August, 2023
HUB24 outperformed during the month as the company reported revenue and EBITDA marginally ahead of expectations, with net profit coming in even further ahead. The company also announced an on-market share buyback program. The share price responded positively as the result reaffirmed the strong fundamentals of the business and the market shrugged off some of the concerns it harboured earlier in the year regarding flow momentum, which the company flagged has re-accelerated in the new financial year. With attractive margins and operating leverage incrementally flowing through, the outlook remains compelling for HUB24.
MP1 outperformed as the company upgraded FY24 EBITDA at the result, following an upgrade of the FY23 EBITDA figures in the 4Q result the month prior. The result provided confidence to the market that recent changes to their go-tomarket strategy are gaining traction, unlocking operating leverage in the process.
JDO underperformed as the company met loan growth expectations however disappointed on NIM guidance. The market was not expecting the degree of decline in the NIM, driven primarily by a more expensive funding mix as the TFF is refinanced. Judo is growing its loan book quickly and its customer value proposition remains compelling. While there is some risk around achieving its metrics at scale, we remain positive on its competitive position in the market, its ability to take market share and its asset quality.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023_August_Monthly_Report_7e4baf2ec8.pdfJuly, 2023
Megaport Ltd outperformed following an upgrade to guidance and their 4Q result. The company upgraded normalised EBITDA, saying they expect FY24 EBITDA to be higher than the previously guided range of A$41-46m. Interestingly, this expectation is in the face of increased sales headcount and capital expenditure being put in to capitalise on the opportunity they see ahead of them.
GQG Partners Inc outperformed in July following its quarterly update which saw continued inflow momentum with US$1.2bn for 2Q23, and a further US$8.4bn added from strong performance over the quarter. We continue to see GQG as a leading franchise in the growth phase of its lifecycle at an attractive valuation.
Nuix Ltd outperformed after pre-reporting their FY23 results during the month. The result showed positive ACV, revenue and EBITDA growth, which was taken positively by the market. Reading into the results, Multi Year Deals as a percentage of revenue has declined, while other activity such as new deals, renewals, consumption increased. This is a positive sign for the company in our view.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023_July_Monthly_Report_562e1ea24e.pdfJune, 2023
FINEOS Corporation (FCL) outperformed during June following a landmark deal signed with Guardian Life - a major US life insurer - to adopt the full-suite of Fineos software modules (Policy Admin, Billing, and Claims) across a portion of its Group business. While a material deal in itself, it validates Fineos' end-to-end platform solutions is ready for market. We expect a successful implementation will increase its chances of winning similar major deals across the North American life insurance market, as enterprise peers traditionally follow 'safe bets' when making major systems changes.
Corporate Travel Management (CTD) underperformed during June on the back of concerns around global corporate travel volumes. On a positive note, the company recently announced they had been successful in winning a large UK Government contract and that they also retained the Whole of Australian Government (WoAG), a contract that came to them with the HLO Corporate acquisition. In our view, the strategy to focus on SMEs in North America while retaining and growing the existing franchises in Australia and the European market is working well. With guidance for FY23 reaffirmed and FY24 still achievable, we think CTD offers a good medium to longer-term growth story. The focus now is all about execution and driving overall margins as more business moves online.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023_June_Monthly_Report_924598266b.pdfMay, 2023
Megaport Ltd (MP1) outperformed on no news flow following the release of its 3Q results the month prior. Monthly Recurring Revenue accelerated in 3Q, growing 14% QoQ. This was driven by higher yield primarily, due to Cloud VXC repricing implemented in March. MP1 issued guidance for the first time, expecting EBITDA of A$16m-$18m in FY23 vs. consensus of A$9m, and A$41m-$46m in FY24 vs. consensus of $30m, driven by cost-cutting initiatives.
