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New positions we have added

We have been active in the market over the past few weeks. This includes:

  • Adding new positions in:

               - Pushpay (PPH)
               - Reliance Worldwide (RWC)
               - Regis HealthCare (REG)
               - Webjet (WEB)
               - NAB (NAB)
               - Viva Energy (VEA)
               - Sandfire Resources (SFR)
               - Appen (APX)
               - Lovisa (LOV)

  • Adding to a majority of our existing positions

 

Reiterating, we have:

        -   Added new high quality and often fast-growing stocks that have previous been

            too expensive.

        -   Diversified our exposure to resource companies

        -   Improved the dividend yield of the portfolio

        -   Increased exposure to financials: through buying a bank

        -   Opportunistically added small positions potentially exposed to COVID-19

 

Added new high quality and often fast-growing stocks that have previously been too expensive.

 

Lovisa (LOV)

Company background

-          International fast fashion jewellery retailer.

-          Target market is fashion conscious females aged 25-45.

-          A total of 439 stores globally

-          Sells low value, high margin items 

-          Expanding globally (predominantly Asia, Europe and US).

 

Investment thesis/what we like

-          Company that is fast growing and has a considerable runway for growth

           ahead (further international expansion).

-          Is able to earn high gross margins and return on capital

-          Produces freight logical goods

-          Discounting allows for quick turnover of inventory

-          Limited competition in target markets

 

Appen (APX)

Company background

-          Technology company

-          Harnesses a global crowd of independent contractors to provide data that

           improves machine learning algorithms:

             > Content relevance: helps annotate data to improve relevance

                and accuracy of search engine results.

             > Speech and data collection: providing training data for computer

                algorithms to develop products such as speech recognisers, machine

                translation and speech synthesisers (such as Siri, Alexa, Google Assistant).

-          Customers include top global technology companies globally 

           (Apple, Google etc).

 

Investment thesis/what we like

-          Fast growing company with high gross and operating margins

-          Able to leverage a flexible, global workforce

-          Provides exposure to growing demand for data collection. Driven

           by the proliferation of the internet (social media, e-commerce) and

           digital technologies (smart phones, smart speakers, e-commerce) as

           well a growing need for language services.

 

Pushpay (PPH)

Company background

-          Mobile application that “digitalises” giving for the non-for profit and faith

           sectors (predominantly the US faith sector).

-          Donors are able to make donations via a mobile application and engage with

           their organisations.

-          Company earns revenue through charging processing fees on total

           transaction values.

 

Investment thesis/what we like

-          Rapidly growing company with high gross and operating margins, with

           significant further potential to grow.

-          Further scope for the “digitalisation” of giving, with benefits seen in giving

           rates and a broader move away from cash-based payments.

-          Recent acquisition (Church Community Builder – a church management

           system) broadens company offering and provides a platform for further

           growth.

 

Reliance Worldwide (RWC)

Company background

-          Designer, manufacturer and supplier of water flow, control and monitoring

           products/solutions for the plumbing and heating industry.

-          Provides:

         >   Fittings and piping (74% of revenue)

         >   Control vales (10% of revenue) 

         >   Thermostatic products (3% of revenue)

 

Investment thesis/what we like

-          Strong portfolio of brands and market presence

-          Rare opportunity to purchase market leader at a discount

-          Exposure to international earnings

 

Diversified our exposure to resource companies

 

Sandfire Resources (SFR)

Company background

-          Producer of predominantly copper, with some exposure to gold

-          The company’s primary mine (DeGrussa) is nearing the end of its life,

           however there is potential for further extension to the high-grade mine’s life

-          The company is also pursuing the development of two assets overseas:

           Black Butte and T3, which are lower grade deposits with optionality.

 

Investment thesis/what we like

-          Provides exposure to copper, the demand for which is expected to rise with

           increasing electrification and general economic growth over the medium to

           long term.

-          Overseas assets provide significant optionality and a strong balance sheet

           from which to develop these assets.

-          Potential for exploration and further extension to life of existing primary high

           grade mine.

-          Market pricing undervalues this optionality.

 

Viva Energy (VEA)

Company background

-          Fuel wholesaler and refiner

-          Provides fuels and specialty products (such as lubricants) to both retail and

           wholesale markets:

           >  Retail: petrol stations (Liberty, Shell, Coles Express)

           >  Commercial: aviation, marine, transport, construction and manufacturing

 

Investment thesis/what we like

-          Potential for uplift in retail fuel sale volumes after the renegotiation

           of contract with Coles. 

-          Well capitalised exposure with defensive aspects.

-          Share price to be supported in the near term by share buyback.

-          Volatile earnings in refining margins lead to short term share price reactions,

            opportunity to take a long-term view during share price weakness.

 

Increased exposure to financials: through buying a bank

NAB (NAB)

Company background

-          One of the “Big-Four” banks in Australia

-          Provides retail, corporate and institutional banking.

 

Investment thesis/what we like

-          Exposure to growth in small business lending, through dominant lender

           in the space.

-          Broader exposure to growth of the economy and fiscal support for small

           businesses.

-          Source of income in the portfolio

-          Purchased at a price that we assess accounts for near term headwinds faced,

           likely to pay a meaningful dividend at purchase price, even after future

           expected dividend cuts.

 

Opportunistically added small positions potentially exposed to COVID-19

Webjet (WEB)

Company background

-          Online travel agent (business to consumer – B2C) as well as providers of

           hotel inventory to travel agents (business to business – B2B).

-          Business has transitioned over the past 10 years to be predominantly a B2B

           business (66.4% of operating profit in its 1H-20 result).

 

Investment thesis/what we like

-          B2B travel market is highly fragmented with Webjet being the

           2nd largest player

-          Potential to disintermediate B2B hotel industry – that is, through

           consolidation see an uplift in margins it receives for providing hotel inventor

           to travel agents. Achieved through establishing direct contracts with hotels.

-          Company is well positioned with respect to its balance sheet.

-          Purchased at a price that was attractive, even when accounting for potential

           impact on travel sector from COVID-19. Company is now priced at levels last

           seen in 2016.

 

Regis Healthcare (REG)

Company background

-          One of Australia’s largest healthcare providers

-          Delivers care to over 8000 older Australians

-          Operates over 60 facilities nationwide (predominantly eastern seaboard).

 

Investment thesis/what we like

-          Broad longer-term exposure to aging population thematic.

-          Reaction to potential coronavirus impact likely overdone

-          Purchased at a price that was attractive, even when accounting for potential

           impact on travel sector from COVID-19. Company is now priced at levels last

           seen in 2016.

-          Potential for fiscal assistance or policy (from the government) in the event of

           large impact as provides essential service.

-          Need for policy reform given growing need for aged care services, potential

           for more rational returns in the industry more broadly.

 

 

            - Paul Grace