9/8/2021 12:00:00 AM

Fund Reviews: Australasian Growth

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Read the latest on our Australasian Growth funds: Growth, Dividend Growth, Emerging and Growth 2.

Written by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager

Australasian Growth Fund

The Australasian Growth Fund returned 1.2% for the month, bringing it to a 12-month return of 18.4%.

Strategy: After a great July, August performance was muted. Strong performance in core industrial positions was masked by underperformance in the fund’s exposure to pre-production resource companies.

Pie’s strategy is to find undervalued structural growth companies which fit the four Ps: product, potential, people and predictability. This is the strategy which has allowed G1 to compound at 16.8% for the last 13+years. The great news is that core of the portfolio sits firmly on strategy and is delivering. Even better, G1 has a healthy cash balance which provides us with a fantastic platform to leverage the over 400 meetings the team has had in the last month into new positions. A fresh perspective also gives us the opportunity to assess positions which aren’t on strategy. Pre-production resource companies aren’t.

Positive contributors during the month included Macquarie Telecom, MNF Group and Life360.

Focusing on Life360, Life360 produces the market leading family location monitoring app in the US. Life360 upgraded guidance during the month and with app downloads, revenue per customer and conversion all tracking strongly into the Northern Hemisphere back to school period, we believe guidance looks conservative. The upcoming listing in the US of their main competitor Next-doorshould provide a further catalyst.

Detracting from performance was the fund’s exposure to pre-production resource companies, Palla Pharma and Zebit.

New positions: we’re pleased to say we’ve already added one new name from reporting. We’re confident this will become a core position and look forward to updating you once we’re set.

Outlook: the opportunity for G1 is exciting. You should expect to see a lower cash balance over time and the fund’s positions more closely align with the strategy which has delivered a CAGR of 16.8% since inception. We will be measured and some patience will be required, but with the whole team driving G1, you should get excited.




Written by Mike Ross, Portfolio Manager

Australasian Dividend Growth Fund

The Dividend Growth Fund returned 6.0% for the month, bringing it to a 12-month return of 47.4%.

Contributors to performance during the month included Uniti Group, MA Financial, AFG and City Chic.

City Chic (CCX: ASX) reported a solid result but one that did not fully reflect the momentum in the business, which picked up towards the end of the year as northern hemisphere markets opened up. Avenue is now contributing at levels materially above pre-acquisition levels but we are still yet to see a full year contribution from this business without pandemic or inventory challenges. Evans is also improving after being understocked at the point of acquisition. CCX is expanding conservative ranging in Australia, restocking the recently acquired Navabi business and rolling out a number of new marketplace partnerships with some big names, providing an exciting opportunity for CCX to grow its customer base abroad.

Alliance Aviation (AQZ: ASX) stalled during the month after reporting a messy result marginally below expectations. We were not invested for the FY21 result and remain upbeat. With capacity taken out of the market at the beginning of the pandemic, the competitive environment has improved for AQZ and demand for contracted air transport remains strong. We look forward to the company deploying its new fleet over the next two years which should deliver a step-change in earnings and healthy returns on capital deployed at the bottom of the cycle. The stock is priced at a modest valuation which should enjoy a re-rate if the business can prove up the investment case for the Embraer fleet.

Uniti reported a strong result that demonstrated strong organic growth and free cash flow generation. It reported strong momentum heading into the new financial year run-rating at $133.4m EBITDA, leading to consensus upgrades for FY22.We believe the embedded growth profile and exposure to speed price inflation can sustain growth in earnings-per-share of at least 15-20% over the next few years.

After speaking to hundreds of companies in August we have a refreshed pipeline of investment ideas. Some of these have already been added to the fund while we will use the coming weeks to continue detailed research on others.




Written by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager

Australasian Emerging Companies Fund

The Australasian Emerging Companies Fund returned 5.0% for the month, bringing it to a 12-month return of 18.6%.

