September, 2023
The portfolio’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and La Francaise des Jeux SA. Conversely, the portfolio’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd (not held), and Woolworths Group Ltd (not held).
The overweight position in mining royalty firm Deterra Royalties Ltd (+7.64%) contributed to relative performance. Deterra Royalties performed strongly as Iron ore prices remained resilient through the month defying other commodities which in large ended the month lower. Despite BHP's Q3 operational review reporting a decrease in production of 3.9% compared to the prior quarter, in general MAC continues to ramp up as expected with full production expected to be reached by end FY24. The company receives an ongoing royalty of 1.232% of Australian dollar-denominated quarterly free on board revenue from the MAC royalty area. The business has growth levers through M&A however they are yet to execute on any to date.
Santos contributed to performance in the month (+3.00%) as the price of oil rallied. In addition, Santos sold an initial of 2.6% of PNG LNG (Papua New Guinea Liquefied Natural Gas) to Kumul with an option for Kumul to acquire another 2.4%. The total consideration from the 2.6% is $576 million cash and the assumption of approximately $160 million of project finance debt. Santos is our favoured oil and gas producer with material growth prospects that are attainable. Santos is a global energy company with strategic assets across Australia, Papau New Gunea, Timor Leste and the United States of America that aims to play a key role in helping the world decarbonise to reach net-zero emissions through reliable, affordable and sustainable energy.
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.
The overweight position in casino operator Star Entertainment Group (-34.02%) detracted from relative performance. The stock ended the month lower after the casino operator engaged the equity markets to raise $750m priced at $0.60 a share following Star also recently securing a $450 million debt package with the aim of paying off Star’s existing loans and handling costs at Queens Wharf in Brisbane. The raise has provided further clarity on the balance sheet and we are still seeing value in Star’s conservatively stated net tangible asset value.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/126_pfp-3.pdfAugust, 2023
The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and La Francaise des Jeux. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd (not held), and CSL Limited.
The overweight to Premier Investments (+16.14%) strongly contributed during August. Premier like most retail has struggled with its share-price since early May as pressures on the consumer increased resulting in negative industry sales, not aided by significant cost headwinds. All while cycling very strong comparative trading outcomes. Market analysts were very uncertain about just how bad FY23 & FY24 outcomes might be. PMV has long been part of our core retail investments- it is a quality business, supported by a particularly strong net cash balance sheet and overseen by engaged and experienced executive leadership personnel. The business also has future growth potential across several offshore geographies with the retail sector normalising post the widespread 2020/2021 covid restrictions. On 21st August 2023, PMV surprised the market with three separate announcements. Firstly with FY23 sales and profit guidance modestly ahead of market consensus but very reassuring nonetheless. Secondly that CEO Richard Murray has resigned effective 15 September 2023 with CFO John Bryce to act as interim CEO for the foreseeable future. Given Solomon Lew’s executive chairmanship and exceedingly strong divisional leadership and Richard’s relatively short tenure in the role, there is little for the market to be concerned with here. And finally, PMV announced a strategic review is to be initiated focussing on the corporate, operating and capital structure of the various brands and businesses held by the company. Future conclusions of this review are difficult to narrow down at this time and are potentially very wide ranging but including that there may be no change at all.
The overweight to Goodman Group contributed strongly to performance in August (+13.73%) as the company reported a solid result and provided an upbeat update highlighting their current and potential investments into data-centre development. We took the opportunity to establish a position in Goodman Group late last year when the market was generally worried about large property groups’ performance in a rising rate environment. However, Goodman’s focus on the Industrial & logistics segment has delivered strong results driven by tenants’ ecommerce expansion and supply chain optimisation in an environment of limited supply of modern and well-located warehouses. We believe that Goodman will continue to grow earnings across its global portfolio supported by profitable development and ongoing rental increases with a conservatively geared balance sheet. Goodman's management team has consistently demonstrated their ability to identify strategic locations, secure long-term leases with blue-chip clients, and maximize property value through efficient operations through the cycle. Finally, Goodman Group is committed to sustainability and responsible corporate practices, aligning with evolving investor values and regulatory requirements. Their green initiatives not only reduce environmental impact but is aligned with blue-chip tenants’ requirements. In conclusion, Goodman Group's best-in-class status, focus on the booming industrial and logistics sector, financial stability, exceptional management team, and commitment to sustainability make it a compelling long-term investment choice in the Australian property market for the right price.
Iluka Resources fell -16.54% during August due to growing concerns over the health of the Chinese property market and destocking from global pigment producers. This comes after an exceptional rise in the share price over the past few years. Iluka is the worlds largest producer of rutile that is used to produce pigment (paint) and zircon that is used to produce ceramics (tiles etc). These minerals generate the earnings and cashflow for the company currently, and the company has responded to soft near-term demand by idling some production to avoid inventory and working capital build. Iluka has a very strong balance sheet (net cash) and also owns a valuable stake in Deterra Royalties, which was spunoff in an IPO, so is able to buffer these periods of demand distortion that is a feature of these markets. Risk of a capex increase for the fully integrated rare earths refinery being built in WA to break China’s stronghold on these markets also dominated market attention, although we would highlight that construction is funded from a non-recourse loan of more than $1 billion from the federal government that has a $200m overrun facility.
