AUGUST 2017 MONTHLY REPORT

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1 AUGUST 2017 MONTHLY REPORT 1

2 Investment Manager TBF Investment Management Pty Ltd ACN ARN Level 26, 44 Market St Sydney 2000 T E. Portfolio Managers: Ron Shamgar - ron@tbfinvest.com.au Responsible Entity Equity Trustees Ltd ABN AFSL number Administrator & Custodian FundBPO Pty Ltd Client Services Registry Team GPO Box 4968 Sydney NSW 2001 T E. registry@fundbpo.com Welcome Note 3 Reporting Season Highlights 4 Performance Review 7 2

3 INTRODUCTION: AUGUST 2017 MONTHLY REPORT Dear Investor, we provide this monthly report to you following conclusion of the busy month of August. The Fund finished August down -0.82%. By comparison the XSOAI was up +2.71% for the month. The main detractors were ITD and FIG. Ironically, those 2 companies delivered some of the best results of the reporting season yet investors sold those down after an initial spike in their respective share prices. The month of August is a hectic one as companies rush in to report their results in the last 2 weeks of the month. Out of the 20 stocks in the Fund s portfolio, all but one (MUA as flagged in July report) delivered results that either met or exceeded expectations. Unfortunately the share prices did not respond accordingly. The key takeaway for us as investors is that post this reporting season, the intrinsic value of the businesses we own has gone up. Eventually, over the long term share prices always follow the intrinsic value of a business and so we remain patient investors in these companies. In saying that, we do take the opportunity from time to time to rebalance holdings in the portfolio. During August we have added 2 new holdings to the fund. We continue to build our position in these companies. We will disclose in due course. In this report we reveal 3 new holdings in the Fund that we have bought prior to the August reporting period. These are Rhipe Limited (RHP), MNF Group (MNF) and Zenitas Health (ZNT). We will comment on these in our next monthly report due in October. Finally, one of our core holdings in the Fund, SmartPay Limited (SMP) received a conditional Takeover approach for 23.5 NZ cents or circa 21 cents AUD. The takeover has come from a Sydney based investment firm that has obviously identified SMP as significantly undervalued. We believe the bid is opportunistic and does not represent fair value. We will be rejecting the bid unless management recommends otherwise. We expect a higher bid as likely. We will keep our investors updated with further developments. 3

4 REPORTING SEASON HIGHLIGHTS Spirit Telecom (ST1) announced the acquisition of World without Wires for $4.6M. The business is a high-speed wireless broadband provider to residential and commercial customers in Southeast QLD. The acquisition was financed through a placement of shares at 12 cents, vendor equity at 14 cents and $2.2M of additional debt. The acquired business will bring $2.6M of revenue and $1.1M of EBITDA and is 55% EPS accretive. More importantly this strategic acquisition will bring over 12,000 square Kms of wireless coverage and significant engineering expertise. ST1 now has line of sight to more than 400 new buildings in the Gold Coast in order to potentially deploy and sell its high-speed Internet services. On a pro-forma basis, ST1 starts FY18 with $14.7M of revenues, $3.4M of EBITDA and 0.82c of EPS. That s without any further sales growth this year. We estimate that EBITDA for this year will exceed $4M and EPS will exceed 1.2 cents. This places the company on a PE multiple of 10x or less for a high growth, recurring revenue business with a huge market opportunity ahead of it. We value ST1 at 20 cents. Prime Financial Group (PFG) announced a solid result with NPAT coming in at the top end of guidance of $3.6M or 1.9 cents EPS on a fully diluted basis. This represented underlying growth of 30%. The company did not provide any guidance for FY18 but did indicate that FUM growth during FY17 will contribute to earnings growth next year and with a full year contribution of the recent acquisitions, we are now confident that PFG will deliver at least 2.3 cents EPS next year. The stock last closed at 19 cents placing it on a PE multiple of 8.2x. We view any further accretive acquisitions or confirmation of earnings growth next year, as key catalysts to re rate the stock to a market multiple it deserves. CML Group (CGR) continued to under promise and over deliver with EBITDA up 147% to $13.1M, NPATA up 280% to $3.8M and EPS up 190% to 2.9 cents. The company has now completed the integration of last year s acquisitions, which should drive net margin expansion in FY18. In addition, the banking facility is now in place and we expect this will reduce interest costs significantly next year and beyond to almost halve the current levels. CGR is now well placed to replace its expensive debt and convertible notes over the next few months and is fully funded to continue to grow its $1 Billion of invoices funding book. We forecast underlying EPS in FY18 of 3.3 cents on a fully diluted basis with a step change in earnings in FY19 as it benefits from a full year of lower interest costs across its entire funding sources. We value CGR at 45 cents. EML Payments (EML) delivered a stellar set of results for FY17 with Gross Debit Volume (GDV) across the group of $4.42B (up 348%), $58M of revenue (up 149%) and $14.5M of EBTDA (up 189% and impacted negatively by $1.1M from adverse currency). More impressively was the cash generation of the business with operating cash flows of $19.3M (positively impacted by the timing of $7M of breakage receipts). Management has guided to GDV of at least $7 to $8 Billion in FY18 and a net margin of circa 1%. With a relatively flat cost base and over 90% of its 4