August is reporting season and we’re really pleased that ECF performed strongly, despite its three largest positions dragging on performance.

Positive contributors included Atomos, Bigtincan, Family Zone and Aussie Broadband.

Atomos beat its pre-guided numbers and pointed to strong growth and expanding margins in FY22. It’s exciting when a company which dominates a niche finds that niche becoming mainstream. That’s happening for AMS.

Bigtincan raised capital during the month to acquire Brainshark. At 2.5x annualised recurring revenue (ARR) the acquisition was a no-brainer. The market loved Bigtincan’s new bolt on and so did we, particularly as FY22 guidance looks conservative. We look forward to Bigtincan keeping us abreast of developments.

Family Zone, a company which provides cyber safety products to schools globally, expanded into the UK via the acquisition of SmoothWall. Family Zone is just coming onto the radar of larger funds. With low coverage, we’re optimistic that strong business performance will be met with a continued re-rating.

Aussie Broadband dialled up the alpha in August as the market turned its focus to the operating leverage ABB will deliver in FY23.

Detracting from performance were Kip McGrath and RpmGlobal.

Kip McGrath delivered an in-line result reflecting the impact of Covid induced lockdowns. We’re confident that Kip McGrath will find its form as economies emerge from Covid and Kip McGrath continues to execute on its Corporate centre strategy.

• The overlooked gem from reporting was RpmGlobal. A cautious outlook statement provided us with a great short-term buying opportunity. Our thesis remains in-tack here and we expect RpmGlobal to deliver strong performance in FY22.

Looking ahead, ECF’s in great shape. The strength of our companies means competition for a place in the portfolio has never been fiercer. We’re being particularly ruthless in cutting or reweighting positions in favour of those with the most near-term upside. It’s a great position to be in.




Written by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager

Australasian Growth 2 Fund

The Australasian Growth 2 Fund returned 6.1% for the month, bringing it to a 12-month return of 16.2%.

August is the month our companies report their full year results and provides a key barometer of our performance. Whilst performance of 6.1% is satisfactory, we’re not happy. Certain positions didn’t perform and we’ve taken action. We’ve cut two positions and added two new ones which have already performed strongly. On the back of these moves, G2’s in excellent shape. The strength of momentum in our portfolio companies has us excited and there are plenty of catalysts to drive future performance.

Positive contributors included Afterpay, EML Payments and Uniti Group.

Afterpay found itself squarely in the M&A crosshairs during August. Whilst the takeover premium doesn’t excite us, the optionality available from partnering with a product-led company (an area where Afterpay has lagged competitors) such as Square does.

EML Payments delivered a strong FY21 result and announced that CBI remediation would be practically complete by the end of CY21. The probability of an adverse regulatory outcome now appears extremely low, whilst on the flip side EML will only pay 3x-3.5x revenue for PFS and its business is accelerating strongly as the Northern Hemisphere reopens.

Uniti Group re-rated on the back of strong performance from its fibre business, driven largely by its recent acquisition of Opticomm.

Detracting from performance were Doctor Care and Sezzle. We’ve exited both.

Focusing on the former, Doctor Care provides telehealth services in the UK. Our thesis was that Doctor Care had a platform which would allow it to leverage the strong demand for telehealth services. Unfortunately, our diagnosis was incorrect. Doctor Care hasn’t been able to achieve the contribution margins we expected as the ‘platform’ is essentially a service offering even on the back end. Doctor Care has excellent top-line momentum, but challenges scaling has resulted in lower contribution margins. At the same time, Doctor Care’s cash burn means it will be back to market soon and it’s expensive on an EV/Contribution Margin even looking at CY22. We’ve admitted our mistake, exited the position and recycled the cash.

Looking ahead, September remains busy meeting companies. Whilst we’re always hunting for the next gem, G2’s in great shape and the next six months are catalyst rich.


Information is current as at 31 August 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.