2013 annual general meeting - · pdf filecontango phone app effective communications program...
TRANSCRIPT
2013
Annual
General
Meeting
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David Stevens
Managing Director
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Total Return (inc Dividends)
1 Year 3 Yr (pa) 5 Yr (pa)
CTN Share Return 20.6% 9.0% 17.2%
Small Ordinaries Accum. Index 2.9% -2.7% 7.5%
All Ordinaries Accum. Index 24.7% 9.3% 11.1%
Past performance is not necessarily indicative of future performance.
Share performance is Total Return and includes Dividends paid.
Indices do not adjust for impact of fees, costs and taxes paid. All data as at 31.10.2013. Source: CTN
CTN Share Price Performance F
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Data to 31.10.13. Historical data only. Share price discount to after-tax NTA is not a statement of future performance
Share price discount to NTA F
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Asset Allocation
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$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
FY14 period includes the FY13 Final Dividend of 4.0c which was paid on 24.09.13
Cumulative dividends paid (cents per share) F
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Investors want control over their investments
7 Source: ATO. Data as at 30.06.2013.
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Direct Equities are the preferred investment
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SMSFs like to invest in shares
SMSFs are holding record cash balances
Rates are not rising Source: ATO. Data as at 30.06.2013.
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9 Performance is of the underlying portfolio before fees and taxes. Past performance is not necessarily indicative of future performance.
Indices do not adjust for impact of fees, costs and taxes paid. All data as at 31.10.2013. Source: CTN
Contango Asset Management Performance
Fund Performance 1 Year 3 Years pa
Large Companies 27.5% 11.2%
ASX 300 Accumulation Index 24.8% 9.7%
Small Companies 16.6% 7.0%
ASX Small Ordinaries Index 2.8% -2.7%
MicroCap 19.5% 4.4%
ASX Small Ordinaries Index 2.8% -2.7%
Global Value 47.9% 21.9%
MSCI ex Aust unhedged 38.2% 13.3%
MidCap Income 32.9% n/a
ASX Small Industrial Index 25.8% n/a
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Focus on SMSFs Visiting financial advisers Adviser/ investor events Media coverage Quarterly newsletter Ongoing shareholder communications Research house approvals Accessible to shareholders
Transparency, Information, Control
COMING SOON
Contango Phone App
Effective communications program F
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William Laister
Portfolio Manager
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Economics Update
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• Market dominated by record central bank stimulus
– Forced global interest rates to record lows
– high-yield defensives and interest rate sensitives outperformed
• Trend is now coming to an end- despite delayed tapering
– Outlook will be driven by unwinding of central bank stimulus & a pick up in global growth
– Withdrawal of stimulus will be gradual and the Fed remains committed to the recovery
(could potentially increase QE if necessary)
• China’s growth appears to be stabilising with ongoing reliance on investment
– Will provide some support to commodity prices in the face of increasing supply
• Domestically, growth is expected to remain subdued but weaker exchange rate
and possibility of further rate cuts will support in H1-2014
– The pickup in non-mining (manufacturing/housing/business services) will not be sufficient
to fully offset the unwinding of the mining boom in the near term
– Exports will be a substantial driver of growth in the medium term (2015 onwards)
Not financial prediction or to be taken as advice. Refer Disclaimer on Page 2
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Strategy Implications
• We expect bond yields to gradually normalise and global growth to
continue to improve
– Current bond rally will be temporary given recent price action and tapering
delay, trend normalisation remains on track
• Against this background we expect the market will focus greater
attention on companies that can deliver earnings growth
• We do not expect a strong cyclical rally, rather a move along the risk
spectrum from very defensive stocks to ‘growth defensives’ and
‘defensive cyclicals’
– Outlook contains risks including unprecedented withdrawal of Fed stimulus
and a deadlock in Washington over fiscal policy
• We expect resources and small caps to benefit from the shift from yield
to growth
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Renewed Interest In Microcaps
• In an environment of heightened risk aversion investor interest
shifted away from the microcap in favour of more liquid, large
cap high yield stocks
• We have seen a pick up in investor interest in the microcap
space in recent months with an increasing number of IPOs and
placements coming to the markets, increased takeover activity
and increased liquidity
• We are also seeing stronger price action as investors seek out
high growth opportunities that have been overlooked
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Recent Placements