A2 Milk detracted from returns during August (-10.9%). A2’s FY23 results met expectations with A2 navigating the challenging China label transition well to date holding average selling price in a highly competitive market. However guidance was cautious as A2 expects FY24 to be challenging as China’s birth rate hits record lows. Despite the recent softness in the share price, which trades at a fraction of the $20 per share peak in 2020, we think that A2 is fundamentally well positioned. The business has transitioned from a fast-growing start-up to an established and professional operator in recent years. The A2 brand remains strong in China with healthy lead indicators and growing market share in emerging cities. Management of inventory and pricing is sound, and we have growing confidence its investment in marketing is generating solid returns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/126_pfp-2.pdfJuly, 2023
The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and Santos Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group (not held), and BHP Group.
Domino’s Pizza Inc (NYSE:DPZ) was the largest positive contributor to performance in July with the stock rising +16.3%. While we have avoided the ASX listed Domino’s Pizza Enterprises (ASX:DMP) on valuation and earnings sustainability concerns, we have watched its US counterpart for a few years through the lens of the Australian business. Domino’s Pizza Inc is a high quality business model with a strong global brand and healthy franchisee economics driving a long growth runway for store openings and ultimately Domino’s earnings. Whilst inflationary pressures over the past 12-18 months have put pressure on the delivery business, we saw no change to the long-term potential for the company and used the share price volatility to establish a position. Dominos has a fantastic long term track record of earnings growth and shareholder returns and we see a favourable outlook ahead.
An underweight to Macquarie Group was the second largest contributor to returns as the stock fell -1.5%. The stock trades at a significant premium to our assessed valuation and hence the fund does not have a position. We exercise caution as excluding trading and investment income at $7.5 billion and 39% of the group’s income, there was no revenue growth which accounts for our caution in capitalising it into a higher valuation for the business.
Iluka Resources fell -8% during July due to growing concerns over the health of the Chinese property market and destocking from global pigment producers, although this comes after an exceptional rise in the share price over the past few years. Iluka is the worlds largest producer of rutile that is used to produce pigment (paint) and zircon that is used to produce ceramics (tiles etc). These minerals generate the cashflow underpinning the bulk of the current valuation of the company. Iluka also owns a valuable stake in Deterra Royalties, which was spun-off in an IPO, as well as a substantial amount of cash. Iluka is also the recipient of a non -recourse loan of more than $1 billion from the federal government to develop a fully integrated rare earths refinery, making it one of only two outside of China. We believe that this will be the key driver of future value for the company in the decade ahead.
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/2021/01/126_pfp-1.pdfMay, 2023
The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and Santos Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd. (not held), and BHP Group. The overweight position in insurance provider Insurance Australia Group Ltd (+4.2%) contributed to relative performance. The stock finished higher after being upgraded to 'overweight' from 'neutral' at JPMorgan, with its target price increased to A$5.75 from A$5, representing a 20% upside to its price at the time of the upgrade. The overweight position in oil and gas producer Santos (+3.1%) contributed to relative performance. During the month, the company announced that its Moomba CCS project was 60% complete and is on track to start storing CO2 next year. Once complete, the project is set to support Santos in reducing its own emissions, in addition to working with other hard-to-abate sectors to look at ways of using Moomba CCS to help reduce their emissions as well. According to the company, in the next six weeks, there will be a direct air capture facility installed at the project and that will work for nine months trialling the company's new technology for direct air capture.
The overweight position in mineral sands miner Iluka Resources (+2.5%) contributed to relative performance. The stock price rose sharply after being upgraded to 'outperform' from 'neutral' by Macquarie analysts, with its target price increasing to A$12.30 from A$12, representing a 12% upside to its price at the time of the upgrade.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/126_pfp.pdfOctober, 2022
The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and BHP Group. The overweight position in online betting and gaming provider Flutter Entertainment Plc (+20.8%) contributed to relative performance. The stock was assisted by the announcement that its CFO, Jonathan Hill, is to take on the new Group COO role. Paul Edgecliffe-Johnson, currently CFO and Group Head of Strategy at InterContinental Hotels Group, will join as CFO and Executive Director of the group in H1 of 2023. The company indicated that given Jonathan's expertise, knowledge of the business, and role in shaping Flutter's strategy, he is well placed to set up the new Group COO function for success.
The underweight position in iron ore miner BHP Group (-3.0%) contributed to relative performance. The stock price came under pressure during October, with headwinds coming from falling iron ore prices (down 5.4% over the month) and sinking to a two-year low. The iron ore weakness was primarily driven by falling demand from China, which struggled with renewed lockdowns due to its COVID-zero strategy and waning real estate market.
