September, 2023
The portfolio's largest overweight positions include Insurance Australia Group Ltd, Orica Limited and Origin Energy Limited. Conversely, the portfolio’s largest relative underweight positions include ANZ Group Holdings Limited, Macquarie Group Ltd (not held) & Commonwealth Bank of Australia.
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/2021/01/128_pfp-10.pdfAugust, 2023
The Fund's largest overweight positions include Insurance Australia Group Ltd, Orica Limited, and Santos Limited. Conversely, the Fund's largest relative underweight positions include Macquarie Group Ltd (not held), ANZ Group Holdings Limited & 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.
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.
The overweight to Brambles (+6.40%) contributed during August. We believe this was driven by the company’s better-than-expected FY23 result and associated outlook commentary. More specifically, the result demonstrated Brambles’ significant pricing power, to ensure that CHEP’s increased cost-to-serve was being more than recovered (e.g. CHEP Americas reported an 18% rise in revenue from Price/Mix benefits during the period). In addition, improved working capital management as well as lower capex/sales ratio, drove a Free Cashflow increase of US$412m to US $498m in FY23 – thus addressing what has been a key analyst/investor concern, Brambles’ historic poor track record of Free Cashflow generation. Finally, FY24e guidance for underlying earnings growth in cc-terms of 9-12%, plus Free cashflow of US$450 - $550m, positively surprised non-holders.
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.
The funds overweight to Costa Group detracted from performance as the stock fell 13.9% during August as a profit warning due to the wet and cold weather impacting its citrus crop and weak tomato pricing sparked speculation that potential acquirer Paine Schwartz may cut or walk away from its $3.50 bid. Costa is the leading producer in several agricultural categories including mushrooms, tomatoes and has best-in-class genetics in the berries segment (especially blueberries). We recently visited China where we believe Costa has substantial growth prospects, especially in the blueberry market where consumption per capita is a fraction of US and Australian levels and where its IP gave it superior product versus peers.
The funds overweight to Endeavour Group (-8.28%) detracted from performance over the month. Endeavour has struggled over recent months as it matures into its standalone status after demerger from Woolworths, faces into continuing erratic selldown of the residual WOW shareholding, cycles inconsistent covid impacted trading in its retail and hotel divisions and mostly remains vulnerable to numerous erratic political responses to gaming regulation. Given all these mixed headwinds it has been difficult for the market to discern what normalised future trading might look like. For its part, Endeavour has struggled to articulate its actions, and at this still early stage, to demonstrate outcomes around its existing asset base. As an active investor we purposefully interact and engage with the company, particularly around capital allocation and return hurdles and will continue to do so. Regardless Endeavour possesses significant assets, capable management, and a solid balance sheet.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-9.pdfJuly, 2023
The Fund's largest overweight positions include Insurance Australia Group Ltd, Orica Limited, and Santos Limited. Conversely, the Fund's largest relative underweight positions include BHP Group Ltd, Macquarie Group Ltd (not held) and ANZ Group Holdings Limited.
The potfolio's overweight to Costa Group contributed to performance over the month as the stock rose 21.7% during July following a bid from private equity. This certainly vindicated our view that there was substantial value in this agricultural name. We had noted that Paine Schwartz had been creeping up the register and that its attractive asset base made it a potential target for private equity. Costa is the leading producer in several categories including mushrooms, tomatoes and best-in-class genetics in the berries segment (especially blueberries). We had recently visited China where we believe Costa has substantial growth prospects, especially in the blueberry market where consumption per capita is a fraction of US and Australian levels and where its IP gave it superior product versus peers. The portfolio's overweight to Orica contributed to performance over the month as the company rose 6.2% over the month. We have been bullish on the stock with the company trading at a significant discount to previous peaks. Our favourable view of the worlds biggest supplier of commercial explosives is driven by our analysis that they would be able to drive contract re-pricing to more than offset inflation. Indeed we saw this in May when the company reported a 31% increase in first revenue to $4 billion. Earnings rose 32% to $323 million, topping forecasts of a 25% lift. We also think that lower gas and ammonia costs are helping to improve margins. Orica is also looking to benefit from Digital Solutions through the acquisition of Axis Mining Technology and growth in the number of Electronic Blasting Systems (EBS) sold as miners look for productivity gains.