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Code Company Price % Change Since
Placement
PLACEMENTS
TGP Trafalgar Corporate Group $0.59 23%
EPD Empired Ltd $0.62 11%
AWK Australasian Wealth Investments $0.35 40%
FNP Freedom Foods Group Limited $2.10 14%
VLW Villa World Limited $1.60 16%
HUB HUB24 $1.30 8%
CLX CTI Logistics Limited $1.85 22%
SHJ Shine Corporate $1.00 60%
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Getting sector selection right
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Portfolio Overview
Industrials – we favour good business models, reasonable yield and strong earnings
• Capital Goods (underweight)
• Valuations have improved however outlook for 2014 remains challenging. We favour companies
with exposure to growth industries i.e. service providers to CSG space
• Consumer Discretionary (underweight)
• Increased weights of attractive businesses - G8 Education/Slater & Gordon
• New stocks added – Corporate Travel
• Removed – Breville
• Consumer Staples (underweight)
• New stock added - Freedom Foods
• Healthcare (overweight)
• New stocks added – Capital Health, Universal Biosensors
• Financials (overweight)
• New stocks added - Australasian Wealth, Hub24
• Information Technology (overweight)
• New stock added – Empired, GBST, Infomedia, Nearmap, Oakton
• Removed- Flexigroup
• Telecommunications (underweight)
• Removed iinet and M2 Telecommunications
• Utilities (underweight)
• Removed – Australian Power through takeover
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Portfolio Overview
Mining (neutral)
• Favour commodities with fundamental support and attractive valuations (low end of
cost curve)
• Metals
• Copper – remains supported due to supply issues
• Specialty Metals – lithium and graphite: strong growth as demand for lithium batteries
accelerates
• New stocks - Aquarius Platinum, Syrah
• Bulks/Uranium
• Underweight Bulk Commodities and Uranium
• Uranium – dependant upon the demand growth improving through restarts in Japan and
China
• Iron ore – stronger demand from steel production in China and supply problems in Brazil has
resulted in deficit in 2013 but expect surplus in 2H 2014
• Coal - Coking and thermal - at current spot will see closures in USA and Australia
• Gold
• Gold - global uncertainty dissipating
Energy (overweight)
• Oil - supply constrained with OPEC operating at full capacity
• New stocks - Buccaneer, Lonestar, Sino Gas
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Key Stock Changes (September Quarter 2013)
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Code Stock Buy Code Stock Sell
INA Ingenia Group 1.57% MTU M2 Telecommunication -3.13%
BCC Buccaneer Energy Ltd 1.19% FXL FlexiGroup Limited -2.58%
SYR Syrah Resources 1.04% IIN iiNet Limited -1.89%
SEH Sino Gas Energy 0.94% BRG Breville Group Ltd -1.63%
LNR Lonestar Resources Ltd 0.84% SHJ Shine Corporate -0.99%
GBT GBST Holdings.. 0.78% SGH Slater & Gordon -0.87%
FNP Freedom Food Ltd 0.73% APK Australian Power -0.84%
MDL Mineral Deposits 0.68% CCV Cash Converters -0.81%
VLW Villa World Ltd. 0.67% PEM Perilya Limited -0.66%
SXE Sthn Cross Elect Engnr 0.65% ICQ Icar Asia Ltd -0.60%
By way of information companies sold may still be held in the investment portfolio. Selling may simply indicate profit taking or reweighting.
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CTN: Top 20 Holdings
20 As at 31.10.13. The top 20 stock holdings represent 50.5% of the portfolio. Portfolio held 71 ASX-listed securities at this date.
Up to date portfolio information can be found in the monthly NTA document
Largest 20 stock holdings and weights
Code Stock Weight % Code Stock Weight %
IPP Iproperty Group 3.4% BDR Beadell Resources 2.3%
TGS Tiger Resources 3.2% SFW SFG Australia 2.3%
SGH Slater & Gordon 3.3% AHE Automotive Holdings Group 2.2%
AUB Austbrokers Holdings 3.1% INA Ingenia Communities Group 2.2%
GEM G8 Education 3.0% PRT Prime Media Group 2.2%
VRL Village Roadshow 2.9% MDL Mineral Deposits 2.1%
MYX Mayne Pharma Group 2.9% BCC Buccaneer Energy 2.1%
BTT BT Investment Mgmt 2.7% TTN Titan Energy Services 2.1%
GBT GBST Holdings 2.4% CWP Cedar Woods Properties 2.0%
CTD Corporate Travel Mgmt 2.3% MLD MACA 1.8%
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Some Exciting Emerging Company Opportunities
• HUB24 (HUB) – Platform functionality appears better than competitors
– Net flows onto platform is already amongst best in industry
– Large potential client base being independent advisors and HUB is winning
mandates
– Contestable (non bank) market is about $100b currently have $600m, ie under 1%
share
• iProperty Group (IPP) – IPP is the largest operator of real estate advertising portals in South East Asia
– Maturity of the online real estate classified market in SE Asia is early stage, with IPP
having early mover advantage
– The potential to replicate realestate.com.au’s success in SE Asia
– Potential to merge with the next largest competitor in the region, Property Guru –
the combined group would dominate SE Asia
– Cashflow breakeven in CY14, with a growth prospect superior to any other
Australian dot.com
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Not to be construed as financial advice or statement of future performance. All companies referenced in the presentation may or may not be in the investment portfolio.