Not holding Iron ore miner Fortescue (-12.6%) contributed to relative performance. The stock also fell on the back of weakening iron ore prices over the month as demand for the steel-making ingredient from China slowed. Increasingly bearish sentiment from the broker community also impacted the stock after Fortescue released its decarbonisation plans for the Pilbara and aims to reach net zero emissions by 2030, which is considered to impact its dividend payments over the coming years.
The overweight position in mineral sands miner Iluka Resources (-4.5%) detracted from relative performance. The miner reported Zircon production of 69.7 Kt vs quarter-ago 80.4 Kt, Rutile 24.9 Kt (vs quarter-ago 48.3 Kt), Synthetic Rutile 59.2 Kt (vs quarter-ago 59.8 Kt), and Ilmenite 150.9 Kt (vs quarter-ago 170.7 Kt). Mineral sands revenue of $357.3M fell from $540.9M a quarter ago despite robust zircon demand from Iluka customers. Sales were also impacted by production and logistics constraints, softness in the Chinese ceramics market, and high energy costs affecting tile production.
The underweight position in Commonwealth Bank of Australia (+15.4%) detracted from relative performance. The stock rose sharply following an upbeat Annual General Meeting. Although it didn't provide any details on its performance during the current quarter, CEO Matt Comyn indicated that overall, the bank remains fundamentally optimistic about the medium to long-term opportunities for Australia, as well as it's capacity to provide support in the immediate future for its customers. It was also announced that the bank would continue to invest in its core retail, business, and institutional banking franchises to reinforce its proposition and extend its digital leadership.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/116_pfp.pdfSeptember, 2022
The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and BHP Group.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+18.5%) contributed to relative performance. The stock rallied upon release of a stronger-than-expected half year result. Flutter saw an 11% rise in revenue compared to the first half of 2021, however, adjusted EBITDA fell 19%. Positive revenue momentum was driven by recreational player growth, with average monthly players up 14% at the group level. In the US, its sports betting market share accelerated to 51% in the June quarter, driven by FanDuel's efficient customer acquisition and strong operational execution. However, its UK & Ireland June-half performance reflected safer gambling initiatives. The overweight position in dairy producer a2 Milk Company (+23.0%) contributed to relative performance. During the quarter, the company reported a 19.8% increase in its full-year FY2022 revenue to NZ$1.446.2M, leading to a 42.3% jump in net profit after tax to NZ$114.7M and beating the market consensus estimate of NZ$113.9M. This was driven mainly by double-digit infant formula sales growth from both its China and English label products, reflecting A2’s significant increase in marketing investment, which prompted further gains in brand health metrics and record market shares. Investors were further pleased with the announcement of a NZ$150M on-market share buyback. The overweight position in insurance provider Insurance Australia Group Ltd (+6.7%) contributed to relative performance. The stock rallied hard late in the quarter to recover most of its earlier losses incurred leading up to the release of its preliminary full-year financial results. While IAG’s growth of 5.7% was in line with its mid-single digit growth guidance, its reported insurance profit margin came in at 7.4%, down 6.1% year-on-year and missing its 10% to 12% guidance. Management blamed the miss on its net natural peril costs of $1.119B, which were $354M above the original allowance of $765M.
The overweight position in healthcare services and hospital operator Ramsay Health Care (-21.2%) detracted from relative performance. The stock fell after the KKR-led consortium confirmed that it had ceased discussions with Ramsay regarding a potential acquisition. Ramsay's board advised KKR to increase its offer to $88 per share for due diligence to be granted. However, the consortium advised that it would not proceed with an alternative proposal on the belief that the business had materially deteriorated over the past six months. Ramsay indicated that it remains open to engaging in talks relating to a change of control.
The overweight position in explosives and blasting systems manufacturer Orica Ltd. (-16.2%) detracted from relative performance. The stock fell during the quarter following its successful $650M equity capital raise to partly fund the acquisition of geospatial tools manufacturer Axis Mining Technology in a deal worth up to $350M for an up-front cash consideration of $260M. The excess capital raised will be used to fund incremental trade working capital requirements arising from global supply chain dislocations and to help strengthen its balance sheet.
