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Company News

Side stage: Macquarie Australia Conference

In Australia, we had our own Woodstock for capitalists, the Macquarie Australia Conference.

A handful of companies in your portfolio presented. Here were the highlights:

Costa Group

Thursday was the first time we had the opportunity to see Costa’s recently appointed CEO (and former COO) Sean Hallahan present.

With their AGM fast approaching, the company provided little information in the way of operating performance.

The focus of the presentation was on “sustainable, commercial farming”.

This, first and foremost, highlights the increasing demands investors are placing on companies to consider their performance beyond purely financial metrics. Costa has worked over the past few years to balance its commercial imperatives and commitment to sustainability.

Secondly, Costa is an example of how ESG factors are becoming more and more important and the incredible impact they can have on financial performance. It suffered considerably in 2019 as a result of the extended drought and bushfires – at which point we opportunistically began to build our position.

But the company is adapting to these challenges. It highlighted the initiatives it has undertaken to insulate the company from climate change risk it has recently faced.

This includes protected cropping, improving water security and efficiency.

To do this, the company has continued to leverage its ability to innovate through the continual development of its technology.

The most recent example is its protected, high-density substrate avocado cropping.


Source: Costa

The ability to grow Avocados in this manner requires less water, results in faster tree maturity, higher yields and may enable automated picking of fruit.

We continue to own Costa for the benefit it derives from such agricultural productivity improvements, as well as its strong external funding of underlying assets and benefits it commands through scale.



The highlight of Emeco’s presentation was the announcement of a revised capital management policy.

Shares in the company rose 6% on the day.

Emeco’s new capital management policy will see 25-40% of operating net profit after tax returned to shareholders in the form of dividends or a buyback.

In addition, the company will be pro-rating a return of capital (in some form) for 2H-FY21.

If the capital was returned in the form of dividends, this would represent a 3% dividend (at the midpoint) at current prices (or 6% annualised).

We are pleased with the announcement, which helps demonstrate Emeco’s cash flow generation and returning of capital to shareholders at a time when its share price reflects very little of this cash flow generation ability.

The company provided an update on its operations, in particular the spread of its commodity exposure (less thermal coal, more gold) and customer base (more mid-tier companies).

It also reiterated its strategic goal of providing more services ‘boots on the ground’ to improve customer stickiness, which is progressing through its Pit N Portal acquisition and aided by diversifying its customer base towards ‘mid-tier customers.



In the case of Worley, little to no news was good news.

Critically the company’s headcount hasn’t fallen, and its backlog of projects hasn’t materially changed.

This helped quell fears that some projects deferred in CY20 would be cancelled.

The company is continuing its push into sustainable and renewable projects and highlighted several recent projects it has been involved in, some of which have had considerable cross-over with its traditional Oil and Gas based work.

The company also indicated it was targeting ‘complex’ renewable projects, as opposed to some of the more commoditised work such as solar installation – which had been a concern of the market.

Thus far, the company indicates the gross margin on renewable projects has been higher than its existing projects – which will be key to the company’s future profitability.


Viva Energy Group

A result we missed last week was Viva’s trading update.

Fuel volumes have continued their recovery.

Retail fuel volumes have now recovered to within 7% of pre-COVID levels. Furthermore, volume growth was in line with the broader industry, indicating it has not lost market share.

It remains to be seen what the impact of working from home trends will have and where retail volumes will ultimately land.

Pleasingly, penetration of high margin premium fuel has increased.

Commercial fuel volumes have recovered and are benefiting from strong demand from the resource, transport, and agricultural sectors. Demand for aviation fuel remains depressed but up 15% quarter on quarter, with the exit of a key competitor creating the potential for market share gain as air travel recovers.

Marine volumes also continue to be impacted by the lack of cruise liner activity.

All in all, the potential remains for a further recovery in fuel volumes.

In refining, margins improved, although they are still below historical levels. However, this was softened by government support provided over the period under the recently announced temporary support package, which was higher than expected.

Viva energy

Source: Viva Energy

The company continues to engage in discussions with the Federal Government around the long-term package to support domestic refining, the outcome of which will be known over the coming months.

Much of the focus of the session was on its Geelong energy hub. As part of the broader discussions with the Federal government and industry about the strategic value of the Geelong refinery assets, the company is spending considerable time and resources looking at all the options for the site. As the company scopes out options, the fast-moving nature of the industry is apparent.

The latest plans, which include a final investment decision (FID) in the next 6 months now includes options including hydrogen and regional transport solutions. Strategic fuel storage may be possible, and with the rejection of AGL’s Crib Point project, Viva Energy retains a great deal of flexibility for any future project.

We will hold final judgement as to the value of all options as they become clearer. The options at this stage provide the upside optionality that we appreciate in our investments.



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.