September, 2023
The portfolio’s largest overweight positions include Pacific Current Group Ltd, Elanor Investors Group and PSC Insurance Group Ltd. Conversely, the Fund’s largest underweight positions include Pro Medicus Limited, Flight Centre Travel Group Limited and Paladin Energy Ltd, all of which are not held.
Stanmore Resources contributed to performance in September (+13.15%) as the price of coal rallied. Stanmore Resources owns and operates two major coal mines in Australia, the Isaac Plains Complex as well as South Walker Creek. South Walker Creek is one of the highest performing PC products given its high-quality. Stanmore also has multiple projects in the pipeline which look to provide future growth opportunities. The company has a track record of value accretive mergers and acquisitions with management demonstrating good price discipline.
Despite a decline in thermal coal prices after the massive surge in 2020-2022, the fund’s overweight to Whitehaven contributed to performance in September (+16.75%). The company rallied as Whitehaven confirmed it is in the running to acquire BHP’s major Daunia and Blackwater coal mines in Queensland. Whitehaven had traded in the $0.80 to $0.90 range in 2020 before reaching nearly $11 in 2022 as prices and demand for coal skyrocketed. Despite trading at artificially low multiples, the inevitable fade in the coal price would eventually normalise the P/E longer term. Meanwhile Whitehaven racked up billions in surplus cash during the boom, which management will need to decide how to deploy in the best interests of shareholders which could still buttress the share price against excessive falls if capital is managed well.
The overweight to Healius detracted from performance in September (-17.86%) as the market continued to speculate that the bid by smaller rival ACL could be blocked by the ACCC. Healius’ assets have attracted interest from private equity and there are activist investors on the register. With the combined value of Healius’ radiology and pathology businesses estimated to be around $2.6 billion this represents a substantial uplift from the current market capitalisation of $1.7 billion. We are encouraged with the progress Healius has made with improvements in their radiology business under new leadership. Pathology segment continues to track below what the business could achieve given in person GP visits are still around 20% below pre pandemic, which leads to lower pathology requests. We believe some of the co-pay introduction are deterring GP visits, consumers continue to defer and there are evidence that primary care screenings are being deferred. We believe GP visits and Pathology volumes will re-bound in the future and that we will start to see pathology segment margins improve from here.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-2-1.pdfAugust, 2023
The Fund's largest overweight positions include Pacific Current Group Ltd, Healius Limited and Elanor Investors Group. Conversely, the Fund's largest underweight positions include Liontown Resources Limited, Pro Medicus Limited and Flight Centre Travel Group Limited.
Pacific Current Group contributed during August (8.61%) as fund managers Regal and GQG both competed to acquire the financial services business. We have owned Pacific current Group for a number of years. It is a well-established funds management boutique incubator which owns equity stakes in 15 asset managers. These boutiques include public equities, life settlements, real assets, and private equity. PAC has delivered solid earnings growth in recent years and is seeing strong net inflows across a number of its boutiques, in particular Victory Park and Aether. Prior to the bid PAC traded at a reasonable multiple of 12x next year's earnings with a solid dividend yield of over 5%. The overweight position in gold exploration company Gold Road Resources Ltd (-16.0%) contributed to relative performance after receiving a boost from the rise in the spot price of gold over the month, particularly in AUD terms.
The overweight to Enero Group detracted to returns during August (-12.85%), which has come after a disappointing update in June and February. Despite the stock falling significantly this year the recent result exhibited a stabilisation in margins following significant cost out actions undertaken by management in recent months. Enero owns boutique media agencies in Australia, the UK and US that specialise in Creative, Public Relations and Data Analytics. Enero also owns a majority stake in OB Media, a programmatic advertising platform.
ARN detracted for the month of August as it reported weak results for H1 2023, with revenue down -2%, EBIT down-27% and earnings per share down -40%. The result reflected the cyclical headwinds currently facing traditional media companies, in combination with significant fixed cost leverage. Whilst there have long been concerns about structural decline it is worth noting that radio as a share of ad revenue has remained at 8% for a long time. ARN Radio itself has been the top performing network for a number of years and the business is highly cash generative, with minimal capital expenditure requirements.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-1-1.pdfJuly, 2023
The Fund’s largest overweight positions include Pacific Current Group Ltd, Whitehaven Coal Limited and Elanor Investors Group. Conversely, the Fund’s largest underweight positions include Liontown Resources Limited, Flight Centre Travel Group Limited, and Chorus Limited, all of which are not held in the Fund.
Pacific Current Group rose 37.9% over the month of July as fund managers Regal and GQG both competed to acquire the financial services business. We have owned Pacific current Group for a number of years. It is a well-established funds management boutique incubator which owns equity stakes in 15 asset managers. These boutiques include public equities, life settlements, real assets, and private equity. Earning growth has grown consistently in recent years, the company has no debt and $20m cash on its balance sheet. Prior to the bid PAC traded at a reasonable multiple of 12x next year’s earnings with a solid dividend yield of over 5%. Enero Group rose 22.6% during July, although this came after a disappointing trading update in June and poor February results. The stock subsequently fell significantly through the year and traded at exceptional value on a P/E ratio of 5x and with a dividend yield of 8.9% before its recent rally. Enero is an owner of boutique media agencies in Australia, the UK and US that specialise in Creative, PR and Data Analytics. The boutiques are highly regarded and have strong customer lists in high growth and resilient sectors including Healthcare, Tech and Consumer Staples.