August, 2022
The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and Woodside Petroleum Ltd (not held)
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+27.3%) contributed to relative performance. The stock rallied upon release of a stronger-than-expected half year result. Flutter saw an 11% rise in revenue compared to the first half of 2021, however, adjusted EBITDA fell 19%. Positive revenue momentum was driven by recreational player growth, with average monthly players up 14% at the group level. In the US, its sports betting market share accelerated to 51% in the June quarter, driven by FanDuel's efficient customer acquisition and strong operational execution. However, its UK & Ireland June-half performance reflected safer gambling initiatives. The overweight position in dairy producer A2 Milk Company (+22.2%) contributed to relative performance. During the month, the company reported a 19.8% increase in its full-year FY2022 revenue to NZ$1.446.2M, leading to a 42.3% jump in net profit after tax to NZ$114.7M and beating the market consensus estimate of NZ$113.9M. This was driven mainly by double-digit infant formula sales growth from both its China and English label products, reflecting A2’s significant increase in marketing investment, which prompted further gains in brand health metrics and record market shares. Investors were further pleased with the announcement of a NZ$150M on-market share buyback. The overweight position in oil and gas producer Santos (+9.7%) contributed to relative performance. Santos reported revenues of US$3.77B, an 85% leap over the prior corresponding period. Underlying net profit after tax (NPAT) jumped 300% to US$1.27B with management declaring an interim dividend of 7.6 US cents, up 38% from the same period last year. This was driven by record production, a significant increase in the price of oil and LNG, and from its merger with Oil Search. Management also advised that it had increased its previously announced on-market share buyback from US$250 million to US$350 million.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190862303.pdfJuly, 2022
The Fund’s largest overweight positions include Santos Limited, La Francaise des Jeux SA, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group (not held), and Woodside Petroleum Ltd (not held). The underweight position in iron ore miner BHP Group (-6.2%) contributed to relative performance. The stock sold off alongside most of the miners following a decline in commodity prices as concerns of demand destruction in a recessionary environment continue to mount. Significant iron ore weakness (falling 17.5%) was attributed to heightened fears over China's real estate developers following reports of homebuyers boycotting mortgage repayments on stalled construction projects. China's real estate woes compounded broader economic growth concerns, threatening to hobble demand for construction inputs such as iron ore.
Not holding oil and gas producer Woodside Petroleum (+0.4%) contributed to relative performance. The stock underperformed the benchmark, constrained by falling oil and gas prices, with WTI and Brent crude oil declining 6.0% and 6.9%, respectively, due to unfavourable demand and supply dynamics stemming from fears of a recession. This came despite reporting a 68% quarter-on-quarter increase in its June-quarter production, a +44% q/q increase in sales revenue, and an increase in its full-year Production Guidance to 145-153 MMboe (from its previous guidance of 92-98 MMboe).
Not holding iron ore miner Rio Tinto (-4.7%) contributed to relative performance. The stock similarly declined over the month along with the broader mining sector, driven predominantly by the correction in commodity prices, particularly iron ore, which sold off on the back of demand concerns out of China
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190037703.pdfMay, 2022
The Fund’s largest overweight positions include Santos Limited, Iluka Resources Limited, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, BHP Group Ltd, and Macquarie Group Limited (not held). The overweight position in online betting and gaming provider Flutter Entertainment Plc (+19.0%) contributed to relative performance. The stock price was assisted by its first-quarter trading update released early in the month. Revenue growth of 6% was reported, driven by continued strong recreational player momentum with the average number of monthly players up 15%. Revenue from its US business grew by 45% to $574M, assisted by the launch of its FanDuel sportsbook in New York and Louisiana during January and its expansion into Ontario in April. Group revenue ex-US declined by 3% despite solid performances in Australia, Canada, Brazil and India.
The overweight position in oil and gas producer Santos (+2.5%) contributed to relative performance. The stock reached a 52-week high during the month, spurred by a rally in oil prices, with WTI crude rising 9.6% and Brent crude gaining 13.4% after EU leaders agreed to cut 90% of oil imports from Russia. The stock further benefitted from an upgrade by Morgans, who sees a 24% upside for the share price supported by its positive growth outlook and a diversified earnings base.
Avoiding commercial real estate developer Goodman Group (-14.3%) contributed to relative performance. Despite upgrading its earnings per share guidance from 20% to at least 23%, the stock fell along with the broader real estate sector following the 25 basis point increase in the cash rate. The RBA noted that rates could rise to a more normal level of 2.50% after upgrading its CPI forecasts and projecting headline and underlying inflation could rise to around 6% and 4.75%, respectively, for 2022 before moderating to about 3% by mid-2024.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188422786.pdfApril, 2022
The Fund’s largest overweight positions include Santos Limited, Iluka Resources Limited, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, BHP Group Ltd, and Macquarie Group Limited (not held). The overweight position in healthcare services and hospital operator Ramsay Health Care (+24.5%) contributed to relative performance. The company confirmed during the month that it had received a conditional, non-binding, indicative proposal from KKR consortium to acquire the company. Under the proposal, Ramsay shareholders would be entitled to receive $88.00 per share cash, less any ordinary or special dividends paid after the date of the proposal. The Ramsay board has determined it appropriate to provide the Consortium with due diligence on a non-exclusive basis.
The underweight position in iron ore miner BHP Group (-7.2%) contributed to relative performance. BHP revealed in its third-quarter trading update a fall in production across most of its operations, including lower iron production, due to a variety of issues. Management advised that full-year copper and nickel production guidance had also been lowered due to Covid-related labour constraints. However, production guidance for iron ore, metallurgical coal, and energy coal remained unchanged.