Iluka Resources fell -8% during July, although this comes after an exceptional rise in the share price over the past few years. Iluka is the worlds largest producer of rutile and zircon. 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/2021/01/128_pfp-8.pdfMay, 2023
The Fund's largest overweight positions include Insurance Australia Group Limited, Orica Limited, and Iluka Resources Limited. Conversely, the Fund's largest relative underweight positions include BHP Group Ltd, Commonwealth Bank of Australia, and Macquarie Group Ltd (not held).
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 said 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 being 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.
The overweight position in gold and copper miner Newcrest Mining (-11.7%) detracted from relative performance. The stock was hampered after announcing that its Cadia mine was under investigation regarding its management of emissions of dust and other pollutants. Newcrest's Cadia Holdings mine in Central West NSW has been issued with a draft pollution Prevention Notice and a draft licence variation regarding the management of the emissions of dust and other pollutants as part of a new investigation commenced by the NSW Environment Protection Authority. The EPA has also written to the NSW Chief Health Officer requesting a full health risk analysis to determine if mine dust is impacting the health of the community.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-7.pdfApril, 2023
The Fund’s largest overweight positions include Insurance Australia Group Limited, Orica Limited, and Santos Limited. Conversely, the Fund’s largest relative underweight positions include BHP Group Ltd, Commonwealth Bank of Australia, and Macquarie Group Ltd (not held).
The underweight position in iron ore miner BHP Group (-6.0%) contributed to relative performance. A March-quarter production report shows it missed consensus estimates for copper production but produced slightly more iron ore than expected. Its nickel, met coal, and energy coal production was also lower than expected. Despite this, production guidance for FY23 remains unchanged for iron ore, metallurgical coal, and energy coal, while total copper production guidance remains unchanged, and its full-year unit cost guidance remains unchanged.
The overweight position in insurance provider Insurance Australia Group Ltd (+6.2%) contributed to relative performance. The stock finished higher on speculation that IAG is in talks to acquire RACQ's insurance business. The Australian notes that RACQ's insurance operations were purchased for ~A$500M. However, sources indicate that RACQ may offload the division for ~A$200M. The overweight position in building and construction materials provider Boral (+17.0%) contributed to relative performance. On Thursday, 20 April, Boral was reinstated as a 'buy' recommendation by sell-side analyst Bank of America, with a target price of A$4.41 per share, representing a 13% potential upside.
The overweight position in healthcare technology solutions provider Healius (-5.4%) detracted from relative performance. The stock ended the month lower following denial by The Takeovers Panel to conduct proceedings on an application from Healius relating to its takeover bid by Australian Clinical Labs. Healius alleged in its submission to the panel that ACL's letter of offer to merge the two ASX-listed diagnostic companies was "misleading, including by omission, and inadequate in a number of respects".
The overweight position in mining royalty firm Deterra Royalties Ltd (-4.2%) detracted from relative performance. Deterra Royalties ended the month lower after acknowledging BHP's Q3 operational review, which reported that its Mining Area C royalty achieved production for the March quarter of 29.7 million wet metric tonnes, a decrease of 3.9% compared to the prior quarter. The company receives an ongoing royalty of 1.232% of Australian dollar-denominated quarterly FOB revenue from the MAC royalty area.
The overweight position in dairy producer a2 Milk Company (-6.5%) detracted from relative performance. In light of NZ milk company Synlait's guidance downgrade, a2 Milk has confirmed that its FY23 outlook remains largely unchanged. The company still expects around 10% revenue growth, aligning with their previous low double-digit growth projection. While the IMF revenue for the English market is estimated to decrease by mid-single digits, a2 anticipates double-digit growth in China.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-6.pdfMarch, 2023
The Fund’s largest overweight positions include Insurance Australia Group Limited, Orica Limited, and Iluka Resources Limited. Conversely, the Fund’s largest relative underweight positions include BHP Group Ltd, Commonwealth Bank of Australia (not held), and Macquarie Group Ltd (not held).
