative given the historic contribution from the second half, with continued premium price increases and accretion coming through from acquisitions made in the last year.
During the month, Nuix (NXL) fell 19.8% as FY21 revenue was negatively impacted by a harsher upsell environment and an acceleration of customers migrating to consumption-based contracts. NXL did, however, experience an increase in new customers and a higher-than-expected level of multi-year contract renewals. We see the transition in contract structure as a short-term earnings impact while the strong level of renewals and new customer acquisitions is an endorsement of the NXL offering and should underwrite earnings growth in the medium-term.
Bapcor (BAP), Iress (IRE) and Pacific Smiles (PSQ) also rose during the month with all three providing trading updates. BAP announced business has continued strongly at a similar level to the first half, IRE confirmed their FY21 guidance that they provided in 1Q and PSQ noted their full year figures would fall closer to the top of their guidance range provided in February.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/172571816.pdfFebruary, 2021
The Fund rose 0.1%1
in February, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 1.5%. Since inception (May 1998) the Fund’s return is 13.3% pa1 , net of all fees, against the Index’s 6.1% pa.
Codan (CDA) rose 25.9% in Feb. after posting a strong 1h21 result, and making an earnings accretive, synergistic acquisition. CDA acquired the Domo tactical communication business for $114m on Feb. 16th, funded by cash reserves. The Domo business services similar customers, markets and geographies to the CDA tactical communications business and was bought on a pre-tax multiple of around 12.5x. CDA’s 1h21 result saw revenues grow 14% and net profit grow 36%. The jewel in the CDA crown, the Minelab metal detection business, saw revenues grow 55%, with growth across gold and recreational markets. We expect that CDA will continue to grow Minelab sales strongly into the medium term, all the while gaining market share and widening its competitive moat.
We remain positively disposed to CDA’s return profile, and unique IP. Event Hospitality & Entertainment (EVT) rose 18.6% in the month after delivering a better than expected result. Cinema and Hotel revenues have been impacted by Covid19 but a large portion of this decline has been offset via a significant reduction in the cost base. Thredbo performed strongly over the ski season and looks likely to have a solid summer. The announcement of $250m in property sales has allayed investors’ concerns around a possible equity raising post the collapse of the German asset sale process. Eclipx Group (ECX) rose 15.3% in February, following a positive AGM trading update.
With the restructure of the group completed ahead of time and a new executive team in place, the company has continued to perform well despite a challenging year. ECX’s 2020 earnings have been driven by end-of-lease income, and we expect the quality of their earnings streams to further improve as the number of new leases written grows.
Net debt has been materially reduced to $79m vs $172m pcp and OpEx is being managed to remain around an $84m target. We believe ECX is well placed to deliver meaningful earnings growth over the next two to three years. Data analytics software provider Nuix (NXL) disappointed the market with its maiden interim result, declining 33.9% over the month. Revenues were negatively impacted by FX headwinds and a challenging US Government election sales environment which saw some contract signings slip into Jan.
Pleasingly, the business maintained low customer churn whilst adding high-value customers to the order book. Increased uptake in the SaaS offering should help to reduce lumpiness in future earnings. NXL management reiterated full-year revenue guidance as set out in the prospectus, noting their business is becoming increasingly 2h-weighted and that they have significant visibility over forecast recurring revenue.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/168484883.pdfJanuary, 2021
The Fund rose 5.7%1 in December, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 2.8%. Since inception (May 1998) the Fund’s return is 13.3% pa1 , net of all fees, against the Index’s 6.1% pa.
City Chic Collective (CCX) rose 45.7% in December, after acquiring the e-commerce assets of UK based, plus sized women’s fashion retailer, Evans.
The Evans business was part of the UK retail conglomerate, Arcadia Group (Evans, Burtons, TopShop, Miss Selfridge, Dorothy Perkins) that went into administration on November 30th 2020. The Evans retail offering is well known in the UK, founded in 1930, and with a total focus on plus size women’s apparel and footwear. Evans provides CCX with an excellent entry point into the UK, a plus size women’s fashion market believed to be worth some A$9b pa. In the 12 months to August 2020, Evans had 19m web site visits from its loyal customer base, and generated A$46m in sales. CCX is paying A$41m for the Evans assets, leaving CCX with over $70m in net cash for further acquisition opportunities. Our preliminary assessment of the Evans business is that it has suffered in recent times from the financial health of Arcadia Group, leading to a miserly stock position, and a poor offering in a number of segments (sleepwear, lingerie, athleisure, etc.). We believe Evans will be earnings accretive for CCX from day 1, and that its potential to grow revenues under CCX management is material. We are attracted to CCX, its plus size women’s fashion focus, its management team and its scalable global e-commerce offering.
Codan (CDA) performed well in the month, rising 5.4%. In December, CDA provided updated net profit guidance for 1h21, of some $40m, compared to their October AGM statement, that earnings in the first half would exceed the $30m earnt in 1h20. CDA have noted their Minelab metal detection products have benefited from exceptional demand, across their recreational and artisanal markets. It appears CDA is benefiting from selling a wider range of metal detectors, into a broadening global market, in tandem with better inventory availability to meet demand. The CDA Communication Division enters 2h21 with a $30m order book, and we anticipate that CDA will end 1h21 with net cash on hand of over $100m. We remain positively disposed to CDA into the medium term, as the company scales its best of breed intellectual property into a growing global market.