The overweight position in online and offline clothing store operator Universal Store Holdings contributed to performance as the stock rose 20.1%. This is on the back of the business being sold off quite heavily in June primarily due to a trading update in May and the flow on effect of a sharp deterioration in the macroeconomic environment and the discretionary consumer. Universal Store Holdings remains a resilient and well-managed high-quality fashion retailer. Acquisitions like Cheap THRILLS Cycles (CTC) and the promising performance of the Worship brand further enhance its earnings growth potential. While near-term challenges exist, the company's prudent strategy and growth prospects make it a compelling long-term portfolio addition.
PSC Insurance fell -14.6 % during July, reversing a strong run the month before. However it has more or less range traded around $5 for the past year. We have been owners of the stock for several years now. The company has been underpinned by solid 15% revenue growth from H12022 to H12023. Growth has come from both organic and acquisitive sources and has driven a rising Return on Equity and solid profit margins. We continue to believe that it trades at a reasonable price to earnings ratio given the earnings growth.
Healius fell -9.8% in July as the market speculated that the bid by smaller rival ACL could be blocked by the ACCC. Healius’ assets have attracted interest from private equity and there are activist investors on the register. With the combined value of Healius’ radiology and pathology businesses estimated to be around $2.6 billion this represents a substantial uplift from the current market capitalisation of $1.7 billion.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-8.pdfJune, 2023
The Fund’s performance broadly kept pace with the market over the June quarter despite a resurgence in growth and momentum stocks for much of the period as markets became enraptured with all things AI. The Fund’s largest overweight positions include Pacific Current Group, Whitehaven Coal Limited & Healius Limited. Conversely, the Fund’s largest underweight positions include Liontown Resources Limited, Chorus Limited and Pro Medicus Limited, all of which are not held in the Fund.
Pacific Current is a well-established funds management boutique incubator which owns equity stakes in 15 asset managers. These boutiques include public equities, life settlements, real assets and private equity. Earning growth has grown consistently in recent years. The company has no debt and $20m cash on its balance sheet. Despite the strong quarter (+11.4%), PAC continues to trade at a reasonable multiple of 12x next years earnings a solid dividend yield of over 5%.
McMillan Shakespeare rallied strongly during the June quarter (+25.4%). We think the fleeting leasing company has a few tailwinds including supportive organic growth, a net cash balance sheet and a high payout ratio. In addition, the business will generate some supernormal profits from the unwinding of its order book. The announcement that Eager Automotive had acquired 5.7% of stock helped push the stock up mid-month. Universal Store Holdings the high quality fashion retailer detracted (-41.4%) during the June quarter with a trading update in May the main catalyst for the selloff. There does not appear to be any fundamental fault with management of execution of the business, but the company has been caught up in a sharp deterioration in the macroeconomic environment and the discretionary consumer. At 8x with a solid dividend, good balance sheet and conservative management, this remains a long term candidate for the portfolio.
Enero Group is an owner of boutique media agencies in Australia, the UK and US that specialise in Creative, PR and Data Analytics. The boutiques are highly regarded and have strong customer lists in high growth and resilient sectors including Healthcare, Tech and Consumer Staples. Despite this, the stock has fallen significantly over June quarter (-18.7%), although it now trades at exceptional value on a P/E ratio of 5x and with a dividend yield of 8.9%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-7.pdfMay, 2023
The Fund’s largest overweight positions include Pacific Current Group, NIB Holdings Ltd, and Healius Limited. Conversely, the Fund’s largest underweight positions include Liontown Resources Limited, Flight Centre Travel Group Limited, and Chorus Limited, all of which are not held in the Fund.
The overweight position in grain distributor GrainCorp (+12.2%) contributed to relative performance. Its H1 earnings report showed an 18% improvement in revenue compared to the same period last year, leading to a 5.3% stock increase. The stock continued to rise throughout the session, closing 10% higher on strong volume. Prior to the report, the stock had been stagnant for two months. Analysts saw the report as positive and noted strong EBITDA and NPAT beats. However, some expressed concern about potential weather patterns affecting future results. Overall, GNC outperformed both the ASX Agribusiness index and the ASX300 since the release.
The overweight position in private health insurer NIB Holdings (+9.5%) contributed to relative performance. The stock benefitted after reporting a predicted 4-5% net growth in policyholders for FY23, with ancillary claims returning to normal and hospital claims showing modest improvement. The company expects strong net margins and a gradual return to its 6-7% target over the long term. IIHI is on the road to recovery with improving margins, and student policyholders are rebounding. In New Zealand, net PHI policyholder growth of 4-5% is expected for FY23, with OrbitProtect's student and worker policies driving growth.
The overweight position in healthcare technology solutions provider Healius (+5.7%) contributed to relative performance. During the month, the Healius Board has unanimously decided to recommend that Healius shareholders reject an unsolicited, all scrip takeover offer received from ACL on 20 March 2023 (the ACL Offer). The Healius Board believes that the ACL Offer is plainly inadequate, highly conditional and highly uncertain. The Healius Board reiterated that it is not opposed to engaging in discussions with ACL, or another party, in relation to a control transaction or merger proposal that is in the best interests of Healius shareholders.
The overweight position in online and offline clothing store operator Universal Store Holdings (-39.8%) detracted from relative performance. The retailer issued guidance for its Full Year revenue, predicting that it will be between A$258-261M. This is lower than the consensus of A$275.5M.
