Following AGM season the Small Cap team have taken the time to provide a brief update on the portfolio.
During the month, a number of portfolio holdings held their annual general meetings. The trading updates delivered at these meetings were on the whole positive and supportive of the investment thesis.
We are absolutely focused on ensuring that the portfolio is exposed to growing, well run businesses that represent attractive long-term investments (and buying such businesses at compelling valuations); and believe that the AGM updates highlight this.
Sealink Travel Limited (ASX:SLK)
AGM 17 October 2018
Leading tourism and travel operator Sealink announced that it expected strong profit growth in FY19. Key drivers of profit growth in FY19 include the anticipated reversal of trading losses from new ferry routes in Sydney and Western Australia and the contribution from a new service to Bruny Island (Tasmania); the full year contribution of its Fraser Island acquisition, together with continued organic growth in existing businesses in SA, NSW, Qld and NT. Sealink noted that inbound tourist numbers out of Europe and US remained very strong, and that fuel, a key operating cost, has been approximately 50% hedged. While it did not provide formal guidance, SeaLink noted that it was positioned to substantially improve upon its FY18 result, assuming average seasonal and current business conditions remain stable.
Kip McGrath Education Centres Limited (ASX:KME)
AGM 26 October 2018
At its AGM, leading tutoring company Kip McGrath noted that its FY18 result (41% increase in profit) was the 7th consecutive year of increased profits, and said that based on results to date, FY19 will continue that trend.
The increase in profit has been (and will continue to be) driven by an increase in the number of students taught. Students being tutored are increasing as a result of:
1. The global market has shown an annual growth rate in excess of 10% in recent years;
2. The company’s initiative in doing national advertising has yielded significant student growth; and
3. KME’s products and service have improved with the new software that has been written.
We continue to expect strong revenue growth and margin expansion to deliver an EPS increase of 20% in FY19.
Gale Pacific (ASX:GAP)
AGM 26 October 2018
Gale Pacific reported a pleasing trading update – noting that it expected growth in first half earnings for FY19, and was confident in achieving earnings per share growth in FY19.
Growth is underpinned by the roll out of product into United States, where GAP see a large opportunity given sun protection awareness is building and there is no one market leader in the category. GAP has an impressive distribution capacity through national retailers such as Home Depot as well as a strong Amazon presence.
The company continues to focus on becoming a faster growing, more profitable, innovative, global fabrics technology business, and while progress to date has been slower than expected, at 10x NPAT, there is compelling value on offer here. We recently spent time with Management where they demonstrated some new innovative fire-resistant coverings for the commercial market. We continue to believe that GAP has significant earnings upside.
Apollo Tourism and Leisure (ASX:ATL)
AGM 24 October 2018
ATL manufactures, rents and sells campervans, and bullishly noted that increased market activity was generating a wealth of opportunities. ATL highlighted that the global rental business outlook is positive, with tourism industries performing strongly in all operating regions, however did note that geo-political risks are an area of focus, and in particular, Brexit and US trade tariffs have the potential to impact confidence in those geographies. Recent feedback from tourism operator Sealink was that inbound tourist numbers from Europe and United States remain very strong, which is positive for Apollo’s Australasian high season.
Apollo continues to invest in digital initiatives to provide industry leading guest experiences while adding new retail sales sites and leveraging of distribution network synergies is expected to boost RV sales revenues. Ancillary revenue streams such as finance and insurance and servicing remain a focus for growth.
Apollo reaffirmed its NPAT guidance of $22m – $24m (representing ~20% growth), and with a market cap of $255m, puts it on a PE of ~11x.
Legend Corporation (ASX:LGD)
AGM 26 October 2018
Electrical component manufacturer and distributor Legend advised that it expected its FY19 half year EBITDA to be in the range of $7.3m to $7.6m, an increase of 32% to 37%. NPAT is expected to be in the range of $3.6m to $3.8m versus $2.8m last financial year. This follows an increase in NPAT of 60% in FY18.
Ordinarily, such an announcement would have been greeted very positively by the market. However, in September the company had announced that profit was up 70% for the first 2 months of the year. This raised expectations and attracted plenty of ‘hot’ money into the stock, which was disappointed by the news that (not unexpectedly) the previously highlighted initial level of growth had not been maintained. LGD still remains very attractively priced (~8x) and provides strong growth in a buoyant sector, so we continue to hold.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.