IDP Education (IEL) underperformed as the Canadian government opened up its SDS immigration visa requirements to 4 new English language tests, increasing competition for IDP's IELTS business. It is uncertain how much market share IELTS could lose over the next few years, however market estimates point to a 8-15% EPS impact. While this is a negative development, IELTS remains a business with high barriers to entry that are not just regulatory in nature. There is a large ecosystem of referral partners and test preparation providers surrounding the IELTS test that we think will ultimately limit the impact. We are also positive on the company's competitive position with the recent launch of One skill retake as well as the favourable equivalency ratings of the IELTS test.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/230531_ECP_Fund_update_4290d41004.pdfApril, 2023
Megaport (MP1) outperformed after reporting its 3Q results at the end of April 2023. Monthly Recurring Revenue accelerated in 3Q, growing 14% QoQ. This was driven by higher yield primarily, due to Cloud VXC repricing implemented in March. MP1 issued guidance for the first time, expecting EBITDA of A$16m- $18m in FY23 vs. consensus of A$9m, and A$41m-$46m in FY24 vs. consensus of $30m, driven by cost-cutting initiatives.
Corporate Travel Management (CTD) performed strongly as investors gained confidence in FY23 and FY24 guidance. The company announced a major multiyear UK Government contract that will drive large TTV outcomes. This contract will deliver both near term and longer term revenues, which given the cost leverage story, should result in substantial profit contributions. CTD has been successful in building a reputation in the Government solutions market and we would expect to see further contract wins over the next few years.
Block Inc (SQ2) underperformed in April despite no newsflow, which we attribute to investor concerns with respect to tougher economic conditions. Aside from Square's processing volumes that has an exposure to consumer discretionary spend, we believe the businesses structural growth drivers (i.e., new customer additions to both Square and Cash App as well as increasing monetisation of users) make it largely acyclical.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/230430_ECP_Fund_update_35a15c2cc3.pdfMarch, 2023
Rea Group (REA) outperformed during March following a positive first half result released in the month prior. Despite Australian residential listings falling by 9% YoY revenue rose by 5.2% on-year to A$617.3 million. Group operating costs had risen by 15% at the same time, driven by factors including higher salaries and continued investment in its India unit. Despite these pressures, REA's ability to grow revenues in a lower volume environment highlighted to the market the strength of their competitive position.
GQG Partners (GQG) was a key detractor during the month, notwithstanding strong business momentum. It reported material one-off cost growth in 2022 as it stepped up its global distribution and infrastructure investment to capture the significant interest in its funds. Given the solid fund track records, greater distribution footprint and large funds capacity, we expect meaningful revenue growth in future years.
Megaport (MP1) detracted during the month. The company announced the departure of its CEO, however Bevan Slattery, the founder and Executive Chairman stepped in as an interim CEO and announced the outgoing CEO's successor. Operationally, underlying port growth, a leading indicator for services, grew 30% QoQ though net port adds only grew 2% as some customers consolidated port usage and migrated to larger ports. Positively, the company has maintained their EBITDA positive run rate and expects to maintain this for the full year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/230331_ECP_Fund_update_v2_39519c28be.pdfFebruary, 2023
Hub24 (HUB) outperformed during February. The share price has been volatile as short-term investor sentiment has remained focused on the cadence o in-flows to wealth platforms with advisors regaining client consolidation momentum as markets have stabilised. To this end, HUB reported a strong start to net flows in 3Q FY23 and reiterated guidance for FY24 FUA. With stable revenue margins and operating leverage incrementally flowing through, the outlook remains compelling for HUB.
Nuix (NXL) outperformed during February as the company successfully defended the application made by the former CEO Mr Kevin Sheehy. The share price rallied significantly on the back of this, as the market was discounting around $60m of market capitalisation from the company, expecting the company to lose the case. At the time of writing, Mr Sheehy has appealed the decision. Nuix has already been awarded costs in the matter, and will defend the appeal.
Domino's Pizza Enterprises (DMP) was a key detractor this month, driven by a misstep in their execution of pricing, which saw volumes decline toward the end of the year. The inflationary environment has been challenging, particularly in Europe and Asia. Going forward, the company has introduced their Flexible Voucher, which has proven to have some early success and will be key to improving its operating performance in 2H.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/230228_ECP_Fund_update_76eab22909.pdfJanuary, 2023
Block Inc (SQ2) outperformed during January as volatility continues for US consumer and technology orientated companies. We await the upcoming quarterly release in February where we expect to see more quantitative guidance around lower cost growth budgeting for 2023. The business continues to execute in line with our growth expectations across all key value drivers.