The company also provided a trading update, stating that the Universal Store business is set to achieve record sales. It added that the Perfect Stranger retail format is performing well, and recent acquisition Cheap THRILLS Cycles (CTC) will deliver record sales and solid earnings, with the emerging Worship brand showing particularly encouraging performance. However, the company has observed that trading conditions have tightened in April and May and expects the subdued environment to continue for the rest of FY23 and into FY24.
The overweight position in copper and zinc miner 29Metals (-40.5%) detracted from relative performance. A strategic update on the recovery of its Capricorn Copper business and a revised outlook for its Golden Grove business saw the stock fall sharply during the month. There were concerns around the need for additional capital to restart production and unlock growth, putting pressure on the stock. Several highlighted the risks of operational disruptions and the tight financial position of 29Metals, exerting caution until further clarity on a return to positive cash flow is provided. The uncertain timing of the restart and the success of the de-watering and recovery plan, remain as critical components for any re-rating of the stock.
The overweight position in out-of-home advertising solutions provider oOh!media (-25.8%) detracted from relative performance. The stock fell sharply following a trading update during the month, reporting a 3% increase in Q1 revenues over Q1 2022, despite a significant softening in March due to a decline in the macroeconomic environment in Australia and New Zealand. The decline was attributed to a decrease in short-term in-month bookings, especially in the government spend category. However, Road and Fly (roadside billboards and airport terminal advertising) categories continued to grow strongly year on year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-6.pdfFebruary, 2023
The Fund’s largest overweight positions include Pacific Current Group, Graincorp Limited Class A, and Whitehaven Coal Limited. Conversely, the Fund’s largest underweight positions include Technology One Limited, Pro Medicus Limited, and Chorus Limited, all of which are not held in the Fund.
The overweight position in Automotive IT solutions provider Infomedia Ltd. (+26.7%) contributed to relative performance. The stock price spiked on the release of a stronger-than-expected first-half result. Total revenue increased 6.7% year-on-year to $62.9m, while recurring revenue gained 9.8%. Underlying cash EBITDA fell 13.3% to $11.5m, however, NPAT increased by 38.5% to $4.8M and its EPS rose 38.7% to 1.29 cents per share. Management noted that the recurring revenue reflected its new strategy to move away from one-off revenue sources, which dropped by $0.6M over the half.
The overweight position in out-of-home advertising solutions provider oOh!media (+10.8%) contributed to relative performance. The stock price rose sharply following its first-half earnings announcement. The results exceeded market expectations with underlying NPAT $56.2M vs consensus $52.0M, revenue of $592.6M (vs consensus $597.6M), Adjusted EBITDA of $127.1M (vs consensus $125.4M), and a final dividend of 3 cents per share (vs 1 cent last year). Management further advised that its March-quarter revenue is on track for an 8% year-on-year increase.
The overweight position in motor vehicle equipment, parts, and servicing supplier Bapcor Ltd (+6.9%) contributed to relative performance. The company reported a first-half revenue of $1.00B (up 11% from $900.1M last year), pro-forma EBITDA of $146.3M (up 7% vs year-ago $137.2M), and it declared a 0.5c fully franked dividend. Pro-forma NPAT of $62.0M also increased +2% from a year-ago. Operationally, Bapcor expects a solid underlying performance in FY2023 with slight increases in trading in the second half compared to the first half, subject to market conditions.
The overweight position in integrated marketing and communication services provider Enero Group (-30.4%) detracted from relative performance. The stock price weakened on the back of a downbeat trading update, with management noting that its Creative Technology & Data segment continues to deliver strong financial performance, albeit with lower growth rates as it cycles year-on-year comparatives. The company reported that it remains focused on managing near-team margins and will continue to take appropriate steps to address current macroeconomic headwinds while positioning the business to capture client demand. The overweight position in copper and zinc miner 29Metals Ltd. (-18.4%) detracted from relative performance. The stock fell abruptly following a disappointing financial result. 29Metals reported a full-year NPAT loss of $47.2M (vs consensus loss of $11.5M) from revenue of $720.7M (vs consensus $720.7M).