The overweight position in gold and copper miner Newcrest Mining (+33.0%) contributed to relative performance. Newcrest and Newmont Mining have reportedly agreed to terms for talks after Newcrest rejected the latter's $22.4B takeover offer. Reports indicated that Newmont has decided to engage in talks and standstill agreements during the quarter, allowing the two companies to meet and better understand why Newcrest rejected the prior acquisition proposal. The agreements also facilitated discussions about the potential price that Newcrest and its Board might be willing to consider proceeding with official due diligence. The overweight position in supply chain services provider Brambles (+12.8%) contributed to relative performance. Brambles reported an underlying first-half NPAT (from continuing operations) of $334.5M (vs consensus $321.9M), and an underlying profit of $548.8M (vs consensus $511.4M). Management guided full-year sales revenue (to June 2023) of 12% to 14% year-on-year (at constant currency) and underlying profit guidance of 15% to 18% year-on-year at constant currency. Free cash flow after dividends is expected to improve in FY22 but remain a net outflow with a dividend payout ratio of 45-60% of underlying profit after finance costs and tax. The overweight position in Iluka Resources (+13.5%) contributed to relative performance. The mineral sands miner announcing a December-quarter combined zircon, rutile, and synthetic rutile production of 157Kt (vs consensus estimate of 155kt). Specifically, zircon production of 76.3kt beat consensus of 70kt, and rutile production of 16.6kt beat consensus of 14kt. Synthetic rutile production of 63.9kt, however, missed consensus of 67kt, whereas ilmenite production came in at 151.1kt (vs consensus estimate of 130kt). Mineral sands revenue of $415.2M fell short of a $423M consensus, however, its full-year unit cash production costs fell in line with previous guidance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-5.pdfOctober, 2022
The Fund’s largest overweight positions include Santos Limited, Insurance Australia Group Limited, and Orica Limited. Conversely, the Fund’s largest relative underweight positions include BHP Group Ltd, CSL Limited, and ANZ Bank. 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.
The overweight position in Entertainment, hospitality and leisure company EVT Ltd. (+15.2%) contributed to relative performance. The stock was boosted by its first-quarter trading update, reporting normalised EBITDA (ex-AASB 16 leases) of A$70.6M (vs a $15.5M loss from a year-ago). Normalised EBITDA from its Entertainment businesses (including CineStar Germany) increased to A$10.0M from A$5.3M in Q1 FY19, Thredbo normalised EBITDA rose +41.7% from Q1 FY19, and Hotels EBITDA rose +5.7% from Q1 FY19. Consolidated revenue was down (0.3%) on the pre-COVID FY19 year, and Thredbo revenue was up +27.7% vs Q1 FY19.
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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-4.pdfSeptember, 2022
The Fund’s largest overweight positions include Santos Limited, Insurance Australia Group Limited, and Orica Limited. Conversely, the Fund’s largest relative underweight positions include BHP Group Ltd, CSL Limited, and ANZ Bank.
The overweight position in copper and gold miner Oz Minerals (+45.6%) 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 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 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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-3.pdfAugust, 2022
The Fund’s largest overweight positions include Santos Limited, Insurance Australia Group Limited, and Iluka Resources Limited. Conversely, the Fund’s largest underweight positions include BHP Group Ltd, Commonwealth Bank of Australia, and CSL Limited.
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.
The overweight position in mineral sands miner Iluka Resources (+10.0%) contributed to relative performance. Iluka Resources reported an H1 NPAT of $368.5M (up from $129.0M last year). NPAT soared 185.7% on H121 to $368.5M, and underlying group EBITDA lifted 70.5% to $525.5M. The interim fully franked dividend more than doubled to 25 cents per share from H1 2021. The company said the revenue boost reflected high prices spanning all of its products as Zircon prices lifted 40%, and rutile prices rose 23%, while the lower US dollar also positively impacted its revenue.
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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-2.pdfJuly, 2022
The Fund’s largest overweight positions include Santos Limited, Insurance Australia Group Limited, and Iluka Resources Limited. Conversely, the Fund’s largest underweight positions include BHP Group Ltd, Commonwealth Bank of Australia, and CSL Limited. 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 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.
