Company News: Aristocrat Leisure, Reliance Worldwide, Harrick Road and others
Australian Equities Sub-Portfolio
Several positions have been sold in their entirety over the past two months. This includes positions in Healius, Mineral Resources, Bapcor and James Hardie.
We had been progressively trimming these positions over the year as their share prices rose above our view of their long-term value.
Many of these positions have been incredibly successful investments, returning approximately 33%, 137%, 55% and 127% respectively over 2020.
Aristocrat Leisure was added to the Australian Equities sub-portfolio.
Aristocrat offers gaming content, platforms and systems, including electronic gaming machines, and digital social games, the latter being what we see as the foundation for its future potential growth.
We see that Aristocrat will benefit from the rise in household savings over the past year, and the channelling of these savings into other avenues given the current travel and leisure restrictions.
Calls with several industry experts have boosted our confidence both, in the fact that the gaming industry has remained resilient during the pandemic, and in the value of the optionality provided by Aristocrat’s social gaming business.
Note: This position has not been added to client portfolios with gambling restrictions in place.
Aurelia Metals (neutral impact) released its production report for the December 2020 quarter. As a reminder, Aurelia is a gold producer based in NSW with three active mines, Peak, Hera and the newly acquired Dargues Gold mine.
Being polymetallic ore bodies (i.e. containing several metals), production at Peak and Hera is dependent not only on gold discoveries but also that of associated base metals (Zinc, Lead and Copper).
The production of base metals surprised to the upside for the quarter and led to stronger performance than expected.
The newly acquired Dargues Gold mine is still in ramp-up phase, however costs were higher than anticipated, which we will monitor over the coming quarters.
Pushpay (positive impact) upgraded its guidance for FY-21 profit for the third time this year.
The company now expects to deliver an operating profit in FY-21 of between US$56-60 million, an upgrade from its previous guidance of US$54-58 million as processing volumes have remained stronger than expected.
Lynas (positive impact) has announced it will work with the US Department of Defence to establish a Light Rare Earths processing facility in the US.
As part of the agreement, the Department of Defence will provide funding capped at US $30 million for the establishment of a Light Rare Earths separation plant in Texas, which will be able to process material directly from the cracking and leaching plant the company is establishing in Kalgoorlie.
The plant will help bolster the strength and independence of Lynas’ supply chain with respect to US supply, with the company currently processing materials in Malaysia.
The announcement reinforces to us the strategic value of Lynas’ assets and the strong US government of its operations.
The announcement is particularly significant given the company is currently active in working with the US government to establish a Heavy Rare Earths separation facility which is in Phase I – with a final investment decision yet to be made.
Reliance Worldwide (positive impact) provided an update regarding trading for the six months to December 2020. The company’s sales grew by 13% (compared to the previous comparative period) which is expected to translate to an operating profit that is at least 30% higher than the previous year.
Strong trading conditions have been supported by strong demand in retail and hardware channels in the US. This has been driven by a surge in repair and remodeling activity, as consumers look to direct discretionary spending towards their homes.
The new housing market in Australia has also been strong on the back of lower interest rates and a number of government incentives and a rebound in sales in the UK as restrictions have been relaxed.
Reliance remains a small holding in the portfolio; we established a position at approximately $3 and have progressively trimmed our holding as its share price has risen to $4.33.
Income Securities sub-portfolio
NAB has signalled its intention to repay the National Income Securities – a listed security which appears in client portfolios as NABHA.
The company expects to redeem each security for $100 cash on the 15th of February 2021, in accordance with our investment thesis.
The NABHA securities have delivered a sizeable return in the income portfolio, with an annualised return of 11.4% after their initial purchase in early 2017 for an average price of approximately $73.
Property Securities sub-portfolio
Units in the Harrick Road Unit Trust (HARRICKPROP or HARRICKALT) have been revalued upwards by approximately 7% after an independent valuation was conducted in November 2020.
The trust also paid a distribution of 2.5 cents per unit, bringing the total return in December 2020 to approximately 10%.
The above market commentary represents the views and opinions of First Samuel Pty Ltd. Such market commentary contains information of a general nature only. Such market commentary is not intended to provide a sufficient basis on which to make any investment decision and should not be taken as such. It has not taken into consideration your objectives, needs or financial situation. Before making decisions in relation to any financial product, you should always obtain and read any relevant Product Disclosure Statement or information statement and seek personal financial advice.