Corporate Travel Management (CTD) reversed recent price weakness to outperform during January. While there is still uncertainty related to the outlook for US and European travel volumes, the market in Australia and to a lesser extend Asia is still growing strongly, with domestic travel volumes leading the way. CTD remains one of the highest quality travel companies in the world and is well positioned to benefit from a continued recovery in underlying travel volumes and expansion into new markets and regions.
Megaport (MP1) underperformed in January following a mixed quarterly result. Underlying port growth, a leading indicator for services, grew 30% quarter on quarter, though net ports only grew 2%. Customers have started consolidating ports to larger ports (10GB to 100GB), giving them the ability to add more services to less ports. While likely to be a headwind in the short run, we believe this will be net positive in the long run. The company has maintained their EBITDA positive run rate and expects this to extend to the full year. Price increases and reduced costs also brings forward FCF positivity in our estimation.
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Rio Tinto (RIO) performed strongly over the month with iron ore prices responding positively to a softening stance on COVID in China. The Chinese government has also been making positive noises in relation to economic growth and have signaled that they plan to address issues related to residential property prices. Infrastructure spending is also likely to be a focus.
James Hardie Industries (JHX) was a key detractor this month as the slowdown in housing continues to weigh on investment appetite, particularly the rate of deterioration in volume outlook and lack of visibility. While we are amidst a housing downturn, growing their economic footprint may be challenging in the near-term. However, JHX remains a high-quality business demonstrating its commitment to managing supply and demand, with a clear focus on product mix. Colourplus growth remains strong, with 31% volume growth in 2Q23, which should support ASP and margins.
Netwealth (NWL) underperformed in December despite no news flow. Short-term investor sentiment has remained focused of the cadence of in-flows to wealth platforms with advisors regaining client consolidation momentum as markets have stabilised. Notwithstanding variable quarterly flow results, we continue to believe NWL is strongly positioned to continue gaining market share in the structurally attractive wealth platform market.
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Rio Tinto (RIO) was a key contributor during the month. Iron ore prices strengthened over the period with headline prices into China up over 20% for the month. With the leadership in China now fully addressed the Government has started to turn its attention to stimulating the economy. While no large infrastructure policies have been announced, there is a general acceptance that fiscal spending and measures related to stabilizing the property market will be used to help stimulate the economy.
Fisher & Paykel Healthcare (FPH) was a key performer during the month on the back of a strong 1H23 result and FY23 upgrade. There has been uncertainty regarding underlying demand for the company's consumable products given the recent increase in hardware sales, however the latest result provided the market with confidence that demand is returning to more normal levels. We believe FPH is well positioned to deliver on its sales targets and longer term growth targets.
James Hardie Industries (JHX) was a key detractor this month as the slowdown in housing continues to weigh on investment appetite, particularly the rate of deterioration in volume outlook and lack of forward visibility. Despite weaker housing market conditions, JHX remains a high-quality business demonstrating its commitment to managing supply and demand, with a clear focus on product mix. Colourplus growth remains strong, with 31% volume growth in 2Q23, which should support ASP and margins.
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Hub24 (HUB) outperformed during October follow its quarterly business update which saw a resumption of strong net flow momentum (~+$3 billion). In addition, it disclosed a new deposit arrangement with Bank of Queensland from 2nd Dec 2022, following the expiration of its ANZ deal. The new arrangement will see its cash margin reduced by 20-30bps, which was a better outcome than expected by the market.
Megaport Limited (MP1) announced their Q1 results and detracted during the period. The business is transitioning to USD reporting given the bulk of their revenues and costs now sit in North America. The company faced an FX headwind in AUD reporting, but an FX benefit in USD reporting terms. Operationally, the business announced a strategic partnership with Zenlayer, which gives them access to emerging markets; MegaportOne signed its first two customers; and the indirect sales channel seems to be building nicely, albeit off a low base. In this quarter however, the run rate of customer additions and port additions were lower than previous run-rates. The port side was impacted by port consolidation, slowing growth to only 1%. The driver of this was that some customers consolidated their 1 gig ports to 10 gig ports. In the short run this will mean some revenue is lost, but the increased capacity provides more scope for customers to add additional services over and above what they used to have, which will be positive for average revenue per customer in the long run.
