December, 2020
The Fund underperformed the benchmark over the month of December.
Contributors
Overweight Metcash
Metcash (MTS, +17.2%) delivered a well-received half yearly result. The supermarket side continues to do well, with stronger sales its larger competitors. Work from home accelerated sales in neighbourhood-style shopping, helping IGA, however the benefits seem to have persisted even as restrictions have eased. However the larger surprise was on the hardware side, where recent acquisitions are doing much better than expected. The larger exposure to trade – as opposed to retail – means they are well positioned to capture the surge in renovations accompanying the trend to more working from home. MTS also saw strong cash flow, as franchisees have paid back some of the emergency funding from earlier this year faster than expected. At just 14x NTM P/E – versus over 28x for Woolworths – we continue to see upside here
Overweight Xero
Our preferred tech name, Xero (XRO, +10.8%) continued to rise on the back of a good set of results released in November. While new subscriber growth softened in the US and UK, in line with expectations given the challenges in attracting new customers during the Covid period, there was stronger than expected subscriber growth in Australia and New Zealand. Given these are highly penetrated markets, this may suggest a further post-Covid shift in mentality towards the importance of online cloud-based accounting. Overall, we believe XRO’s growth is a function of several macro and secular drivers combined with solid execution.
Detractors
Overweight
Qantas Qantas (QAN, -9.9%) gave up some recent gains in December. It provided an update which was encouraging, with domestic capacity set to ramp up to 80% of pre-Covid levels. Debt was a little higher than expected. However there was a lot of focus on the enterprise value (EV), which is returning to pre-Covid levels, potentially prompting some profit-taking from investors who bought it as a recovery play. In our view, this misses the impact of a large return of working capital, which is likely to drive the EV higher. We see more upside from current levels.
Do not hold Afterpay
Afterpay (APT, +24.2%) provided a trading update for November at the beginning of the month, which saw its global underlying sales grow by +112% from last year to A$ 2.1b. The US region recorded sales of 1.0b, exceeding ANZ’s 0.9bn for the first time. Referrals to global retailers also continued to grow strongly with over 35m leads generated during the month of November, which was 147% up on November 2019. We do not hold Afterpay, and Xero (XRO, +10.8%) is our preferred exposure in the tech space.
ticker: RFA0818AU
release_schedule: NO COMMENTARY
commentary_block: Array
factsheet_url:
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asset_class: Domestic Equity
asset_category: Australia Large Blend - Core / Style Neutral
peer_benchmark: Domestic Equity - Large Cap Neutral Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Pendal Australian Share aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX 300 (TR) Index over the medium to long term. This Fund is designed for investors who want the potential for long term capital growth and tax effective income, diversification across a broad range of Australian companies and industries and are prepared to accept higher variability of returns. The Fund may also hold cash and may use derivatives. Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select stocks based on our assessment of their long term worth and ability to outperform the market, without being restricted by a growth or value bias. Our fundamental company research focuses on valuation, franchise, management quality and risk factors (both financial and non-financial risk). Derivatives may be used to reduce risk and can act as a hedge against adverse movements in a particular market and/or in the underlying assets. Derivatives can also be used to gain exposure to assets and markets