OBJECTIVE
The company invests its capital in companies with a significant discount in the share price relative to perceived inherent value. These companies have superior fundamental prospects, yet negative external events have attracted a flight of investors. The company seeks to assist investee companies to demonstrate, grow and realise their inherent value.
Net Tangible Assets (Pre-Tax) Per Share | $1.097 |
*Performance data, as applicable, includes the original vehicle, H&G High Conviction Fund, launched in November 2007, until 23 June 2022, and the performance of H&G High Conviction Limited since 23 June 2022. Performance of H&G High Conviction Limited is calculated monthly as profit before taxation divided by opening net assets (adjusted for capital movements and dividends during the month, if any).
Highlights during the quarter
•Declared and paid first dividend of $0.02 per share
•Invested $3.3m into existing holdings and new microcap companies
•Portfolio returned 5.2% (pre-tax; net of all fees)
•Pre-tax NTA per share of $1.097 (after dividend) compared to $1.064 at last quarter end
Commentary
The H&G High Conviction Limited (HCF) portfolio returned 5.2% after all fees for the March 2023 quarter. The main contributors were Po Valley Energy (PVE) (up 16%), Kiland (KIL) (up 11%) and Anagenics (AN1) (up 25%).
During the quarter, HCF invested a net $3.3m cash into existing and new holdings, taking advantage of the continued sell-off in microcap companies. HCF continues to look for opportunities to deploy its capital into securities that: (i) offer significant potential return; (ii) have limited downside due to a high margin of safety; and (iii) are run by a board and/or management with significant shareholdings.
Update on largest portfolio holdings
Po Valley Energy (PVE; 14% of HCF) shares increased by 16% during the quarter. PVE continued to work towards first gas production in the first half of 2023 at its onshore field, Selva. Natural gas prices in Europe remained well above the historical average with a significant shortfall in supply expected for at least the next year.
Kiland (KIL; 14% of HCF) shares increased by 11% during the quarter. KIL initiated an on-market buyback to purchase at least 3% of its shares. KIL continued the redevelopment of its 14,500 hectares of fire-damaged tree plantations into agricultural land in addition to its carbon removal biochar project.
Centrepoint Alliance (CAF; 7% of HCF) shares increased by 5% during the quarter. CAF released its first half results and paid an interim and special dividend. We believe CAF’s valuation is low considering it trades on a normalised net dividend yield of 6.8% (fully franked) and has strategic merit with a network of over 500 financial advisers.
Other activities and outlook
During the month we invested a further 4% of the portfolio into Connexion Telematics (CXZ). Part of this was achieved through an asset swap, in which we acquired CXZ shares in return for HCF shares. CXZ offers fleet management software for car dealers. Its biggest customer is General Motors, who has mandated the use of CXZ’s software for all affiliate dealerships in the US. Despite being profitable, well-managed, and engaging in an on-market buyback, CXZ’s shares trade at a low market valuation of 5x our expected forward EBIT.
We also invested a further 3% of the portfolio into Anagenics (AN1) as a sub-underwriter to its entitlement issue. AN1 is a beauty company that distributes skincare products into the Australian market. It is near breakeven, generates annual revenue of around $10m and is trading on an enterprise value of $7m. AN1 is well-positioned to use its excess cash to build its portfolio of brands and achieve the scale necessary to make meaningful profits.
The global economy and markets remain precarious. We maintain downside protection for our portfolio by way of physical gold and S&P 500 put options.
As ever, please don’t hesitate to reach out to us with any questions.
“The intelligent investor is a realist who sells to optimists and buys from pessimists”
– Benjamin Graham
(Warren Buffet’s mentor)
Pre-tax performance as of 31 March 2023 | 3 months | 12 months | 7 years p.a. | 10 years p.a. | Since inception p.a |
|---|---|---|---|---|---|
HCF Pre-Tax Total Return* | 5.2% | 14.5% | 7.8% | 9.3% | 7.6% |
ASX Small Ords Accumulation Index | 1.9% | -13.2% | 6.8% | 5.2% | 0.9% |
Outperformance | 3.3% | 27.7% | 1.0% | 4.1% | 6.7% |
*Performance data, as applicable, includes the original vehicle, H&G High Conviction Fund, launched in November 2007, until 23 June 2022, and the performance of H&G High Conviction Limited since 23 June 2022. Performance of H&G High Conviction Limited is calculated monthly as profit before taxation divided by opening net assets (adjusted for capital movements and dividends during the month, if any).
DISCLAIMER
This performance report has been prepared by H&G Investment Management Ltd (ACN: 125 580 305; AFSL: 317155) to provide you with general information only. In preparing this report, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither H&G Investment Management Ltd nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Information Memorandum before making a decision about whether to invest in this product.
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