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Resmed Inc (RMD) outperformed during the month. A string of product recalls by competitor Philips continues to be of net benefit to RMD, reinforcing RMD's strong brand and market share to Philips detriment. There are also signs that the supply of components is improving, which we expect will quickly translate into real sales and earnings.
Domino's Pizza Enterprises Limited (DMP) was a key detractor over the month despite no incremental news. While the company has been battling challenging conditions after spectacular performance the prior year, it is evident that the company’s fortunes through lockdowns have unwound to some extent. Despite the challenging backdrop, they have seen positive sales momentum and expect to be within 3% - 6% range for same store sales in FY23.
Block Inc (SQ2) detracted from the portfolio through September despite no news flow. We attribute its underperformance to a correlated sell off in high growth US stocks, which remain volatile. The recent result reported in August delivered in-line with expectations growing group gross profit 16% y/y (excl Afterpay) and similar growth seen across Cash App and Square Seller. The quarterly highlighted a planned pull back in cost growth through the remainder of 2022, primarily through less experimental marketing spend, given caution around the upcoming economic cycle. We remain bullish on Cash App's growth opportunity SQ2 is unlocking as it rolls out its eCommerce capability to 47 million monthly active users.
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Lovisa (LOV) was a key contributor this month as the company delivered exceptionally strong results. The company saw robust sales performance in domestic markets, with its international divisions continuing to grow their network footprint. The company added 85 net stores across 24 countries (+15.6% network growth) with operations in six new countries. Lovisa has continued to invest for growth, with significant momentum across both brick-and-mortar and online channels.
GQG Partners (GQG) reported earnings marginally ahead of prospectus, with weaker revenue (entirely attributable to market movements) offset by slower cost growth. Net-flows, albeit pre-reported, were well ahead of expectations for the 6 months to June 2022 ($6.3bn vs. $3.9bn prospectus). Alpha has been very strong, with some of the main funds amongst the best performing in the world on a 1 year and since inception basis.
Megaport (MP1) detracted during August, partially reversing recent gains following a strong July trading update. The August result was mostly pre-reported, with the company delivering Monthly Recurring Revenue (MRR) growth of 13% quarteron-quarter. Critically, the company delivered an inaugural EBITDA profit for 4Q FY22 and in the near-term management expects to see sustained positive free cash flow.
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Lovisa (LOV) was a key contributor this month as the company continues to grow its store network footprint. Recent research indicates that the company has opened new stores in Hong Kong and Canada, with hiring occuring in Spain, Portugal and Greece. LOV is well positioned in a recessionary environment due to its offering being focused on value conscious consumers and margin benefits resulting from increasing scale, along with material long-term growth potential in the US and EU.
Megaport (MP1) added value during the month as the company delivered Monthly Recurring Revenue (MRR) growth of 13% QoQ and total revenue growth of 10% compared to 3Q FY22. Critically, the company delivered EBITDA profit for 4Q FY22 as a whole, in line with management guidance. In the next couple of quarters, management expects to see sustained cash generation, and then a few quarters after that, sustained free cash flow generation.
Costa (CGC) underperformed in July after the company released an update confirming some impact to citrus quality given recent wet weather during harvest, however the impact cannot be quantified until towards the end of the season. Given it is an "off year" in citrus and the rainfall in Costa's regions was not significantly greater than historic averages, we do not expect there will be a particularly large impact. The international division has also delivered better than we had forecast this year and pricing in most categories is tracking well.
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Resmed (RMD) performed well in June after competitor Philips provided an update on the progress of its highly disruptive recall process. While RMD has not been able to fully capitalise on market share gains due to chip shortages, it is becoming evident that the recall will affect Philips for longer than initially anticipated. RMD also announced the acquisition of German SaaS business Medifox for US$1b. The acquisition extends Resmed's US-based Software strategy into Europe as a healthcare software solutions provider, supporting caregivers in managing route planning, documentation, information systems as well as billing and admin systems.
