Investment Matters

Company News

Australian Equities sub-portfolio

National Australia Bank (positive impact) announced its result for FY-21.

Pleasingly, growth of the bank’s book was both strong and broad based (across home loans, institutional banking, business banking and New Zealand).

The bank has done well to contain costs and expects costs to be broadly flat next year.

It remains well capitalised, with regulatory capital well in excess of the prescribed amount which should support its ongoing buyback and future growth of its loan book.

What is crucial for us is that NAB has a firm foundation from which to continue to excel in commercial lending. This is with respect to its continued investment in technology and people as well as its historic specialisation in commercial lending (“the business bank”).

This is crucial in an environment the rapid home loan growth of the past that the banks benefited from is looking less probable.

***

PushPay Holdings (negative impact) announced its 1st Half FY22 results to the market this week. The combination of poor disclosure (changes to the way the company reports customers numbers and revenue) and mildly downgraded earnings guidance saw a swift sharp negative reaction, with the stock finishing down 20% for the week.

We shared the markets apprehension regarding

  • changes in pace of new customer acquisition and cost of acquiring such,
  • uncertainty around the level of online donations we should expect in a post-COVID world, and;
  •  some reticence concerning the early performance metrics delivered by a recent $150m USD acquisition (ResiMedia)

However, based on our analysis it is unlikely the fall in price is warranted.

We have retained a small (much less than 1%) long-term position in PushPay in your portfolio and have been expecting some speedhumps. As the US recovers from COViD we expected the business would see volatility in growth and earnings. Following additional research in the coming month including speaking with the company next week, we may increase our holding.

***

Paragon Care (positive impact) announced a nil premium merger with fellow listed healthcare distributor Quantum Health Group (ASX:QTM).

Quantum Health Group is a provider of imaging and diagnostic equipment in Australia and the broader Asia Pacific region, specialising in the sale and maintenance of equipment including that used in CT scans, radiotherapy and ultrasounds for companies such as Samsung

The merger will allow for cross pollination of products between Paragon and Quantum (particularly Paragon’s blood reagent products sold through Immulab), leveraging shared distribution channels, customers and suppliers.

Importantly, Quantum has low levels of debt relative to earnings. This means the combined businesses will have much less leverage (that is, debt relative to earnings) in comparison to Paragon pre-merger. This strengthens Paragon’s position and provides more financial flexibility.

Under the proposed scheme shareholders of Quantum Health will receive 0.243 shares of Paragon Care for every 1 share of Quantum they hold, resulting in combined ownership of approximately 43.8% of the merged entity.

***

Alternatives sub-portfolio

Holdco (neutral impact), clients holding in the formerly listed Patties Foods has been in the news recently.

As a reminder, private equity firm Pacific Equity Partners (PEP) took Patties Foods private in 2016, with clients’ of First Samuel retaining a small holding in the company as minority shareholders.

An article in the Australian Financial Review’s ‘Street Talk’ reports that PEP is actively evaluating options for the sale of the business, including a sale to offshore buyers.

It has engaged Goldman Sachs as an advisor as part of a wider strategic review.

This to us signals that much of the restructuring work over the past few years is complete and the business is closer to a realisation event.

We remain encouraged that PEP, under a private equity performance fee model, is highly motivated to deliver a successful outcome - one that rewards shareholders with returns that are commensurate with the term of the investment.

This is very much in the same way Crescent Capital was motivated to deliver a successful outcome with the recent sales of Cardno and Intega.