The overweight position in healthcare technology solutions provider Healius (-14.3%) detracted from relative performance. The stock fell short of expectations after reporting a first-half revenue of $864.1M (vs preliminary report $889.3M), underlying EBIT of $40M (vs $373.1M from a year ago), and underlying NPAT of $8.1M (vs year-ago $244M). However, management noted that in late January/early February daily revenues began returning to pre-Christmas levels and expects BAU trading in second-half 2023 to be materially stronger than first-half 2023 as the recovery in BAU testing continues.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/129_pfp.pdfJanuary, 2023
The Fund’s largest overweight positions include Pacific Current Group, Enero Group Limited, and Whitehaven Coal Limited. Conversely, the Fund’s largest underweight positions include Technology One Limited, Pro Medicus Limited, and Chorus Limited, all of which are not held in the Fund. The underweight position in coal miner New Hope Corporation Limited (-7.9%) contributed to relative performance. The stock fell on the back of a 28.5% decline in the price of coal over the month, hampered by declining sales volumes as winter demand in the northern hemisphere passes and Europe's energy crisis eases. This followed reports that NSW Treasurer Matt Kean is looking to order thermal coal miners to reserve up to 10% of their output for NSW power station by the end of January to avoid a shortage of supply. The overweight position in Australia and New Zealand media and online publishing company HT&E Ltd (+16.1%) contributed to relative performance. The stock price received a significant boost after the company announced it had signed a binding share sale agreement to sell its ~25% interest in Soprano Design Limited to Potentia Capital, a leading Australian technology-focused private equity firm. Under the agreement, HT&E will receive ~$66.3M in cash as consideration for the sale. The transaction is conditional upon receiving FIRB approval. Not holding oil and gas miner Beach Energy Ltd (-5.3%) contributed to relative performance. Beach Energy reported a Q2 production of 4.8MMboe, which missed its 5.00MMboe consensus. Analysts attributed the weaker-than-expected production volumes to plant outages resulting from maintenance and lower demand rather than poor performance. Management also introduced a depreciation, depletion, and amortization guidance of $410-440M, a step up from $376M reported in FY2022. The overweight position in coal miner Whitehaven Coal Limited (-10.9%) detracted from relative performance. The stock was adversely impacted following the 28.5% decline in the price of coal over the month. This came as the miner reported its December-quarter Managed ROM coal production of 4.84Mt (vs consensus of 4.95Mt) and reiterated its FY2023 guidance with Managed ROM coal production of between 19.0-20.4Mt. The overweight position in gold exploration company Gold Road Resources Ltd (-2.7%) detracted from relative performance. The stock ended the month lower, with the market discouraged by the full-year report from its Gruyere gold mine joint venture, which posted gold production of 314,647 (vs guidance of 300-340koz). Later in the month, the management guided company-wide FY2023 production of 340-370Koz at an attributable all-in sustaining cost of $1540-1660/oz. Management noted that production had been reduced quarter-on-quarter due to lower process plant availability resulting in lower plant throughput and delays in accessing and processing higher-grade portions of its Stage 3 pit. The overweight position in gold miner Capricorn Metals Ltd (-1.5%) detracted from relative performance. The stock sold off following an underwhelming December-quarter trading update, reporting gold production of 29,310oz (vs quarter-ago 31,005oz) at an all-in sustaining cost of $1,105/oz (vs quarter-ago $1,166/oz). Management also maintained its full-year gold production guidance of 115-125Koz with an AISC of $1,160-1,260/oz.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-5.pdfDecember, 2022
The Fund’s largest overweight positions include Pacific Current Group, Enero Group Limited, and Whitehaven Coal Limited. Conversely, the Fund’s largest underweight positions include Technology One Limited, Perseus Mining Limited, and Chorus Limited, all of which are not held in the Fund.
The overweight position in gold miner Capricorn Metals (+53.3) contributed to relative performance. The company released a trading update during the quarter, reporting a 32% increase in its Mt Gibson Gold Project Mineral Resource Estimate (MRE) to 2,755,000 ounces from 2,083,000. Management stated, "the updated MRE includes 2,106,000 ounces in the Indicated category, providing a strong basis for the maiden Ore Reserve Estimate targeted later in the current quarter". This came as the company advised that load and haul mining operations have resumed at the Karlawinda Gold Project (KGP) following a fatal incident on 13 October 2022.
The overweight position in laboratory testing services provider ALS Ltd (+22.9%) contributed to relative performance. The company provided an update on the successful completion of seven of its acquisitions year-to-date across Life Sciences and Commodities businesses, contributing ~ $78M of revenue on a full-year basis. The total cost of acquisitions was ~$165M, funded from its balance sheet. The acquisition pipeline for 2H2023 remains strong as the company continues to evaluate opportunities for continued growth.
The overweight position in gold exploration company Gold Road Resources Ltd (+32.0%) contributed to relative performance. The stock benefitted from rallying gold prices, gaining 9.5% across the quarter. This came as the company reiterated its CY2022 gold production guidance of 150-170Koz, at an All-In Sustaining Cost of $1,270-1,470/oz. Reports also emerged during the month speculating that the company has been eyeing gold mining company De Grey Mining Limited for a possible buyout.
The overweight position in copper and zinc miner 29Metals (-15.9%) detracted from relative performance. The stock price fell sharply following an FY2023 guidance update. Copper and zinc production is expected to be in the lower half of its guidance, while gold and silver production is expected to be at or above the top end of its guidance range. Total capital and site costs are expected to be in the top half of the guidance range. Management noted that its FY2023 guidance reflects updates to the mine plans at both of its sites and the impact of a reduction in milling rates at its Capricorn Copper site.
The overweight position in healthcare technology solutions provider Healius (-8.9%) detracted from relative performance. The stock fell following the release of a trading update, reporting total revenue for the four months to October 2022 of $617.5M (vs year-ago $903M) and generating EBITDA of $124.3M (vs year-ago $347.0M). Despite the weaker-than-expected result, management noted that business-as-usual revenues in Pathology are growing steadily and progressively, while Imaging revenues are also growing fast.
The overweight position in Australia and New Zealand media and online publishing company HT&E (-19.6%) detracted from relative performance. The stock price trended down over the quarter following speculation that HT&E and Seven West Media had held merger talks. Reports indicate that both sides are interested. However, there are multiple hurdles to a deal proceeding, including languishing share prices and that HT&E holders would want cash, while Seven West would be reluctant to accrue any more debt.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-4.pdfNovember, 2022
The Fund’s largest overweight positions include Pacific Current Group, Whitehaven Coal Limited, and 29metals Ltd. Conversely, the Fund’s largest underweight positions include Technology One Limited, Liontown Resources Limited, and Chorus Limited, all of which are not held in the Fund.