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Some Exciting Emerging Company Opportunities
• iCar Asia (ICQ) – ICQ is the largest operator of online automotive classified websites in South East
Asia
– Potential to replicate Carsales.com.au success in SE Asia
– Extremely early stage prospect, but executing on land grab phase in signing up car
dealer’s inventory
– Enjoys Carsales’s backing (19.9% holding in company) – knowledge transfer to ICQ
and active development of IP and systems
• PMP (PMP) – PMP is the largest, vertically integrated ‘print and distribution’ business in Australia
and New Zealand. The group primarily prints catalogues for retailers
– The company is undergoing transformational change – new management are
improving the balance sheet (reducing debt) and lowering costs (headcount)
– With proper execution, a large margin improvement opportunity over time
– Strong leverage to an improving domestic economy when it happens
– Current depressed cyclical earnings coupled with a sub 5x PE multiple provides
large share price upside
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Stock: Tiger Resources (TGS)
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• Tiger resources a copper producer in the Congo in Africa
• The Kipoi copper project is located 75km northwest of Lubumbashi, the capital of the Katanga
Province in the central part of the Katanga Copper Belt
• In process of increasing production to over 50kt (100.0% basis) of copper in 2015 as the new
SXEW plant is commissioned.
• Attractive cash operating cost of on stage I of $US0.70/lb and stage two of $US1.39/lb,
placing it at the low end of the global cooper cost curve.
• Strong cash flow generation, due to attractive cash position
• NPAT doubling over the next 2 years as stage1&2 overlaps
• Very large land position and as stage 2 is completed, it will allow a substantial exploration
budget for more grass roots exploration. Congo remains one of the most sought after copper
provinces.
• Exciting exploration-longer term 100% of focus has been on sourcing oxide to feed the SXEW
project with very little deeper drilling to source the primary(sulphide) ore.
• No copper hedging in place ,
• Funding of stage 2 by either low cost debt or potential off take through sale of its copper metal
• Conclusion- NPV is $US0.61/share, we have assumed a further discount to take into account
the uncertainty with investing in the Congo of 20.0%.
• The stock return looks very attractive.
Stock Returns
Capital Return 52.0%
Dividend Yield 0.0%
Total Stock Return 52.0%
Market Return 5.0%
Dividend Yield 4.5%
Total Market Return 9.5%
Excess Stock Return 42.5%
Jan-12 Apr-12 Jul -12 Oct-12 Jan-13 Apr-13 Jul -13 Oct-1340
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79.99
Tiger Resources Limited Relative to S&P ASX Small Ordinaries
Tiger Resources Limited
ASX CODE: TGS
COMPANY: Tiger Resources
INDUSTRY GROUP: MATERIALS
CURRENT PRICE: $0.33
NPV Premium/Discount TARGET PRICE 0.50$
2012 2013 2014 2015
Actual Forecast Forecast Forecast
NPAT ($M) 9.1 56.6 113.1 76.2
EPS (cents) 1.3 8.1 16.2 10.9
EPS GROWTH 520.0% 100.0% -32.6%
PE (x) 25.3 4.1 2.0 3.0
PE Relative to ASX 300 160% 26% 19% 30%
NPV 0.61$
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Stock: Ingenia Communities Group (INA)
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• INA is engaged in the ownership, development and management of seniors living
communities. Three segments exist: Garden Villages (rental villages), Settlers (deferred
management fee (DMF)), and Active Lifestyle Estates (manufactured home estates (MHE)).
• The MHE division is the key driver of earnings growth going forwards. The company has
moved aggressively into the MHE market starting this year, acquiring several villages (15
announced to date). Lucrative development profits exist in an industry with strong demand.