Resmed is aiming to deliver significant value to healthcare providers through efficient resource management as well as a become a source of referral business. The acquisition appears only mildly accretive in the short term, though we are supportive of the long term vision that it is building towards. Block Inc (SQ2) detracted during the month with price action linked to a number of negative crypto-market events and resulting drawdown in the Bitcoin price. Despite Bitcoin price correlation with SQ's share price, we find the link in fundamental value unwarranted and driven by a general misattribution of the importance of the cypto currency to SQ's business. In fact, our forecasts suggest less than 2% of SQ's group gross profit is driven by the spread it makes from the buying and selling of Bitcoin within it's Cash App segment, demonstrating the immateriality of SQ's equity value to the Bitcoin price.
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GQG Partners (GQG) contributed in May following growing investor appreciation for the company's strengthening franchise. During May, its fund's materially outperformed their respective benchmarks by 2-3%, net of fees, adding to an already positive period of recent performance. We continue to believe GQG is in the growth phase of its lifecycle and has a substantial runway for inflows across its suite of funds management products.
Corporate Travel Management (CTD) detracted in May following recent strong performance. There was no negative news flow over the period to speak of, in fact a presentation to investors during the month and independent due diligence on travel volumes indicates that the bounce back in activity is very strong in Europe, the US and Australia right now. Asia continues to be weak but little has been factored in for that recovery. We believe CTD remains well positioned to take advantage of increasing travel volumes.
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Block (SQ2) traded broadly in line with US listed high growth peers over April but detracted from relative value over the month. While SQ2 had no material news flow, a minor short-term growth headwind for CashApp became apparent in Paypal's Q122 result, whereby Venmo (CashApp's main US competitor) saw a ~4% quarterly decline in its payments volume processed. This occurred after the US tax office implemented a ruling that US peer-to-peer payment companies (Venmo, CashApp and Zelle) must report transactions in excess of US$600 to the tax office, to prevent tax evasion from SMEs utilised their services as business bank accounts.
Corporate Travel (CTD) added relative value in April as it continued to perform well with corporate travel volumes rebounding strongly in both the US and Europe. CTD now has its largest exposure to the US market so a recovery here has been critical. The acquisition of T&T and organic market share gains have really driven this rebound in earnings. A recent update to the market also indicated that the Australian business was seeing some good growth and that the overall EBITDA targets set out when the business fully recovers are well within sight. CTD is well positioned geographically and financially to achieve its targets but it will also have to deal with rising labor costs and other operating cost increases that are going through the market.
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Macquarie Group (MQG) outperformed in March as investors weighed the impacts from the war in Ukraine and rising inflation and interest rate expectations ahead of its year-end result in early May. Rising energy prices and volatility provides a strong tailwind to the company's CGM business while interest rates provide a tailwind for the bank but a possible lagged headwind for the infrastructure Manager. MQG is relatively shielded from these macro factors compared to most growing businesses, however, it is exposed to rising risks of recession.
IDP Education (IEL) outperformed in March as Australian visa data and industry feedback suggested that international students are returning to Australia faster than expected. This allays concerns that demand for Australian education has been substituted for other attractive locations such as the UK and Canada. We continue to be attracted to IEL's digital capabilities and multi-destinational strategy.
James Hardie Industries (JHX) underperformed in March on the back of commodity price pressures and concerns related to the broader housing market given interest rate risks. JHX purchases considerable quantities of pulp for its fiber cement siding product and the process itself is energy-intensive, implying cost pressures will be apparent over the next 6-12 months. Historically JHX has been able to successfully put price increases through to the market and we think this will continue to be the case.
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Cochlear Limited (COH) performed strongly during the month after producing a solid result while also confirming full-year guidance. The stand out performers during the half were the Emerging Market regions while the US was weaker than expectations given the closure of surgeries related to COVID restrictions. Going forward the focus will be on a US recovery and a stronger Services business with potential news flow related to the Nucleus 8 expected during the half.