The overweight position in supply chain services provider Brambles (+6.5%) contributed to relative performance. The stock rallied sharply upon release of the company's nine-month trading update, reporting sales revenue of $4.07B, vs $3.79B from last year. It also upgraded its FY2022 guidance to reflect sales revenue growth of 8-9% (previous guidance of 6-8%) and underlying profit growth of 6-7% (previous guidance of 3-5%), including ~$50M of short-term transformation costs. Its FY2022 dividends are expected to be in line with its policy to pay out 45-60% of underlying profit after finance costs and tax
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187432152.pdfMarch, 2022
The Fund’s largest overweight positions include Santos Limited, La Francaise des Jeux SA, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, BHP Group Ltd, and Macquarie Group Limited (not held). The overweight position in oil and gas producer Santos (+24.7%) contributed to relative performance. The stock was supported over the quarter from a sharp rise in crude oil prices, with WTI and Brent increasing 33.5% and 38.9%, respectively, driven by concerns of supply disruptions resulting from the Ukrainian war.
The overweight position in mineral sands miner Iluka Resources (+13.1%) contributed to relative performance. The stock was supported by solid December-quarter production results, reporting a 5% quarter-on-quarter increase in mineral sands production and an increase in rutile, zircon, and synthetic rutile production relative to the previous quarter. A favourable court decision from a shareholder class action in relation to alleged breaches of Iluka's continuous disclosure obligations and misleading conduct in 2012 also benefited the stock throughout the quarter. The stock price was also assisted by target-price increases from JPM, Citi, and Macquarie Group. The overweight position in casino operator Crown Resorts (+6.7%) contributed to relative performance. The stock ended the quarter higher after receiving a revised non-binding proposal from Blackstone to acquire the company at $13.10/share (up from its prior offer of $12.50). The Revised Proposal is subject to the same conditions announced by Crown last November, including (but not limited to) completing further due diligence, unanimous support and recommendation by the Crown board, execution of a binding implementation agreement, and Blackstone receiving final approval from casino regulators.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (-28.9%) detracted from relative performance. The company reported a full-year Adjusted EPS of 252.7p (vs consensus of 275.7p), on revenue of £6.04B (vs consensus of £5.98B), and an adjusted EBITDA of £1.00B (vs consensus of £1.01B). Management also reported that trading in the first seven weeks of 2022 had been in line with expectations, with Group revenue up +2% y/y, reflecting strong comparatives which benefited from very favourable sports results. Management anticipated revenue growth to accelerate as 2022 progresses, reflecting the phasing of sports margin comparables and safer gambling measures taken in 2021
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/186319326.pdfFebruary, 2022
The Fund’s largest overweight positions include Crown Resorts Limited, Santos Limited, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Limited, and BHP Group Limited. The overweight position in insurance provider Insurance Australia Group Ltd (+9.9%) contributed to relative performance. The stock rallied on the back of reporting a solid set of half-year financial results. IAG posted cash earnings of $176m (vs consensus of $170.3m), and an underlying insurance margin of 15.1% (vs 15.9% from last year). Management also reaffirmed its reported insurance margin guidance of 10-12%, noting that it aligns with its aspirational goal of achieving a 15% to 17% margin over the medium term. The stock further benefitted from a favourable ruling by the Federal Court in a vital test case for insurers to largely reject Covid-related business interruption insurance claims. Not holding online business solutions provider Xero Limited (-17.0%) contributed to relative performance. The stock fell following a target-price cut of 23% to $100.00/Share by Macquarie during the month. The broker noted that it is leaning towards more defensive picks among Australian tech stocks at the start of what is believed will be a disappointing round of earnings reports.
Not holding commercial real estate developer Goodman Group (-4.1%) contributed to relative performance. The stock fell after being downgraded to neutral from overweight by JPMorgan, based on its relative valuation. This came despite the company reporting a first-half OEPS of $0.42 vs $0.33 from last year, an operating income increase of $786.2m (from $614.9M a year ago), and an NPAT rise to $2.00b from $1.04b last year. The overweight position in online betting and gaming provider Flutter Entertainment Plc (-6.4%) detracted from relative performance. The stock fell after reporting a full-year Adj EPS of 252.7p vs consensus of 275.7p. Full-year revenue and Adjusted EBITDA fell broadly in line with consensus expectation. Management noted that trading in the first seven weeks of 2022 was in line with expectations, with Group revenue up +2% y/y, reflecting strong comparatives which have benefited from favourable sports results.
Not holding oil and gas producer Woodside Petroleum (+19.8%) detracted from relative performance. The stock benefitted from rising oil prices across the month, as well as from a stronger-than-expected financial result. The company reported a full-year underlying NPAT of $1.62b (vs consensus of $1.45b), revenue of $6.96b (vs consensus $6.72b), an EBITDA of $4.14b (vs consensus of $4.32b), and an NPAT of $1.98b (up from -$4.03b from last year).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/185154467.pdfJanuary, 2022
The Fund’s largest overweight positions include Crown Resorts Limited, Santos Limited, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Limited, and BHP Group Limited. The overweight position in oil and gas producer Santos (+13.2%) contributed to relative performance. The stock rallied following a sharp rise in crude oil prices over the month, with WTI and Brent increasing 17.0% and 18.2%, respectively. The commodity climbed on concerns that supplies could tighten due to Ukraine-Russia tensions, threats to infrastructure in the United Arab Emirates, and struggles by OPEC+ to hit its targeted monthly output increase. However, this more than offset concerns about the price, following the possibility of an interest rate hike by the U.S. Federal Reserve.