The overweight position in copper and zinc miner 29Metals (+31.9%) contributed to relative performance. The company reported the results of feasibility studies for its Gossan Valley project and pre-feasibility study for its Cervantes project. The studies confirmed the technical viability of Gossan Valley as a third mining front, providing an opportunity to increase operating flexibility and de-risk its Golden Grove production profile. The studies defined higher-grade, near-to-surface project envelope, right-sizing initial development, and capital profile in the context of challenging external market conditions. The pre-feasibility study also confirmed the viability of Cervantes, demonstrating the potential to extend the operating life of its Scuddles underground mine and established infrastructure.
The overweight position in gold miner Capricorn Metals (+23.9) contributed to relative performance. The company provided a trading update, reporting a 32% increase in its Mt Gibson Gold Project Mineral Resource Estimate (MRE) to 2,755,000 ounces from 2,083,000. Management stated, “the updated MRE includes 2,106,000 ounces in the Indicated category, providing a strong basis for the maiden Ore Reserve Estimate targeted later in the current quarter”. This came as the company advised that load and haul mining operations have resumed at the Karlawinda Gold Project (KGP) following a fatal incident on 13 October 2022.
The overweight position in gold exploration company Gold Road Resources Ltd (+29.2%) contributed to relative performance. The stock benefitted from rallying gold prices, gaining 7.0% across November. This came as the company reiterated its CY2022 gold production guidance of 150-170Koz, at an All-In Sustaining Costof $1,270-1,470/oz. Reports also emerged during the month speculating that the company has been eyeing gold mining company De Grey Mining Limited for a possible buyout.
The overweight position in Pacific Current Group (-6.9%) detracted from relative performance. The company released an outlook during the month at its AGM, noting that it expects an additional $3B-$5B of gross new allocations and anticipates modest increases in expenses. The decline in equity markets is expected to be felt primarily through GQG and reduced H1 incentive fees for Victory Park. H1 will also show a notable increase in management fee revenues vs last year, but likely lower performance fees. From the beginning of FY24, the company expects VPC to produce consistently higher performance fees and become the largest revenue/earnings contributor for the company.
The overweight position in healthcare technology solutions provider Healius (-15.2%) detracted from relative performance. The stock fell following a trading update, reporting total revenue for the four months to October 2022 of $617.5M (vs year-ago $903M) and generating EBITDA of $124.3M (vs year-ago $347.0M). Despite the weaker-than-expected result, management noted that business-as-usual revenues in Pathology are growing steadily and progressively, while Imaging revenues are also growing fast. Management also indicated that the well-publicised headwinds currently affecting the economy and the healthcare sector are considered temporary rather than structural.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-3.pdfOctober, 2022
The Fund’s largest overweight positions include Pacific Current Group, ALS Ltd., and Enero Group. Conversely, the Fund’s largest underweight positions include Technology One Limited, Liontown Resources Limited, and Chorus Limited, all of which are not held in the Fund. The overweight position in Pacific Current Group (+14.6%) contributed to relative performance. The global multi-boutique asset management firm reported during the month that total funds under management within the Group’s portfolio had increased from $169.3b to $171.2b for the quarter ending 30 September 2022. Management noted, “While falling equity markets, rising interest rates, and slowing economies create a headwind for most asset managers, including ours, we continue to be pleased with the performance and growth of our boutiques. Despite the deteriorating economic environment, we expect our non-GQG boutiques to secure A$3b-A$5b of gross new commitments this fiscal year.” The overweight position in testing, measurement and inspection services in mining and mineral exploration, equipment maintenance, and food and pharmaceutical quality assurance provider ALS Ltd (+12.9%) contributed to relative performance. The Company provided an update on the successful completion of seven of its acquisitions year-to-date across Life Sciences and Commodities, contributing ~$78M of revenue on a full-year basis. The total cost of acquisitions is ~$165M, funded from its balance sheet. The acquisition pipeline for 2H2023 remains strong, with the Company continuing to evaluate opportunities for continued growth. The overweight position in coal miner Stanmore Resources (+32.7%) contributed to relative performance. A trading update supported the stock price, reporting consolidated September quarter Run of Mine (ROM) production of 5.1Mt and saleable production of 3.2Mt, supported by record monthly ROM production of 814Kt at Poitrel and 406Kt at the Isaac Plains Complex in the month of August. Acquisition of the remaining 20% interest in Stanmore SMC Pty Ltd (SMC) was also reported as completed on 7 October 2022. Management noted that it remains on target to achieve its second-half 2022 guidance despite the continued unseasonal wet weather and inflationary cost pressures experienced during the September quarter. The overweight position in copper and zinc miner 29Metals (-18.5%) detracted from relative performance. The stock struggled over the month after being downgraded by multiple brokers following a trading update released by the Company. The miner reported Q3 copper equivalent production of 19.8Kt vs quarter-ago 18.2Kt, with Group production (vs quarter-ago) of Copper 12.3Kt vs 11.1Kt, Gold 5.2Koz vs 8.2Koz, Zinc 12.5Kt vs 10.8Kt, and Silver 343Koz vs 351Koz. Management also maintained its full-year guidance. The overweight position in baby products retailer Baby Bunting Group (-25.9%) detracted from relative performance. The stock fell abruptly after releasing a weaker-than-expected YTD trading update, reporting total sales growth of +12.0% y/y, total transaction growth +15.2%, comparable store sales growth +7.6%, and online sales representing 19.6% of sales vs year-ago 28.6%. For the September quarter, the Company reported a gross profit margin of 37.2%, down 230 bps vs Q1 of FY22, and pro forma NPAT $3M below Q1 of FY22. The Company also announced that it had opened three new stores and anticipates opening a further five in FY23 (four in Australia and one in New Zealand).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-2.pdfAugust, 2022
The Fund's largest overweight positions include Pacific Current Group, Whitehaven Coal Ltd, and Enero Group. Conversely, the Fund's largest underweight positions include Technology One Limited, Liontown Resources Ltd, and NIB Holdings Ltd, all of which are not held in the Fund.
