Written by Mike Ross, Investment Analyst
AGM season in full swing
November is always a busy month for the Australasian investment team as many companies provide trading updates at their annual general meetings for the financial year-to-date. Overall, it was a positive month for small caps. Small resources continued their strong performance returning 8% for the month, while small industrials returned 2.7%.
Recent performance has been largely driven by multiple expansion as opposed to upgrades to forecast earnings growth. The Small Ordinaries index now trades at almost a 20% premium to its five-year average price-to-earnings ratio while the Small Industrials trades at a 19% premium. The Australasian funds all continue to hold cash weightings in excess of 20%.
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Contributors and detractors
Positive contributors across the funds in November included Gentrack, Rhipe, Adairs and Jumbo Interactive. Key detractors were EML Payments, Bravura Solutions, Empired and Macmahon Holdings.
Key holdings
Our two largest positions across the funds - EML Payments and Bravura Solutions - fell during the month and this contributed to underperformance relative to the market.
The fall in Bravura’s share price occurred towards the end of the month and was linked to speculation the company had lost a key client of one its legacy products. The company has since confirmed this as untrue. The product in question accounts for less than 2% of total revenue. We took advantage of the market noise to top-up our holding and were pleased to see four of the company’s directors also buying in early December.
Meanwhile, significant insider selling resulted in a sharp sell-off in EML Payments with the share price falling from $2.12 to $1.83 during the month. In response to negative investor feedback regarding the share sales, the company’s chairman released a statement claiming that the share sales occurred “for personal reasons and do not reflect [the directors’] long-term outlook for EML”, also confirming EML is trading ahead of budget this financial year.
Integral in play
One of our recent additions to the Dividend Fund, diagnostic imaging company Integral Diagnostics, received an unsolicited takeover offer pitched at a 30% premium to the company’s share price at the time. While this delivered a positive result for the Fund, the timing was unfortunate as we had not been able to acquire enough shares to reach our target holding weight before the takeover offer was announced. We still hold Integral in the Fund but have ceased buying as we wait to see how the situation progresses.
Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.