The overweight position in casino operator Crown Resorts (+1.1%) contributed to relative performance. The stock ended the month higher after receiving a revised non-binding proposal from Blackstone to acquire the company at $13.10/share (up from its prior offer of $12.50). The Revised Proposal is subject to the same conditions announced by Crown last November, including (but not limited to) completing further due diligence, unanimous support and recommendation by the Crown board, execution of a binding implementation agreement, and Blackstone receiving final approval from casino regulators.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183929327.pdfOctober, 2021
The Fund’s largest overweight positions include Crown Resorts Limited, Insurance Australia Group Limited, and La Francaise des Jeux SA. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Limited, and Macquarie Group Limited. The overweight position in casino operator Crown Resorts (+4.0%) contributed to relative performance. The stock rallied on investor reprieve following the announcement that the Victorian Royal Commission has recommended the company retain its license to operate its Melbourne Casino following the inquiry into alleged illegal activities and unethical conduct. The Commission has instead recommended the appointment of a Special Manager to oversee Crown’s path to suitability for a two-year period, which the State Government has accepted. The Government, however, noted that the licence would be automatically cancelled at the end of the two years if the company is unable to prove that it has adequately reformed.
The overweight position in copper and gold miner Oz Minerals (+11.6%) contributed to relative performance. The stock benefitted over the month from its September quarter trading update, reporting 33,794t of copper production (vs 32,681t from last quarter) and gold production of 65,932oz (vs quarter-ago 57,875oz) at an All-In Sustaining Cost of $1.06/lb (vs $1.35/lb last quarter). The company’s full-year copper production guidance was unchanged at 120-145Kt; however, its gold production forecast was increased to 220-243Koz (from 205-208Koz) and its full-year All-In Sustaining Cost guidance was reduced to $1.25-1.40/Ib (from $1.30-1.45/lb). The overweight position in fuel retailer Ampol (+9.3%) contributed to relative performance. The stock benefited from the announcement that it has entered into a binding scheme implementation agreement to acquire NZ-listed fuel distributor Z Energy Ltd. Management is forecasting significant transition and synergy opportunities totalling NZ$60m to NZ$80m, which is expected to be achieved via fuel procurement and overhead cost reductions. The stock was further boosted during the month after reporting strong profit growth over the third quarter, with its unaudited EBIT increasing 76% to AU$102m.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180944606-1.pdfOctober, 2021
The Fund’s largest overweight positions include Crown Resorts Limited, Insurance Australia Group Limited, and La Francaise des Jeux SA. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Limited, and Macquarie Group Limited. The overweight position in casino operator Crown Resorts (+4.0%) contributed to relative performance. The stock rallied on investor reprieve following the announcement that the Victorian Royal Commission has recommended the company retain its license to operate its Melbourne Casino following the inquiry into alleged illegal activities and unethical conduct. The Commission has instead recommended the appointment of a Special Manager to oversee Crown’s path to suitability for a two-year period, which the State Government has accepted. The Government, however, noted that the licence would be automatically cancelled at the end of the two years if the company is unable to prove that it has adequately reformed.
The overweight position in copper and gold miner Oz Minerals (+11.6%) contributed to relative performance. The stock benefitted over the month from its September quarter trading update, reporting 33,794t of copper production (vs 32,681t from last quarter) and gold production of 65,932oz (vs quarter-ago 57,875oz) at an All-In Sustaining Cost of $1.06/lb (vs $1.35/lb last quarter). The company’s full-year copper production guidance was unchanged at 120-145Kt; however, its gold production forecast was increased to 220-243Koz (from 205-208Koz) and its full-year All-In Sustaining Cost guidance was reduced to $1.25-1.40/Ib (from $1.30-1.45/lb).
The overweight position in fuel retailer Ampol (+9.3%) contributed to relative performance. The stock benefited from the announcement that it has entered into a binding scheme implementation agreement to acquire NZ-listed fuel distributor Z Energy Ltd. Management is forecasting significant transition and synergy opportunities totalling NZ$60m to NZ$80m, which is expected to be achieved via fuel procurement and overhead cost reductions. The stock was further boosted during the month after reporting strong profit growth over the third quarter, with its unaudited EBIT increasing 76% to AU$102m
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180944606.pdfSeptember, 2021
Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Limited, and Macquarie Group Limited. The underweight position in BHP Group (-17.6%), and not holding Fortescue Metals Group (-28.6%) both contributed to relative performance. A sell-off across the iron ore producers was observed following a sharp pullback in iron ore prices saw the commodity decline 44.2% over the quarter. The fall was driven by a slowdown in steel production out of China to meet decarbonisation targets in the leadup to the 2022 Beijing Winter Olympics, and bearish sentiment surrounding the Evergrande debt fiasco, which has triggered a slowdown in construction activity. Commentary from the US Federal Reserve, indicating that it could soon tighten its accommodative monetary policy stance further, contributed to the sell-off in iron ore during the quarter.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+13.2%) contributed to relative performance. The stock benefitted from a stronger-than-expected half-year financial result, reporting a 99% increase in revenue and a 221% year-on-year increase in profit before tax. Management attributed its solid performance to the quality of its products and the extensive reach of the FanDuel brand as it remained the number one online sports betting operator in the US. Flutter further noted that its UK and Ireland businesses had also benefitted from shared learnings as the integration between its brands continued to progress well over the period.