Lovisa Holdings (LOV) was a key contributor with the company reporting their half-year results. Sales rose +48%, driven by LFL sales growth of +21.5% and a marked acceleration in the pace of store rollout, opening 43 stores. The company has seen robust sales performance despite ongoing lockdowns, with strong same-store sales momentum across all major markets. Under the new leadership of Victor Herrero, we expect LOV to continue to expand their global store network as they execute on a significant opportunity.
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Rio Tinto (RIO) outperformed during January on the back of a recovery in iron ore prices. In the previous quarter, iron ore prices were weaker on the back of Chinese government attempts to curb Chinese steel production. Despite these efforts, fundamentals prevailed and the strong underlying demand combined with structural shortages in the market meant that iron ore prices quickly rebound, impacted profitability expectations for RIO.
GQG Partners (GQG) was our key performance detractor in January. During the month it released a quarterly FUM and flows updated which saw net flows 50% above its prospectus guidance for the fourth quarter 2021 while the suite of funds largely saw outperformance of their respective benchmarks during January. We attribute GQG's share price performance to a broad sell off in listed equity fund managers as global markets declined in the face of inflation and central bank rate tightening concerns.
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Rio Tinto (RIO) outperformed during January on the back of a recovery in iron ore prices. In the previous quarter, iron ore prices were weaker on the back of Chinese government attempts to curb Chinese steel production. Despite these efforts, fundamentals prevailed and the strong underlying demand combined with structural shortages in the market meant that iron ore prices quickly rebound, impacted profitability expectations for RIO.
GQG Partners (GQG) was our key performance detractor in January. During the month it released a quarterly FUM and flows updated which saw net flows 50% above its prospectus guidance for the fourth quarter 2021 while the suite of funds largely saw outperformance of their respective benchmarks during January. We attribute GQG's share price performance to a broad sell off in listed equity fund managers as global markets declined in the face of inflation and central bank rate tightening concerns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/220131_ECP_Fund_update_a6e1955845.pdfDecember, 2021
Rio Tinto (RIO) was a strong performer during December on the back of iron ore prices up 20% in December. Normalising inventories and sustained demand is leading to greater mid-term confidence in robust iron ore prices.
Magellan (MFG) was our main portfolio dectractor during December, which saw a critical risk catalyst triggered, breaking our investment thesis and forcing us to exit our position. Our belief was that institutional investors had bought into Magellan's investment promise: stable absolute returns in bull markets with strong downside protection in market drawdowns. Given Magellan's recent delivery on this promise in the COVID related March 2020 market meltdown, we anticipated that instituional clients would look through recent 12 month underperformance of the Global Fund. In December, Magellan announced the loss of their largest institutional client (St. Jame's Place) which undermined our belief in how Magellan was percieved by its institutional client base. The mandate loss further weighs on potential negative catalysts such as fee cuts for Magellan products in the Australian retail market, or accelerated outflows from other institutional and wholesale clients following St. Jame's Place lead.
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Megaport (MP1) outperformed during November following a strong quarterly update in late October followed by a bullish institutional broker coverage initiation research report during November. Investors are increasingly valuing Megaport's opportunity to expand its network-as-a-service offering from its initial datacentre to data-centre product to a broader network offering throuh its 'Virtual Edge' with scope for expanded product solutions such as network security-asa-service. Altium Limited (ALU) outperformed during November continuing a recent rerate by the market on improved sentiment around the importance of its market position as the printed circuit board design leader, which offers potential strategic value to prospective partners (or buyers) in the electronic design industry. Furthermore, the recent AGM management commentary pointed to strong business momentum and confidence that FY22 financial results are "not likely to be at the low end of the guided range".
GQG Partners (GQG) underperformed during November despite relatively limited news. We attribute the sell off to a modest fall in FUM due to market movements in the period, with GQG's weighted average absolute performance across its funds declining approximately 3%
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Netwealth Group (NWL) was the largest contributor in October as its quarterly update indicated continuing momentum in net flows and new accounts to the platform. With a strong pipeline of opportunities the company upgraded its FUA net inflow guidance for FY22 by 15% excluding a flagged bulk transition. NWL continues to innovate with a focus on advisor problems and increasingly noncustody assets which also led to the company to make an offer to merge with Praemium in early November.