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)
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp-1.pdfJune, 2022
The Fund’s largest overweight positions include Santos Limited, Insurance Australia Group Limited, and Iluka Resources Limited. Conversely, the Fund’s largest underweight positions include BHP Group Ltd, Commonwealth Bank of Australia, and CSL Limited. The overweight position in healthcare services and hospital operator Ramsay Health Care (+12.4%) contributed to relative performance. The company confirmed during the quarter 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 overweight position in insurance provider Insurance Australia Group Ltd (-0.5%) contributed to relative performance. The stock was supported after received regulatory approval for the sale of AmGeneral Holdings Berhad (the Malaysian business in which it holds a 49% interest). The completion of the deal is conditional on the Malaysian High Court approving a capital reduction and distribution to IAG of its share of the sale proceeds. The sale proceeds will be ~$340M and is expected to result in a net loss after tax of ~A$90M, though it will improve its regulatory capital position by ~A$150M at completion. The overweight position in supply chain services provider Brambles (+8.1%) 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. Not holding toll road operator Transurban Group (+8.0%) detracted from relative performance. The company released its March quarter 2022 update, reporting an Average Daily Traffic increase of 0.4% over the March quarter compared to its 2021 March quarter. Management noted that the March quarter again demonstrated traffic recovery in line with the progressive easing of government restrictions and increased economic activity. NSW and QLD traffic also recovered rapidly as weather patterns normalised following the severe rainfall events in late February and early March. The overweight position in retail outlet investment company Premier Investments Ltd (-28.3%) detracted from relative performance. The stock sold off with the broader discretionary retail sector on rising interest rates and inflationary concerns. CLSA upgraded the stock to outperform from underperform. However, it decreased its target price to $25.75 from $28.25. Citi also upgraded Premier to a 'buy' from 'neutral,' though decreased its target price to $29 from $30.80. This came as US retail giants Target and Walmart released a disappointing quarterly earnings report, further dampening sentiment for local retail stocks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/128_pfp.pdfAugust, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and insurance provider Insurance Australia Group. Conversely, the Fund’s largest underweight positions include CSL (not held), Commonwealth Bank, and Macquarie Group (not held).
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 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 hospitality and leisure company Event Hospitality & Entertainment (+19.0%) contributed to relative performance. The stock outperformed upon release of stronger-than-expected full-year financial results. Management highlighted that despite COVID-related lockdowns and restrictions significantly impacting earnings, its cinemas business had seen a strong rebound once venues had reopened, with customers spending more than during pre-COVID times. This led to expectations of an optimistic earnings outlook by management once current restrictions are lifted.
The overweight position in mining royalty firm Deterra Royalties Ltd (-6.9%) detracted from relative performance. Despite reporting solid full-year financial results during the month, the stock came under pressure from weakness in iron ore prices, falling 20% in August and losing almost a third of its value since its record high in May. The decline in the commodity was linked to softer Chinese demand as steel production fell 10.5%, and from the US Federal Reserve commenting that it might soon tighten its accommodative monetary policy stance. Not holding payment services provider Afterpay (+39.2%) detracted from relative performance. The stock spiked at the beginning of August after the US tech company, Square, Inc. announced a $39b proposal to acquire all Afterpay shares via a scheme of arrangement, in what would be the largest takeover in Australia's history. Under the proposed terms of the agreement, each Afterpay investor would receive 0.375 shares in Square for every Afterpay share they own, representing a ~30% premium to its last closing price on the day of the announcement
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179096448.pdfJuly, 2021
The Portfolio’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and insurance provider Insurance Australia Group. Conversely, the Portfolio’s largest underweight positions include CSL (not held), 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/2021/01/176088628.pdfJune, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and mining royalty firm Deterra Royalties Ltd. The Fund’s largest underweight positions include CSL (not held), Commonwealth Bank, and BHP Group. 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.