The overweight position in French Gambling operator La Francaise des Jeux SA (-8.8%) detracted from relative performance. The stock sold off after the European Commission announced it had launched an in-depth investigation into a 25-year exclusive rights agreement granted on some lottery and sport betting services provided to La Francaise des Jeux after its partial privatisation by the French Government in 2019. The Commission said it would look into whether the exclusive rights comply with European Union's state aids rules after several complaints were lodged against the company
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180245466.pdfAugust, 2021
The Fund’s largest overweight positions include casino operator Crown Resorts, mineral sands miner Iluka Resources, and online betting and gaming provider Flutter Entertainment Plc. Conversely, the Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group.
The underweight position in diversified miner BHP Group (-14.7%) contributed to relative performance. The stock fell after revealing its plans to spin-off and subsequently merge its oil and gas operations with Woodside Petroleum Ltd in a move to improve its ESG profile. Analysts cautioned of the adverse financial impact f that would result from the loss of its high-margin oil and gas earnings and growth projects that currently represent two-thirds of BHP’s total growth profile. The stock was further pressured by a 20% fall in iron ore prices over the month. The decline was linked to weaker steel demand from China and commentary from the US Federal Reserve indicating that it could soon tighten its accommodative monetary policy stance.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+14.2%) contributed to relative performance. The stock benefitted from a stronger-than-expected half-year financial result, reporting a 99% increase in revenue and a 221% year-on-year increase in profit before tax. Management attributed its solid performance to the quality of its products and the extensive reach of the FanDuel brand as it remained the number one online sports betting operator in the US. Flutter further noted that its UK and Ireland businesses had also benefitted from shared learnings as the integration between its brands continued to progress well over the period.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179096528.pdfJuly, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, insurance provider Insurance Australia Group Ltd, and French Gambling operator La Francaise des Jeux SA. The Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group.
The overweight position in mineral sands miner Iluka Resources (+8.5%) contributed to relative performance. The stock benefitted from a 75% year-on-year gain in its June-quarter mineral sands revenue, assisted by a 30% total gain in its production of zircon, rutile, and synthetic rutile compared to the same period last year. Most noticeably was a 71% year-on-year improvement in its zircon output. Management noted that its impressive sales reflected an increase in zircon prices as well as a return to pre-pandemic production levels amongst Chinese tile manufacturers. Not holding payment services provider Afterpay (-18.2%) contributed to relative performance. The stock fell midway through the month after payments company, PayPal Australia, announced its plan to launch a no-late fee 'buy now, pay later' product.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/176088627.pdfJune, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and French Gambling operator La Francaise des Jeux SA. The Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group. The overweight position in French Gambling operator La Francaise des Jeux SA (+33.3%) contributed to relative performance. The stock maintained its strong momentum over the quarter, benefitting from ongoing margin expansion through a rotation towards online sales. This was reinforced following a broker-upgrade to its target price, citing stronger-than-anticipated lottery margins and benefits, which are expected to be derived from the migration to its online platform.
The overweight position in mineral sands miner Iluka Resources (+26.9%) contributed to relative performance. The stock strengthened following reports that its mineral sands competitor, Rio Tinto, has suspended all mining and smelting operations at its South African Richards Bay Minerals site amid escalating security and safety concerns. The suspension of operations has led to higher zircon prices and expectations of increased demand from Iluka during its next round of contract negotiations. The stock was further supported during the quarter by media speculation that Iluka has identified several parties interested in acquiring its troubled Rutile operations in Sierra Leone
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174944362.pdfMay, 2021
The Fund’s largest overweight positions include casino operator Crown Resorts, online betting and gaming provider Flutter Entertainment Plc, and French Gambling operator La Francaise des Jeux SA. The Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group.
The overweight position in French Gambling operator La Francaise des Jeux SA (+10.7%) contributed to relative performance. The stock maintained its positive momentum over May, continuing to benefit from ongoing structural growth predominantly through its ongoing margin expansion due to its shift from retail sales to online sales. This was reinforced by a broker upgrade to its target price during the month, citing stronger-than-anticipated lottery margins and benefits which are expected to be derived from the migration to its online platform. Not holding payment services provider Afterpay (-21.1%) contributed to relative performance. Despite the absence of any materially adverse news directly relating to the company over the month, the stock fell along with the broader tech sector following declining investor confidence spurred by a broader sell-off across US tech stocks. The decline was thought to result from the prospects of higher inflation and concerns of rising interest rates that are likely to adversely impact higher valuation-multiple tech companies.