Upon receiving a revised offer from major shareholder and parent entity WPP PLC, WPP AUNZ (WPP) shares rose 25.2% over the month. The revised offer of A$0.70 per share was a material uplift from the initial offer at A$0.55 and closer to our assessment of intrinsic value. While we believe additional value can be derived from the franking balance, in light of ATO approval, we are supportive of the revised transaction.
Towards the end of December, debt collection services provider Credit Corp (CCP) announced the acquisition of a debt ledger book from competitor, Collection House. The acquisition price was approximately $160m and was funded via cash. As a result of the acquisition, CCP raised the midpoint of FY21 guidance by 15%. Integrated Research (IRI) had two earnings downgrades in December, driving a decline of 18.4% over the month. The timing of contract revenue for IRI has a large impact on the reported revenue line and as such, Covid-induced delays meant reported revenues will be down around 35% producing a breakeven 1h21 earnings result. While the decline seems large, the reality is that it has been driven by two delayed contract signings. Despite this, we believe that contracted clients remain active, cash flow generation will be significantly stronger than reported earnings and the company remains on track on several new product releases in 2h21.
We see the announcement as a timing issue and a market over reaction and used the share price weakness to increase the weight in the portfolio. We expect that the company will assess how it reports revenues in the future and may change the recognition to align more with the software as a service business model that continues as traditional on premise software moves to a hybrid and cloud model.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163838425-1.pdfDecember, 2020
The Fund rose 5.7% in December, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 2.8%. Since inception (May 1998) the Fund’s return is 13.3% pa, net of all fees, against the Index’s 6.1% pa. City Chic Collective (CCX) rose 45.7% in December, after acquiring the e-commerce assets of UK based, plus sized women’s fashion retailer, Evans.
The Evans business was part of the UK retail conglomerate, Arcadia Group (Evans, Burtons, TopShop, Miss Selfridge, Dorothy Perkins) that went into administration on November 30th 2020. The Evans retail offering is well known in the UK, founded in 1930, and with a total focus on plus size women’s apparel and footwear. Evans provides CCX with an excellent entry point into the UK, a plus size women’s fashion market believed to be worth some A$9b pa. In the 12 months to August 2020, Evans had 19m web site visits from its loyal customer base, and generated A$46m in sales. CCX is paying A$41m for the Evans assets, leaving CCX with over $70m in net cash for further acquisition opportunities. Our preliminary assessment of the Evans business is that it has suffered in recent times from the financial health of Arcadia Group, leading to a miserly stock position, and a poor offering in a number of segments (sleepwear, lingerie, athleisure, etc.). We believe Evans will be earnings accretive for CCX from day 1, and that its potential to grow revenues under CCX management is material. We are attracted to CCX, its plus size women’s fashion focus, its management team and its scalable global e-commerce offering. Codan (CDA) performed well in the month, rising 5.4%. In December, CDA provided updated net profit guidance for 1h21, of some $40m, compared to their October AGM statement, that earnings in the first half would exceed the $30m earnt in 1h20. CDA have noted their Minelab metal detection products have benefited from exceptional demand, across their recreational and artisanal markets. It appears CDA is benefiting from selling a wider range of metal detectors, into a broadening global market, in tandem with better inventory availability to meet demand. The CDA Communication Division enters 2h21 with a $30m order book, and we anticipate that CDA will end 1h21 with net cash on hand of over $100m. We remain positively disposed to CDA into the medium term, as the company scales its best of breed intellectual property into a growing global market.
Upon receiving a revised offer from major shareholder and parent entity WPP PLC, WPP AUNZ (WPP) shares rose 25.2% over the month. The revised offer of A$0.70 per share was a material uplift from the initial offer at A$0.55 and closer to our assessment of intrinsic value. While we believe additional value can be derived from the franking balance, in light of ATO approval, we are supportive of the revised transaction.
Towards the end of December, debt collection services provider Credit Corp (CCP) announced the acquisition of a debt ledger book from competitor, Collection House. The acquisition price was approximately $160m and was funded via cash. As a result of the acquisition, CCP raised the midpoint of FY21 guidance by 15%. Integrated Research (IRI) had two earnings downgrades in December, driving a decline of 18.4% over the month. The timing of contract revenue for IRI has a large impact on the reported revenue line and as such, Covid-induced delays meant reported revenues will be down around 35% producing a breakeven 1h21 earnings result.
While the decline seems large, the reality is that it has been driven by two delayed contract signings. Despite this, we believe that contracted clients remain active, cash flow generation will be significantly stronger than reported earnings and the company remains on track on several new product releases in 2h21. We see the announcement as a timing issue and a market over reaction and used the share price weakness to increase the weight in the portfolio. We expect that the company will assess how it reports revenues in the future and may change the recognition to align more with the software as a service business model that continues as traditional on premise software moves to a hybrid and cloud model.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163838425.pdfNovember, 2020
The Fund rose 9.5%1 in November, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index increasing by 10.3%. Since inception (May 1998) the Fund’s return is 13.1% pa1 net of all fees, against the Index’s 6.0% pa.