Key assumptions around number of properties per village per month at high margins driving
earnings growth.
• Opportunity to consolidate the market further with further acquisitions over time – a slow
rollup story in a large fragmented market. INA is the only significant listed company
consolidating the market in retirement MHE, allowing for access to capital.
• Diversified portfolio across the various divisions. A mixture of rental income and
development profits across multiple sites.
• Retirement niche focus in rural communities. Supported by Commonwealth Rent Assistance
program (covers 40-50% of rent).
• Experienced CEO who knows the market well (ex-Aevum CEO). Very returns focused.
• Conclusion: INA has a great opportunity to sell MHE sites across its portfolio over the
forecast period, at very lucrative margins. Execution is key, however we are comforted by
their knowledge in the space with experienced management leading the group. Our price
target is based on a two year forward multiple to incorporate higher forecast profits two
years out (given the relatively new division contributing to group profits).
Jan-12 Apr-12 Jul -12 Oct-12 Jan-13 Apr-13 Jul -13 Oct-1350
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388.44
Ingenia Communities Group Stock Performance Relative to S&P ASX Small Ordinaries
Ingenia Communities Group
Stock Returns
Capital Return 53.5%
Dividend Yield 6.9%
Total Stock Return 60.4%
ASX CODE: INA
COMPANY: Ingenia
INDUSTRY GROUP: REAL ESTATE
CURRENT PRICE: $0.48
PE Premium/Discount -20% TARGET PRICE 0.74$
2013 2014 2015 2016
Actual Forecast Forecast Forecast
NPAT ($M) 8,529.0 15,865.0 39,731.3 56,178.8
EPS (cents) 1.9 2.3 5.9 8.3
EPS GROWTH 23.1% 150.4% 41.4%
PE (x) 25.2 20.5 8.2 5.8
PE Relative to XSI 154% 127% 57% 46%
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Stock: Nearmap (NEA)
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• NEA is a leading provider of digital mapping data to government, corporates and small
businesses, which includes high-resolution aerial mapping. The company has developed a
complete technology solution that enables it to quickly capture and process maps and to serve
that data online quickly (every 1-2 months) and to a high quality standard.
• A key catalyst for the company has been the introduction of a new revenue model in
November 2012, now monetising customers who were previously using the product for free.
Quarterly statements since then have shown renewal rates to be high, suggesting that
customers are willing to pay for the service.
• The Australian market opportunity is substantial. The company has previously only sold their
product to larger enterprises, and government and council bodies. The market opportunity
realistically also addresses SMEs in key industries such as construction, real estate, roofers
and solar panel installers etc, estimated to be nearly 70k licenses at around $1k per user p.a.
• NEA owns the IP, and the process is readily replicable in other jurisdictions overseas,
providing optionality over the longer term.
• Conclusion: We are attracted to NEA’s offering and believe it adds value to the operations of
other organisations. The company has previously not monetised this offering property, but
under relatively new management, should be able to charge a fair price for their service which
translates to large profits given the high margins that the software business operates under.
Our price target is based on a two year forward multiple to incorporate higher forecast profits
two years out (given the relatively new revenue model contributing to group profits).
Jan-12 Apr-12 Jul -12 Oct-12 Jan-13 Apr-13 Jul -13 Oct-130
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885.01
Nearmap Ltd. Stock Performance Relative to S&P ASX Small Ordinaries
Nearmap Ltd.
Stock Returns
Capital Return 64.8%
Dividend Yield 0.0%
Total Stock Return 64.8%
ASX CODE: NEA
COMPANY: Nearmap
INDUSTRY GROUP: SOFTWARE & SERVICES
CURRENT PRICE: $0.48
PE Premium/Discount 0% TARGET PRICE 0.79$
2013 2014 2015 2016
Actual Forecast Forecast Forecast
NPAT ($M) 430.0 5,485.9 14,911.5 27,071.7
EPS (cents) 0.1 1.7 4.6 8.3
EPS GROWTH 1175.7% 171.8% 81.5%
PE (x) 364.3 28.6 10.5 5.8
PE Relative to XSI 2235% 177% 73% 46%
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Portfolio X-Ray
26 • Portfolio X-Ray as at 30.09.13
Market Cap* # of
stocks
% of
portfolio
$1b+ 1 2.7%
$350m- $1b 19 38.1%
$100m-$350m 41 53.1%
$0m - $100m 9 3.0%
Position
Weight
# of
stocks
% of
portfolio
> 2% 17 44.9%
1% - 2% 25 36.9%
0.5% - 1% 19 13.7%
< 0.5% 9 1.5%
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27 Performance is of the underlying portfolio before fees and taxes. Past performance is not necessarily indicative of future performance.