The overweight position in online betting and gaming provider Flutter PLC (-8.8%) detracted from relative performance. The stock fell after the company announced that the CEO of its US business FanDuel Group, Matt King, has given notice of his intention to resign from the company. Flutter reported that it will continue to assess its plans to float the business on the US exchange, however, noted that Mr. King's departure will affect the timing of any potential listing. Despite this setback, the Fund continues to hold the stock as we believe its future earnings growth potential from its international segments has yet to be fully recognised by the market.
The underweight position in Commonwealth Bank of Australia (+12.0%) detracted from relative performance. The stock broke through the $100 price mark for the first time in May, supported by a solid March-quarter financial result, reporting a cash net profit after tax of $2.4 billion (compared with $1.3 billion across the same period in 2020, $1.70 billion in 2019, and $2.35 billion in 2018). Management advised that the impressive performance was driven largely by lower loan impairment expenses and a 2% increase in income, resulting from above-system core volume growth, improved margins, and higher non-interest income
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173424765.pdfApril, 2021
The Fund’s largest overweight positions include casino operator Crown Resorts, online betting and gaming provider Flutter Entertainment Plc, and French Gambling operator La Francaise des Jeux SA. The Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group.
The overweight position in French Gambling operator La Francaise des Jeux SA (+11.0%) contributed to relative performance. The stock rallied following its first-quarter earnings results, reporting a 12% increase in stakes at €4.6 billion and a 5% increase in revenue of €0.5 billion compared with the first quarter of 2020. This amounted to a 6% increase in stakes and a 4% increase in revenue compared to the first quarter of 2019. Management also reported strong momentum in sports betting at +46% year-on-year (+20% in Q1 of 2019) benefitting from the normalisation of sporting events, while its lottery business incurred more modest growth (+3.8% vs Q1 2020, and +2.2% vs Q1 2019). The overweight position in building and construction materials provider Boral (+12.9%) contributed to relative performance.
The stock rose after finalising the US$1.02 billion sale of its 50% stake in its USG Boral joint venture to German company, Gebr Knauf KG. Management reported that it expects to generate a post-tax profit of A$450 million (US$341.9 million) on the divestment and intend on using the proceeds to reduce its net debt position from ~$1.9 billion to its target of $1.5 billion, as well as distributing the surplus capital via an on-market buyback of up to 10% of its shares on issue over the next 12 months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/172181194.pdfNovember, 2020
The Fund’s largest overweight positions include casino operator Crown Resorts, online betting and gaming provider Flutter Entertainment, and French Gambling operator La Francaise des Jeux SA. The Fund’s largest underweight positions include CSL, Commonwealth Bank, and BHP Group. The overweight position in building materials manufacturer Fletcher Building (+39.5%) contributed to relative performance.
The stock spiked after announcing a +54.4% (NZ$80m) year-on-year increase in its EBIT (before significant items) to NZ$227m for the first four months of the financial year. Fletcher also reported a 1% increase in revenues to NZ$2.7b and a 2.9% increase in its Group EBIT margin to 8.4% over the same period. Management noted that robust operating conditions in the residential construction market in both New Zealand and Australia were largely responsible for the sharp rebound in profits over the current financial year. The overweight position in online betting and gaming provider Flutter (+1.1%) detracted from relative performance. The stock underperformed the broader market despite reporting a September-quarter revenue of £1.33b (vs £1.04b over the past comparative period) and expecting a full-year Group ex-US EBITDA of between £1.28b and £1.35b (vs its prior guidance of between £1.18 and £1.33b).
Management, however, reported an EBITDA loss of £160-180mn in FY20 (vs. £140-160mn previously and a consensus of £149m) for its US business, hampering investor sentiment over the month. Despite this underperformance, we continue to hold the stock as we believe its future earnings growth potential from its international segments has yet to be fully recognised by the market. The overweight position in automotive and industrial products manufacturer G.U.D. Holdings (-11.1%) detracted from relative performance. The stock ended the month lower on declining investor enthusiasm after management announced it had entered into a binding agreement with AMA to acquire its aftermarket car parts business, ACAD, for a $70m consideration.
The acquisition is to be partly funded by a fully underwritten $55m institutional placement, which was also completed during the month at a price of A$11.25 per share. Despite the stock's recent underperformance, the Fund continues to hold the stock as we believe the market is not pricing in the benefits of the acquisition and is significantly undervalued at its current price.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162518602.pdfticker: PER0049AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://investmentcentre.moneymanagement.com.au/factsheets/mi/lgs0/perpetual-wholesale-australian
Right sidebar -> Quick links -> Provider’s own factsheet
https://www.perpetual.com.au/funds/perpetual-australian-share-fund/
asset_class: Domestic Equity
asset_category: Australia Large Value
peer_benchmark: Domestic Equity - Large Value Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Perpetual Wholesale Australian aims to provide long- term capital growth and regular income through investment in quality industrial and resource shares. Outperform the S&P/ASX 300 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. In determining investment quality, investments are carefully selected on the basis of four key investment criteria: conservative debt levels, sound management quality business and in the case of industrial shares, recurring earnings. Derivatives may be used in managing the Fund.