The overweight position in coal miner Whitehaven Coal (+28.3%) contributed to relative performance. The stock benefitted from rising coal prices, nearing its record highs attained in early March, supported by persistent supply disruptions caused by the invasion of Ukraine. Whitehaven also reported a full-year FY2022 revenue increase of 216% year-over-year (YoY) during the month, an EBITDA increase of 1,396% YoY, and posted a record NPAT of $1.95B, up from a $543.9M loss in FY2021. In addition, management noted that demand for high-quality seaborne thermal coal is expected to remain strong throughout FY23, and high-CV coal prices should continue to be well supported.The overweight position in copper and gold miner Oz Minerals (+36.9%) contributed to relative performance. The stock rose sharply after receiving an unsolicited, conditional, and non-binding indicative proposal from BHP Group to acquire 100% of its shares for $25.00 per share in cash via a scheme of arrangement. The Oz Minerals board, however, has unanimously determined that the Indicative Proposal significantly undervalues the company and is not in the best interests of its shareholders. The company noted that it has a unique set of copper and nickel assets, all with strong long-term growth potential in quality locations and that it does not consider that the proposal from BHP sufficiently recognises these attributes.The overweight position in salary packaging, vehicle leasing, and administration services provider McMillan Shakespeare (+16.1%) contributed to relative performance. The stock rose sharply upon release of its full-year financial results, reporting normalised revenue of $594.3M, up 9.2% compared to the prior corresponding period (pcp). Statutory NPAT grew by 15.2% on the pcp to $70.3M, and its final dividend was increased by 154%. Going forward, McMillian announced that it will return between 70% and 100% of underlying profit to shareholders in the form of dividends, up from 66% in the pcp.
Not holding lithium and gold miner Liontown Resources (+31.4%) detracted from relative performance. The stock price was boosted after analysts at Macquarie raised their lithium price forecasts on the belief that supply will remain tight for the foreseeable future. The broker pointed out that sales of electric vehicles (EVs) will continue to grow strongly in 2022 despite rising battery prices. Global EV sales are up an estimated 57% year-on-year between January and July. This came as the state of California mandated that all new vehicles to be sold in the state will be powered by hydrogen or electricity by 2035. Not holding emerging lithium producer Sayona Mining Ltd (+51.3) detracted from relative performance. The stock rallied over the month after announcing that it had restarted its North American Lithium production in Quebec, Canada, with the first spodumene concentrate production expected in the first quarter of 2023. Sayona revealed that approximately 30% of plant and equipment upgrades have been completed. This is expected to accelerate with the number of construction workers on site set to double to 100 by September. Rising lithium prices further supported the stock over the month, boosted by increasing global demand expectations for the EV battery ingredient.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp-1.pdfJuly, 2022
The Fund’s largest overweight positions include Pacific Current Group, McMillan Shakespeare, and Enero Group Limited. Conversely, the Fund’s largest underweight positions include Technology One Limited, Shopping Centres Australasia Property Group RE, and NIB Holdings Ltd, all of which are not held in the Fund.
The overweight position in coal miner Whitehaven Coal (+27.8%) contributed to relative performance. The stock benefitted from rallying coal prices over the month, despite the gloomy outlook on the global economy. The release of an International Energy Agency report highlighted that global coal demand is expected to challenge its all-time high in 2022. This followed news that China could reopen its ports to ships carrying Australian coal. As a result, Whitehaven now expects to report a record EBITDA of ~$3.0B for the 2022 financial year (vs $0.2B from a year ago).
The overweight position in salary packaging, vehicle leasing, and administration services provider McMillan Shakespeare (+26.3%) contributed to relative performance. The stock was upgraded from 'neutral' to 'outperform' at Macquarie following a broker note suggesting that the company may benefit over the medium-term from the Australian government's policy shift toward electric vehicles. The note indicated that the policy could support the uptake of novated lease services. While the proposed change will have an immaterial impact on near-term earnings at the salary packaging firm, it could generate upside risk over the medium term.