The overweight position in building and construction materials provider Boral (+33.9%) contributed to relative performance. The stock rallied after Boral received an off-market takeover approach from Seven Group Holdings Ltd to acquire all ordinary shares in the company for a total cash consideration of $6.50 per share (representing a nil premium to its closing price at the time of the offer). The Board has recommended that its shareholders reject Seven’s offer, indicating that it was opportunistic and undervalues the company. The stock was further boosted towards the end of the quarter by the announced sale of its US building products business to Westlake Chemical for $US2.15b.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174985931.pdfMay, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and insurance provider Insurance Australia Group Ltd. The Fund’s largest underweight positions include CSL (not held), BHP Group, and Commonwealth Bank. 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 building and construction materials provider Boral (+9.8%) contributed to relative performance. The stock rallied after Boral received an off-market takeover approach from Seven Group Holdings Ltd to acquire all ordinary shares in the company for a total cash consideration of $6.50 per share (representing a nil premium to its last closing price at the time of the offer). Boral's board of directors recommended to its shareholders that the offer be rejected, indicating that the offer was opportunistic and undervalues the company. 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.
Not holding biopharmaceutical company CSL (+7.0%) detracted from relative performance. The stock was boosted after announcing that it will be progressing with its licensing agreement with Uniqure NV, the developer of a haemophilia B treatment (etranacogene dezaparvovec). Under the agreement, CSL will have the rights to commercialise and sell the treatment if it passes its trials. Management also announced at the beginning of May that its Seqirus business has reported new phase 3 clinical data supporting the use of its cell-based seasonal influenza vaccine in children aged between six months to four years. This assisted the stock in receiving several broker upgrades to its target price during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173424761.pdfApril, 2021
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and construction materials provider Boral. The Fund’s largest underweight positions include CSL (not held), BHP Group, and Commonwealth Bank.
The overweight position in building and construction materials provider Boral (+12.9%) contributed to relative performance. The stock benefited after finalising the US$1.02 billion sale of its 50% stake in its USG Boral joint venture to Germany's 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/2021/01/172181163.pdfNovember, 2020
The Fund’s largest overweight positions include mineral sands miner Iluka Resources, casino operator Crown Resorts, and building materials manufacturer Fletcher Building. The Fund’s largest underweight positions include CSL (not held), BHP Group, and Commonwealth bank.
The overweight position in building materials manufacturer Fletcher Building (+39.5%) contributed to relative performance. The stock spiked after announcing an NZ$80m (54.4%) 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 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 responsible for the sharp rebound in profits over the current financial year. Not holding biopharmaceutical company CSL (+3.4%) contributed to relative performance. Despite finishing the month higher after announcing an $800m investment in a Melbourne-based influenza vaccine manufacturing plant, the stock underperformed the benchmark following a sharp rally across the cyclical sectors and in value stocks, driven by the anticipation of a strong post-pandemic recovery following several better-than-expected coronavirus vaccine trial results, declining national infection rates, relaxed restrictions, and the announcements of state border re-openings.
The overweight position in mineral sands miner Iluka Resources (+3.7%) detracted from relative performance. Despite finishing the month higher on the back of a mostly positive resumption of broker coverage of the stock following the spin-off of its's Deterra Royalties business in October. However, the stock failed to keep up with the benchmark, which rallied sharply on positive coronavirus vaccine trial results, leading to expectations of an expediated post-pandemic economic recovery. We continue to hold the stock as we believe there is still significant value to be unlocked from the demerger which is yet to be realised by the market. The overweight position in outsourced administration services provider Link Administration Holdings Group (+3.1%) detracted from relative performance. The stock finished higher, boosted by news that it continues to engage in due diligence with Pacific Equity Partners and Carlyle Group over their previously-announced acquisition interest of the company. The stock, however, detracted from relative performance after failing to keep up with the benchmark which saw a sharp rally on the back of promising coronavirus vaccine trial results, and downward trending national infections numbers. Despite its underperformance, the Fund continues to hold the stock as we believe it is still trading at a significant discount to its sum-of-parts valuation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162518624.pdfticker: PER0102AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.perpetual.com.au/funds/perpetual-wholesale-concentrated-equity-fund
Fund Profile ==> Lattest Fund Performance
https://www.perpetual.com.au/pricing-and-performance/#fund-listing-modal-PWCEF
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 Concentrated Equity aims to provide long-term capital growth and income through investment predominantly in quality Australian industrial and resources shares and outperformance the S&P/ASX 300 Accumulation Index (before fees and taxes) over rolling three-years 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.