Lovisa Holdings (LOV) was a key performer over the month despite the news of the resignation of the CEO and Founder, Shane Fallsheer. The company announced Victor Herrero as his successor, with a strong background in global retail incl. 13 years at Inditex (owner of Zara), allowing him to leverage his fast fashion and global experience. While we are cautious with leadership change, we remain optimistic of the long-term prospects with Brett Blundy (Chairman) providing the stability and continuity required.
Domino's Pizza (DMP) was our largest detractor over the past month following incredible outperformance over the past year. The company’s high valuation has seen some softness after the company hosted its investor day, noting expected inflation in soft commodities and tight supply in labour markets. DMP reaffirmed their long-term opportunity with Don Meij travelling to Europe to investigate potential M&A opportunities.
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IDP Education (IEL) continued its strong performance in September aided by improving operating trends as global mobility restrictions continue to ease with higher vaccination rates and IELTS search trends improve.
In addition, major shareholder Education Australia completed its block sale removing a perceived overhang and increasing the company's free float and index weighting. We remain supportive of IDP's deepening competitive positioning and ability to take market share into the recovery. Macquarie Group (MQG) outperformed after the company upgraded earnings ahead of its upcoming 1H22 result, citing favourable market conditions and asset realisations. Conditions continue to improve across most of MQG's markets leading to strong EUM and loan book growth and lower impairments. The business' asset management model is becoming less capital intensive while raising larger funds. It is also benefiting from increasing commodity price volatility and renewables led infrastructure spend.
Magellan Financial Group (MFG) underperformed as investor sentiment continued to sour over underperformance of the main fund, and the potential for on-going outflows which have proven consistent in recent quarters. We continue to test our thesis that MFG is a proven capital allocator with the ability to grow its core funds business organically. That said, we are cautious about the prospect of MFG retaining above market fees on its retail funds in light of recent performance in an intensely competititve market.
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Hub24 (HUB) outperformed following the FY21 result which saw upgraded FUA guidance which implying anticipated inflows ahead of consensus forecasts, while management commentary suggested FY22 might be the bottom in admin revenue margins. HUB remains a key position with significant upside as it capitalises on its leading technology to solve a growing list of pain points in the wealth advice industry.
Dominos Pizza (DMP) was a key performer this month on the back of their incredibly strong FY result. Despite Covid, the company saw growth in all regions with Europe and Japan seeing strong same-store-sales growth and margin expansion. The mix shift toward delivery orders contributed to larger ticker price increases. The company has raised their long-term outlook, expecting the network to grow at 9-12% pa due to stronger franchisee appetite and their robust financial position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/210831_ECP_Fund_update_1_6d07cd4806.pdfJuly, 2021
ResMed (RMD) performed strongly during the month on strong underlying sales volumes and also on the announcement that the Philips recall of the DreamStation 1 was more material than first thought. Philips has been forced to stop selling all new CPAP machines for a period of 16 months until machines in the market can be recalled and replaced. RMD is the obvious beneficiary of such an event and while they cannot supply to the market immediately, it will provide good medium to longer-term market share opportunities.
Magellan Financial (MFG) underperformed following its quarterly flows update which showed outflows emerging in the institutional and retail channel simultaneously, likely as a consequence of Magellan Global Fund's trailing 12 months of market underperformance. Our thesis however remains intact. Magellan's main global product is not designed to outperform in all market environments, instead seeking conservative growth by owning high quality businesses, with a focus on downside protection. In this light, Magellan performed true to label when there was a signficiant market drawdown in early 2020. While the magnitude of outflows at present are immaterial to group profitability, investment sentiment has deteriorated slightly given the risk of potential earnings downgrades if outflows persist.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/210731_ECP_Fund_update_a50bfcf082.pdfJune, 2021
Altium Limited (ALU) recently outperformed following an acquisition offer made by global engineering software company Autodesk, which was subsequently rejected by ALU's Board. We were pleased to see another world leading computer aided design company pursue ownership of ALU, and believe it is a testament of the quality of the software it has built for the printed circuit board design industry. We support the Board's decision to reject the acquisition attempt given we see a substantial long-term growth opportunity for Altium, as it penetrates the enterprise software market, and progresses its industry ecosystem vision.