The overweight position in lender's mortgage insurance provider Genworth Mortgage Insurance Australia Ltd (+22.2%) contributed to relative performance. The company reported a first-half underlying NPAT of $134.3M (vs $76.4M last year) and a statutory NPAT of $18.9M (vs $59.4M last year), which included unrealised mark-to-market investment losses of $162.1M. Management also provided its second-half guidance, including $375-435M of premiums written (vs prior guidance of $315-375M), indicating that while net incurred claims are expected to begin to normalise, it will take some time for changes in the economy to flow through to delinquencies. This is likely to result in second-half 2022 claims remaining below historical averages. The overweight position in copper and zinc miner 29Metals (-13.0%) detracted from relative performance. A broker note from Macquarie during the month indicated that the outlook for copper demand remains uncertain. The weakness in the base metal, which is currently trading below Macquarie's near-term forecasts, presents a downside risk to the company's earnings. Macquarie also anticipated sequentially higher operating costs at the group level in the June quarter, reflecting the current tight labour market and cost inflation pressures. This came as the miner reiterated its production guidance during its first quarter update, although it indicated that it was more likely to be towards the lower end of guidance for the 2022 calendar year. Not holding cancer diagnostic and treatment products developer Telix Pharmaceuticals Ltd. (+63.1%) detracted from relative performance. The stock rallied sharply following its June-quarter financial results update, where it recognised its first quarter of commercial sales from its Illuccix radioactive diagnostic agent product. The company reported total revenue of $22.5M from global sales of Illuccix – more than a ten-fold increase from its 2022 March-quarter sales of $1.9M. This included $19.3M generated during its first ten weeks of commercial sales into the United States.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/333_pfp.pdfAugust, 2021
The best performing sectors for the month, as measured by the S&P/ASX Small Ordinaries Accumulation Index, were Communication Services (+11.0%), Financials (+10.0%), and Consumer Staples (+8.9%). The worst performers were Industrials (+0.0%), Materials (+0.2%), and Consumer Discretionary (+4.0%). As a whole, small-cap industrial stocks (+6.1%) outperformed small-cap resource stocks (+0.7%), and small-cap value stocks (+3.8%) outperformed small-cap growth stocks (+3.7%) as measured by the MSCI Australia Small Cap Value and MSCI Australia Small Cap Growth indices, respectively
The Fund’s largest overweight positions include funds management firm Pacific Current Group, gold miner Northern Star Resources, and funds manager provider Elanor Investors Group. The Fund’s largest underweight positions include Orocobre Ltd (not held), Pilbara Minerals Ltd (not held), and Steadfast Group.
Not holding iron ore producer Champion Iron Ltd. (-22.5%) contributed to relative performance. The stock price weakened following a 20% fall in iron ore prices during the month. The decline was linked to softer Chinese demand after scaling back its steel production. Reports suggest that Chinese production may remain weak over the near term in order to improve air quality ahead of the Beijing Winter Olympic Games. Iron ore prices came under further pressure during the month following commentary from the US Federal Reserve indicating that it could soon tighten its accommodative monetary policy stance.
The overweight position in funds management company Centuria Capital Group (+17.5%) contributed to relative performance. The stock ended the month higher following a stronger-than-expected full-year financial result, reporting a 40% increase in operating revenue and a 98% increase in its funds under management, boosted by its merger with Augusta and Primewest property groups during the year. Investors were further bullish on the stock after management issued its full-year FY2022 operating earnings per share guidance and dividend per share guidance, both up by 10% over the past comparative period
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179138616.pdfJuly, 2021
The Australian equity market continued its positive run throughout July, reaching a new record high with the S&P/ASX Small Ordinaries Accumulation Index ending 0.7% higher. The index was assisted by rebounding consumer sentiment and improving jobs data, with unemployment falling to a ten-year low of 4.9%. Bullish corporate activities, including significant M&A activity and dividend announcements towards the end of the month, further benefitted the market.
COVID concerns flared up again during July, leading to renewed lockdowns. Victoria managed to exit its fifth lockdown by the 27th, however, Sydney's lockdown was extended as new daily cases from the Delta strain reached 239 by month-end. This amounted to harsher restrictions rolled out across several local government areas, with health experts remaining doubtful of an August 28th reopening. The lockdowns prompted a sharp downward revision to near-term economic growth, with economists forecasting a minimum 2% contraction in September-quarter GDP. Equity investors mostly shrugged off lockdown concerns, as fiscal support was boosted, and expectations mounted for the RBA to delay its planned wind-down of quantitative easing policies. Meanwhile, the federal and state governments ramped up their focus on improving vaccination rates, with only 13.9% of the population fully vaccinated as of the end of July
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/176089013.pdfJune, 2021
The Fund’s largest overweight positions include insurance provider AUB Group, boutique funds management firm Pacific Current Group, and construction materials supplier Maas Group Holdings. The Fund’s largest underweight positions include Steadfast Group, Pilbara Mineral, and ARB Corporation, all of which are not held by the Fund.
The overweight position in construction materials supplier Maas Group Holdings (+69.3%) contributed to relative performance. The stock maintained strong momentum throughout the quarter, driven by improved investor optimism after announcing and completing the acquisition of three private, family-owned businesses (Amcor Excavations Pty Ltd, Amcor Quarries and Concrete Pty Ltd and Willow Tree Gravels Pty Ltd). The acquisitions led to a broker-upgrade of its target-price, which further assisted the stock price during the quarter. The overweight position in mineral mining and processing company Mineral Resources Ltd (+41.7%) contributed to relative performance. The stock benefitted from record iron ore prices, which surged by 41% over the quarter, driven by strong demand from China, Europe and the US. This came as the company released its March-quarter production update, reporting iron ore production of 4.9M wet metric tonne, 44% from a year ago, and spodumene production of 109 dry metric tonne, 22% from a year ago.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174988385.pdfMay, 2021
The Fund’s largest overweight positions in gold miner Northern Star Resources, boutique funds management firm Pacific Current Group and construction materials supplier Maas Group Holdings. The Fund’s largest underweight positions include Metcash, Steadfast Group, and Virgin Money UK Plc, all of which are not held by the Fund.