Indices do not adjust for impact of fees, costs and taxes paid. All data as at 31.10.2013. Source: CTN
3m % 6m % 1Yr % 5 Yrs
%pa
Since
Inception
%pa
Contango MicroCap Portfolio 18.3 17.0 19.5 14.7 18.1
Small Ordinaries Accum Index 7.5 5.4 2.9 7.5 5.4
Emerging Cos Accum Index 10.2 9.2 -13.5 8.3 3.9
Investment Portfolio Performance F
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STOCK attribution to 30.09.13
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12 MONTH (to the Small Ordinaries Index)
Code Stock Name Portfolio Weight
% Attribution Code Stock Name Portfolio Weight
% Attribution
MYX Mayne Pharma 2.02% 2.58% AUQ Alara Resources 0.57% -1.22%
GEM G8 Education 2.35% 2.04% PIR Papillon Res 1.03% -1.15%
SGH Slater & Gordon 2.58% 1.90% IDM IDM International 0.29% -1.10%
IPP Iproperty Group 1.45% 1.70% NFE Northern Iron 0.50% -1.08%
BTT BT Investment Mgmnt 1.77% 1.47% MAD Maverick Drilling 0.67% -0.91%
5 largest Positive and Negative contributors to performance versus the index
3 MONTH (to the Small Ordinaries Index)
Code Stock Name Portfolio Weight
% Attribution Code Stock Name Portfolio Weight
%
Attribution
IPP Iproperty Group 2.34% 1.95% MMS McMillan S'peare 2.07% -0.93%
TTN Titan Energy Srvce 1.65% 1.20% WEB Webjet 2.26% -0.62%
TGS Tiger Resources 2.08% 1.11% AUB Austbrokers Hldgs 3.16% -0.47%
PEM Perilya 0.83% 0.92% RKN Reckon 1.22% -0.43%
BDR Beadell Resource 2.21% 0.87% MTU M2 Telecomm. 2.65% -0.38%
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Looking ahead: Compelling valuations
29 This data has been produced by CAML for CTN and is extracted from proprietary research and
information from best information available. This is not a financial prediction.
Portfolio Fundamentals As at 31.10.13
CTN Small Ords
PE FY14 13.2x 13.9x
EPS growth FY14 42.0% 14.6%
Div yield FY14 2.7% 3.8%
Return on Equity FY14 17.5% 8.3%
Net Debt/Equity FY14 8.6%
Portfolio Fundamentals As at 31.10.13
CTN Small Ords
PE FY15 10.1x 12.6x
EPS growth FY15 27.5% 24.0%
Div yield FY15 3.3% 4.3%
Return on Equity FY15 20.5% 10.4%
Net Debt/Equity FY15 9.3% For
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Disclaimer
The investment manager for Contango Microcap Limited, Contango Asset Management Limited (ABN 52 085 487
421) holds an Australian Financial Services Licence (AFSL No. 237119) restricting it to providing financial products
and services to wholesale clients only.
This presentation has been prepared by Contango Asset Management Limited for the consideration and use of
“wholesale” investors, as defined by the Corporations Act (Cwth 2001), and may contain information that assumes a
level of knowledge and expertise particular to such investors. If you do not meet the criteria of a whole sale investor,
you should disregard this information and seek advice from a licensed financial adviser.
Forecasts in this presentation are predictive in character, based on numerous assumptions including the forecasted
outlook for key variables and may be effected by various factors including inaccurate assumptions, risks and
unforeseen events. Accordingly, actual results may differ materially from those forecasted.
The investment manager, Contango Asset Management Limited (“CAML”) and Contango Microcap Limited (‘CTN”) ,
their officers and/or employees and agents believe that the information in this presentation is correct at the time of
compilation but do not warrant the accuracy of that information.
Performance information is historical. Performance returns may vary. Past performance is not indicative of future
performance.
Save for any statutory liability which cannot be excluded, CAML and CTN disclaim all responsibility for any loss or
damage which any person may suffer from reliance on this information or any opinion, forecast, conclusion or
recommendation in this presentation whether the loss or damage is caused by any fault or negligence on the part of
CAML, CTN or otherwise part of CAML or otherwise.
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