Nuix Ltd (NXL) underperformed during June which saw more negative headlines impact sentiment. Namely, the CFO resigned "by mutual agreement" along with reports he is being investigated by ASIC and the AFP after alleged insider trading claims. The CEO also announced his retirement, but will stay on until a new executive search is completed and leadership is successfully transitioned. With a key pillar of our investment framework ('management stability') being tested, we have continued to undertake on-going, ex-employee due diligence to understand the cultural evolution within Nuix, and further test our thesis that the core organisation has the internal leadership ingredients to drive its growth strategy. We are encouraged by CEO Vawdrey's decision to remain in his role indefinitely until a suitable successor is found
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/210630_ECP_Fund_update_c173835739.pdfMay, 2021
Commonwealth Bank (CBA) outperformed in May following growing confidence in its market position, its high quality and growing loan book and the potential for capital management. The company also held a strategy session which gave investors confidence in the strategic outlook for both traditional and new business lines. The thesis around CBA leveraging its high quality brand and customer base to extract more value remains intact.
Hub24 (HUB) outperformed last month due to a continued recovery from the March consensus downgrade event, when Netwealth disclosed it was in discussions with ANZ to re-price its wholesale deposit arrangement, impacting forward consensus profit expectations. We believe investors are increasingly appreciating that earnings impacts driven by excess market liquidity will prove temporary, with a rapid economic recovery and rising inflation expectations to end unconventional monetary policy, potentially sooner than currently anticipated.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/210531_ECP_Fund_update_efce6bed6a.pdfMarch, 2021
Macquarie Group (MQG) extended its strong performance in March following its profit upgrade in late February where it stated it now expects its FY21 result to be up ~5-10% on FY20. The main driver of this upgrade was a better than expected result from its Commodities and Global Markets business due to an extreme winter in North America that boosted client demand for its physical gas and power supply business. While this is positive in the short term and offsets weakness in other areas affected by COVID, we do not forecast these conditions to continue through our 5 year time horizon.
IDP Education (IEL) was the largest detractor in March as its 40% shareholder Education Australia announced that it would be exiting its holding. The company will in specie out 25% of its holding to it's 38 university shareholders and sell down the remaining 15% by no later than December 2021. Education Australia is doing this to provide much needed capital to its university shareholders. In the short term this has created an overhang on IEL, but has no bearing on our long term thesis for IEL and its market position as a leading student placement platform and high stakes English testing provider.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/dd9d567ab5b048dfbfb33af93b609920.pdfNovember, 2020
CTD performed well during the month on the back of global announcements related to potential vaccines for the coronavirus, increasing the mid-term visibility in a return to international corporate travel activity. The other positive factor driving the stock during the month was the reopening of borders in Australia and the quick acceleration of domestic travel. We had always assumed that once travel routes were opened that they would quickly fill and Qantas is predicting that capacity levels will get to 60% by year end.
This is very important for CTD because Australian domestic travel is not only a material part of their overall TTV but it is also the highest margin category in their business. HUB was the key detractor in November. During the month the RBA cut its cash rate from 25bps to 10bps which has short- and mid-term negative impacts on wealth platform profitability given approximately 20% of platform revenue has historically come from the spread it generates on client cash accounts. As the RBA has moved the cash rate closer to zero, we estimate HUB's cash spread has compressed roughly 30%, creating a short-term impact to platform profit growth.
We see the impact to growth as short-term and not changing the longterm economics of HUB or our investment thesis. As a global economic recovery regains momentum, and central bank rates lift (even modestly), the current earnings headwind will reverse.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/019affe27bbf4cec958c694ca54cef91.pdfticker: OPS2991AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Bottom right -> Documents ->2020 November Monthly Report (or any month/year as need)
asset_class: Domestic Equity
asset_category: Australia Large Growth
peer_benchmark: Domestic Equity - Large Growth Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
- Investing in high quality businesses that are in the growth stage of their life cycle and have the ability to generate predictable, above average economic returns will produce superior investment performance over the long-term.
- Suitable for investors looking to grow their wealth over the medium to long-term.