Monadelphous (MND) rose 40% in November post its AGM noting 1h21 revenues would be up +10% on 2h20. The Maintenance Division has recovered steadily post Covid-19, with annual revenues now +$1b, compared to $620m in FY15. The Engineering Construction Division has secured $715m in contracts, of which $155m were subsequent to year end, compared to FY20 sales of $616m. Covid-19 impacted employee numbers of 5,500 now sit above 6,500, a further indicator of growing demand for MND’s offering. We remain positively disposed to MND.
At the end of the month, WPP AUNZ announced it had received an unsolicited offer of $0.55/share from major shareholder and parent entity WPP plc. While the offer price represents a 34% premium to the prior closing price of $0.41, we believe the bid is opportunistic and materially undervalues emerging transformation benefits. Money3 (MNY) performed strongly during the month, with the share price rising 31%.
During the month MNY announced it had secured a new lending facility of $250m from a global A+ rated bank. This represents a significant milestone for MNY as it validates the strength of MNY’s business model, in particular its cash collection processes. We expect the new facility will allow MNY to pursue further loan book growth and at the same time meaningfully reduce the company’s overall cost of funding.
Integrated Research (IRI) fell 7% in the month post AGM guidance that Covid-19 contract signing delays and currency would impact 1h21 profit.
While it’s disappointing that the exact timing of the contract revenues have not fallen into 1h21, we believe the value inherent in the stock is more driven by the ability to win ongoing new contracts rather than the specific timing of their delivery. We think the IRI sell-off presents an opportunity and the stock is undervalued. Event Hospitality & Entertainment (EVT) rose 30% driven by investor enthusiasm for Covid-19 recovery stocks. Management continues to run the business in a very pragmatic way and alter the strategy for the cinema, hotel and resort assets around state regulatory changes and improving demand.
With significant asset backing we see further share price upside as revenues improve and tightly managed costs deliver significant earnings leverage.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/162702353.pdfOctober, 2020
The Fund rose 0.5% in October, with its benchmark, the S&P/ASX Small Ordinaries Accumulation Index also increasing by 0.5%. Since inception (May 1998) the Fund’s return is 12.7% pa1, net of all fees, against the Index’s 5.6% pa.
On the back of a strong first quarter, where EBITA was up 21% on pcp, Steadfast (SDF), raised FY21 EPS growth guidance to 10-15% from 5-10%. Despite the broader economy being impacted by the Covid-19 pandemic, SDF’s operations have proven resilient: Insurance broking volumes are holding firm while premium rates have continued to increase; Underwriting Agencies have delivered strong organic growth; and expense savings have been delivered across the group.
Bapcor (BAP) reported a strong start to the new financial year, with group revenue up 27% for 1Q21 vs pcp. All areas of the Bapcor group performed well during the period, with the standout being the Retail operations, Autobarn, reporting same store sales growth of 36%. Bapcor’s core division, Burson Trade, also witnessed strong growth with same store sales up 7.7% nationally and up 17% excluding Victoria. Although we expect these growth rates to moderate over the medium term, the underlying resilience of the Bapcor business model continues to produce stronger cash flows than the market has anticipated.
WPP AUNZ (WPP) performed strongly in October, with the share price up 20%. During the month, the company provided a trading update for the September quarter. Despite net sales continuing to be impacted by weak economic activity, ongoing cost cutting resulted in EBIT of $24.6m for the quarter, which was $3.3m or 15.4% ahead of the September quarter in 2019. In our opinion much of the cost cutting measures taken by WPP in 2020 are sustainable and will lead to improved levels of profitability as the broader economy recovers from the impact of the Covid-19 pandemic.
Over the month we initiated a small position in Clover Corporation (CLV), an IP heavy business that manufacturers DHA (essential fatty acids) added to baby formula and other food related products. The October selloff in CLV was driven by Covid-19 destocking lowering 1h21 earnings expectations. We expect strong volume, revenue and profit growth over the medium term driven by increased demand for DHA from legislation changes in the EU & China, increased UHT production in the US and higher profit margins driven by a new manufacturing facility.
ticker: FAM0101AU
commentary_block: Array
factsheet_url:
release_schedule:
fund_features:
The Celeste Australian Small Companies Fund provides an actively managed exposure to ASX-listed shares that are outside of the ASX100. It typically invests in approximately 30-50 companies that we expect will outperform over the medium to long term.
- High conviction fund: we apply our investment process to stock selection, resulting in a typical exposure to 30 to 50 of our best investment ideas
- Scalable and repeatable process: our investment process has been proven and tested over the long term with strong annualised performance since the inception of the strategy
- Specialist investment experience: we are a highly focussed boutique firm that only manages small companies funds, with a team that has more than 80 years of collective investment experience.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Mid Cap
peer_benchmark: Domestic Equity - Mid Cap Index
broad_market_index: ASX Index MidCap 50 Index
structure: Managed Fund