The overweight position in construction materials supplier Maas Group Holdings (+15.0%) contributed to relative performance. The stock maintained strong momentum throughout May on improved investor optimism after completing the acquisition of three private, family-owned businesses (Amcor Excavations Pty Ltd, Amcor Quarries and Concrete Pty Ltd, and Willow Tree Gravels) that was announced at the end of April. This led to a broker upgrading its target price for the company which further assisted the stock price during the month.
The overweight position in gold miner Northern Star Resources (+11.3%) contributed to relative performance. Investors reacted positively to its latest Reserves and Resources update for the nine months to 31 March 2021. Reserves grew 8% to 21M ounces while Resources increased 15% to 56.5M ounces, located in tier-1 locations and in close proximity to its existing production infrastructure. Prices were noted to have remained unchanged at $1,750/oz for Reserves and $2,000/oz for Resources. The stock was further boosted during the month upon the announcement that Northern Star has purchased a further 10% interest in the Central Tanami Project for $15m cash, increasing its total stake in the Project to 50%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173413501.pdfApril, 2021
The Fund’s largest overweight positions in gold miner Northern Star Resources, boutique funds management firm Pacific Current Group, and integrated marketing and communication services provider Enero Group. The Fund’s largest underweight positions include Metcash, Steadfast Group, and Vocus, all of which are not held by the Fund.
The overweight position in construction materials supplier MAAS Group Holdings (+22.4%) contributed to relative performance. The stock price finished the month higher following the announcement that it has agreed to acquire Central Queensland leasehold quarry and fixed and mobile concrete batching plants operator Amcor Quarries & Concrete Pty Ltd, for an undisclosed amount. The transaction is subject to certain closing conditions and is expected to be finalised by May 2021. In a separate but related transaction, MAAS Group also announced during the month its acquisition of Amcor Excavations Pty Ltd and Willow Tree Gravels Pty Ltd.
The overweight position in mineral mining and processing company Mineral Resources Ltd (+25.9%) contributed to relative performance. The stock price continued to rise over the month, benefitting from record global iron-ore prices which surged to US$186/Mt (up US$22/Mt), driven by strong demand from Chinese steel mills due to aggressive infrastructure-focused stimulus programs in China, as well as across Europe and in the US, fuelled demand for the commodity. This came as the company released its March-quarter production update, reporting iron ore production of 4.9M wet metric tonne (up from 3.4M wmt a year ago), and spodumene production of 109 dry metric tonne (up from 89 dmt a year ago).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/172126868.pdfNovember, 2020
The Fund’s largest overweight positions include insurance provider AUB Group, boutique funds management firm Pacific Current Group, and investment and funds management services provider Elanor Investors Group. The Fund’s largest underweight positions include Reece, Chorus, and IDP Education, all of which are not held in the Fund. The overweight position in investment and funds management services provider Elanor Investors Group (+30.3%) contributed to relative performance.
The stock rallied following the announcement that the company had established a new managed fund that will acquire a commercial office and healthcare property located in Woolloongabba Queensland for $80.2 million. The 1.5-hectare property will contain two fully occupied, prime grade, commercial offices and healthcare buildings, and intend on being leased to the Queensland Government and the Catholic Church with a 7.2 year weighted average lease expiry.
The overweight position in workspace solutions provider Servcorp (+37.1%) contributed to relative performance. The stock rallied after its FY2021 earnings outlook was reaffirmed at its AGM, with management noting that it expects to remain profitable as the business continues to generate substantial positive cash flow. Servcorp anticipates that it will generate no less than $30m in cash flow across the current financial year, which will be used to reward shareholders via a healthy dividend stream (subject to currencies remaining constant, and the mitigation of pandemic-related impacts on operations).
The overweight position in gold miner Saracen Mineral Holdings (-16.5%) detracted from relative performance. The stock fell following a reversal in safe-haven assets, including gold, which fell 4.8% to US$1,762.55/oz on the back of heightened prospects of a sooner-than-expected rebound in global economic activity, spurred by announcements of promising coronavirus vaccine trials results. Despite this setback, we continue to hold the stock due to its high-quality assets, experienced management, and attractive valuation.
The overweight position in insurance provider AUB Group (+0.1%) detracted from relative performance. The stock disappointed over the month in comparison to the benchmark as investors were underwhelmed after the company announced an underlying NPAT guidance in the range of $60m to $62m, representing growth of 12.3% to 16.1% on FY20 underlying NPAT of $53.42m. Investors were further cautioned after management noted that its macro conditions remain “volatile and uncertain”. Despite this setback, we believe the market has overreacted, and that the structural drivers of the company remain sound as it operates a resilient, cash-generative business.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162518626.pdfticker: PER0048AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.perpetual.com.au/funds/perpetual-smaller-companies-fund
Download the latest fund profile
asset_class: Domestic Equity
asset_category: Australian Small Cap
peer_benchmark: Domestic Equity - Small Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Perpetual Wholesale Smaller Companies aims to provide long-term capital growth and income through investment in quality Australian industrial and resource shares which, when first acquired, do not rank in the S&P/ASX 50 Index.
- To outperform the S&P/ASX Small Ordinaries Accumulation Index (before fees and taxes) over rolling three-year periods.
- Perpetual researches companies of all sizes using consistent share selection criteria.
- Perpetual’s priority is to select those companies that represent the best investment quality and are appropriately priced.