Investment Matters

Company News: Webjet, New Positions, Rebalancing and more

A note re: Webjet

Clients are no doubt aware that Webjet has recently been in the media regarding a proposed capital raising.

Webjet's business 

First, it is worth re-iterating that Webjet is not the same business of old.

It has transformed over a number of years into what is now predominantly a B2B travel business. It is effectively now a “bank for beds”, that is, a business responsible for the warehousing and on-selling of hotel room inventory to the broader travel industry.

Purchase

We established a position in the company in early March, with a view that the company was trading far below its fair value.  

Our initial investment was in size (constituting approximately 1% of the Australian Equities sub-portfolio).

Company secures itself

With heightened uncertainty around COVID-19, despite having low levels of debt, Webjet sought to raise capital to firm up its financial position.

The raising was very successful, with demand for new stock outstripping the company’s needs.

Through our MDA structure, we have a period of two weeks before having the option to purchase additional shares 40% cheaper than current trading levels (entitlement price $1.70 vs $2.85).

On the subject capital raises and value

Investors can be wary of capital raises. It is true that they sometimes provide an ability for other investors to purchase shares at a discount to the last traded price.

However, capital raises such as undertaken by Webjet are not very dilutive if you are able to participate in them.

Webjet is an attractiveness business, with a commanding position in a fragmented industry. Its value in our assessment is far greater than its current share price and its longer-term value is little changed.

New Positions

We have recently added two new positions to your Australian Equities sub-Portfolio:

Platinum Asset Management (PTM)

Company Background

  • Australian based investment manager with a focus on international shares
  • Flagship funds include: Platinum International Fund, Platinum Asia Fund
  • To be clear, we have made an investment in Platinum Asset Management Limited – the manager of these funds (as distinct to a direct investment in these funds)
  • The company derives its revenue from management and performance fees, which are charged as a percentage of assets under management

Investment Thesis/What we like

  • A view that the recent sell-off will lead to a rotation towards more conservative and value-focused investment styles
  • History of outperformance over the long-term
  • Conservatively positioned with a value focus
  • A stabilisation of fund flows is likely to lead to a material increase in the company’s share price
  • Purchased at a price that reflects conservative assumptions around future fees and fund flows

James Hardie (JHX)

Company Background

  • Producer of fibre cement products including siding and backerboard
  • Caters to a variety of markets, predominantly residential construction, manufactured housing, repair and remodelling as well as a variety of commercial/industrial applications
  • Primary markets are in the US and Australia, but also present in New Zealand, Philippines, Europe and Canada

Investment Thesis/What we like

  • Clear market leadership and competitive advantage
  • Ability to command a premium based on its superior product offering, differentiation, switching costs and brand equity
  • Existence of barriers to new entrants (reputation of its products, certainty of its warranties)
  • High level of product innovation and commitment to research and development (R&D)
  • Further potential for penetration of fibre cement siding relative to alternatives such as vinyl
  • Ability to purchase a market leader with a defensible competitive advantage at a discounted price

We have also added two new positions to the Property Portfolio:

GDI Property Group (GDI)

Company Background

  • Property company and fund manager
  • Owner of CBD office properties, predominantly in Perth and Queensland
  • The strategy of purchasing properties at a discount with the aim of realising an improvement in value through renovation, an increase in occupancy and small developments
  • Wholly owned fund management subsidiary manages a number of unlisted property trusts
  • Pays distributions from both property income and fund management fees

Investment Thesis/What we like

  • Conservative balance sheet (loan to value ratio of approximately 10%)
  • Purchased at discount to book value of its properties, which we see as defensible
  • Opportunistic management, with a focus on capital growth.
  • In a financial position to seize on any opportunities that arise from potential near-term market dislocation

Stockland Group (SGP)

Company Background

  • Property company
  • Owner of retail, commercial and industrial properties
  • Designer, developer and manager of communities for retirees
  • Residential developer

Investment These/What we like

  • Opportunistic purchase of over-sold assets
  • Purchased with what we see as a margin of safety - a price considerably below our adjusted book value of assets
Rebalancing

Challenger Financial (CGF)

We recently exited our position in Challenger Financial in its entirety.

As clients are aware, we have been progressively reducing our position in Challenger since the beginning of the year.

Our decision to sell the remainder of our holding reflects the heightened financial risks the company may face over this period.

These risks relate to its investment portfolio and the impact further dislocation in markets may have on its performance and capital position.

Other Company news

CML Group this week announced that it now has Consolidated Operation Group’s (COG) support for the proposed takeover by Scottish Pacific. COG, which had previously entered a Scheme of Arrangement to merge with CML Group, had previously indicated it would vote against the deal. It has now indicated it will vote in favour. As such, the company now has the support of approximately 46% of its share register for the proposed takeover.

The company is now progressing a scheme booklet, with a vote on the scheme expected to be held in May 2020 (subject to the receipt of regulatory approvals).