As we discussed in the recent article Second-Level Thinking and US Homebuilders, we’re currently going through a very interesting time in the U.S. housing industry. Renovating and remodelling activity boomed during the pandemic as people confined to their homes made the most of the opportunity to improve their living space–with a little help from their stimulus cheques.
There have been constant questions about whether this level of activity could be sustained, particularly given higher interest rates (which are expected to dampen economic activity) and the threat of a slowdown in consumer spending–at least on goods anyway (spending on services such as travel and concerts continues to hit record highs, as the likes of Booking Holdings (NASDAQ: BKNG), Helloworld Travel (ASX: HLO) and Taylor Swift can attest). Earnings season rolls on and this week we take a look at one of our company’s results from the portfolio in Reckon Limited (ASX: RKN) and another who has been in the process of rebranding in FleetPartners Group Limited (ASX: FPR) formerly known as Eclipx Group Limited.
Viva Leisure Limited (ASX: VVA) a market leader in the personal wellness industry, announced last Friday an impressive set of full year 2023 results.
Despite cost of living and inflationary pressures, revenue increased 55% to $141 million and Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) increased by 429% to $29 million. The share market lapped up the numbers with the share price increasing 11.54% on the day to a 52 week high of $1.45. You can read up on our previous commentary around the business here. The financial world often stands still, watching behemoths like Apple Inc (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) manoeuvre. Given their gargantuan size, these market titans inevitably cast wide ripples across the broader investment landscape with every price fluctuation - particularly during reporting season. Yet, beyond the limelight and the vast echo of these large caps, there’s a realm of potential in the business performance of small caps where valuations remain grounded.
As we discussed in an article just last month, Symbio (ASX: SYM) is the latest in a string of small cap ASX companies to receive a takeover offer.
We highlighted Symbio as a possible acquisition candidate because of its growing and profitable business (a rarity among small ASX companies), rock-solid balance sheet (with $30 million in cash compared to a market capitalisation of $150 million), predictable and recurring revenue, and high insider ownership among the Board of Directors. A takeover offer is simply that, an offer. The acceptance and completion of that offer is another matter, just take a look at the difficulties continually disrupting Microsoft’s (NASDAQ: MSFT) attempted acquisition of Activision Blizzard (NASDAQ: ATVI).
In 2022, ClearView Wealth (ASX: CVW) was identified as a potential takeover target by TAMIM’s Ron Shamgar and, while the story did not eventuate as we would like thus far, the business has been evolving in a way that continues to make it attractive. Rising interest rates and inflation are significant tailwinds for ClearView. The company’s product is sticky with the ability to pass through inflation costs to policyholders, while higher rates result in higher investment returns on cash and fixed-income holdings. Symbio Holdings (ASX: SYM) dropped a stunning 37.5% in a single session following a trading update on 20 December 2022.
The communications software provider announced a sharp decrease in its expected FY23 operating earnings (EBITDA) with a decrease in the midpoint guidance of 25% to between $26 million to $30 million. The plunge in expectation was largely due to the Communications Platform-as-a-Service (CPaaS) division where US customers had been returning excess inventory as well as a number of deals with its Australian customers taking longer than expected to finalise. Bank of America Merrill Lynch (BofA) recently published a research paper showing that small cap stocks are now trading at a 20-year low versus their large-cap peers. In fact, the only other time in the last 50 years that small cap stocks were this cheap relative to large companies was during the dot-com bubble surrounding the year 2000.
Oftentimes, market fluctuations are a source of frustration for many. Given the frequency of noisy headlines about cost of living pressures, impending global recession and counterintuitive rise of markets in the first half of 2023 (particularly the S&P 500), it is understandable that investors may slip into watching share prices more than underlying business operations and performance.
For the best part of 2022 investors could have been forgiven for thinking technology stocks only went down.
From a previous sea of red, some green shoots have begun to emerge in technology stocks marking a notably positive beginning to 2023. Several factors contribute to this shift, including speculation regarding the US Federal Reserve's potential abandonment of its rate-raising strategy, mounting pressure on businesses to streamline expenditures and demonstrate a path to profitability, and the pervasive belief that artificial intelligence (AI) will dominate the global stage. Consequently, the downtrodden tech sector is now enveloped in an atmosphere of optimism. This week we are providing an overview of rare earths, a group of 17 elements critical to various industries including energy, defence and aerospace. Rare earths are a geopolitical battleground, with China’s iron grip over the supply chain causing apprehension amongst Western nations. Rare earths have also gained greater investor attention in recent years as they become a key cog in the race to decarbonise the planet.
With the world's growing reliance on alternative energy sources, the investment landscape is increasingly fixated on lithium. Lithium is integral to the batteries powering electric vehicles and much more. After steep declines in lithium prices to start the year, recent increased mergers and acquisitions activity has sent ASX lithium stocks higher.
As we reported last week, a key holding inside our Australian All Caps portfolio, Silk Laser Australia (SLA.ASX), experienced a significant increase in its share price due to a buyout bid from Wesfarmers Ltd (WES.ASX). Portfolio manager Ron Shamgar has been following the company closely and in a recent webinar he explained more about this opportunity.
Electrical products distributor and services provider, IPD Group Ltd (ASX: IPG) was listed in December 2021 and is an ASX rarity: the company has seen sustained share price growth since its IPO despite the market turmoil of 2022, especially in small caps.
Last week our head of Australian Equities, Ron Shamgar held an investor briefing where he discussed IPD, below we share our write up and the video of his views on the business and its outlook over the next 12 months. For most investors, 2022 was a tough year. For CY2022, the Australian Small Ords was down -18.40%, the S&P500 was down -19.40%, and the Nasdaq was down -33.10%. Our Australian All Caps fund did not fare better as we, in particular, experienced tough stock-specific declines, particularly due to de-rating multiples in small caps. However, investing is a long game and the law of mean reversion will likely come to the forefront again in 2023.
The August reporting season is just around the corner; a time when the majority of ASX-listed businesses will provide FY22 results. With that in mind, we provide an overview of what to expect, how certain sectors will perform and where the market might be getting it wrong.
Special situations in investing are potentially lucrative, aming to seize short term opportunities for outsized gains, but not always easy to identify. This week we take a look at three types of these situations.
Inflation is at highs not seen in decades with Australians facing soaring prices for everything from fuel to energy, construction and food. So, what about Consumer Staples?
This week we visit a topic that has been persistent in recent headlines: coal. In doing this we will look at two large-caps that have delivered a seemingly extraordinary return in this bear market.
This week we have a trio of guest contributors. All three were given an ASX-listed stock to write briefly on; the stock in question is former market darling The a2 Milk Company (A2M.ASX).
This week we continue our examination of utility markets. Last week we looked at prices and what has been driving them higher, this week we look to one company in the sector that has also been all over the headlines, AGL (AGL.ASX).
This week we have a pair of guest contributors. Both were given an ASX-listed stock to write briefly on; the stock in question is agricultural Nufarm (NUF.ASX).
This week we conclude our latest Talking Top Twenty series, working our way through a couple of insurance companies, Insurance Australia Group (IAG.ASX) and Suncorp (SUN.ASX).
In the final instalment of this Talking Top Twenty series, we take a look at Amcor (AMC.ASX) and Brambles (BXB.ASX).
This week we continue our march through the Talking Top Twenty series, looking into Transurban (TCL.ASX) and Goodman Group (GMG.ASX).
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