5 REPORTING SEASON HIGHLIGHTS revenues sticky and recurring in nature, we anticipate close to 100% in earnings growth next year. The company has closed the year with just under $40M in net cash and no debt. We anticipate net free cash to balloon to circa $55M next year providing the company with significant firepower to either acquire a complementary business or return cash to shareholders. We anticipate that the reloadable and Virtual payments divisions of EML to grow significantly over the next couple of years, which will reduce the percentage of earnings contribution from the non reloadable division (gift cards) and breakage income. EML is fast becoming into one of the highest quality global growth businesses on the ASX, with over 90% recurring revenue, a diversified customer base with over 1,000 programs under contract, and a global market opportunity worth over $3 Trillion (that s Trillion with a T ). EML is now of the largest holdings in the Fund and we value the business at $2.40 for FY18. ITL Health (ITD) reported a considerable year of profit growth with revenues up 12% to $34.8M, EBITDA up 200% to $4.8M and NPAT of $3.4M. Pleasingly net debt was also down by 52% to $2.6M as the business generated strong cash flows. ITD s Biomedical division was the star performer with revenues up 23% to $13.8M and EBITDA growth of 76% to $4.5M. The Healthcare division delivered a solid result with revenues up 6% to $21.1M and EBITDA growth of 450% to $2.8M. MyHealthTest delivered an EBITDA loss of $0.8M as this division is still in start-up phase. Excluding MHT we estimate underlying EBITDA was circa $6M. Management has provided an outlook for FY18 for continued strong growth. We believe the company is undervalued but also misunderstood by the wider investor community. We expect some broker research in the near term which may help with investor understanding of the business. We value ITD at 80 cents based on the company continuing to grow revenues and earnings to our expectations. McPherson s (MCP) delivered a solid set of results that met our expectations and have setup the business for a step change in earnings growth for FY18. Reported revenues decreased by 10% to $280M as a result of planned closure of the unprofitable merchandising division and declines in low margins private label and agency revenues. Underlying EBIT was flat at $24M and underlying NPAT grew 18% to $13.7M (13.2 cents EPS). Pleasingly net debt reduced again by 27% to $36M. Full year dividends came in at 8 cents fully franked. Going forward the company has indicated that FY18 will see both top line and earnings growth with a continued focus on the growing and profitable Health and Beauty division. The company was negatively impacted by the currency in FY17 to the tune of $6.5M of earnings. The company has worked hard in reducing its cost base and with the currency sitting at circa 80 cents to the USD, we estimate at least $4M of earnings tailwinds in FY18. Consensus estimate are now at over 15 cents EPS for FY18 but based on the currency alone and further reduction in debt interest costs, we estimate EPS of circa 17 cents next year. The stock has re rated strongly on the back of the result to $1.55 but is still trading on a low single digit forward multiple. We still believe the home appliances division is a drag on the multiple of the stock but we sense a shift of sentiment in the market place for MCP in general. We have been banging the table on MCP since March 2016 when the stock was trading around 90 cents. Eventually and as always, share prices follow the true value of a business and MCP is once again proving this is the case. It has taken 18 months for MCP to be finally recognised by investors and we still believe there is considerable upside. We are pleased that our patience is finally paying off. We value MCP at $

6 REPORTING SEASON HIGHLIGHTS QMS Media (QMS) reported revenue growth of 51% to $169M with digital revenue now at close to 60% of group media revenue. Underlying EBITDA was up 40% to $37.5M and underlying NPATA was up 31% to $22.6M. The company is continuing to execute well on its digital large format roll out across Australia and NZ. 72% of Australian revenues are now from digital compared to the industry average of 42%. QMS now has 78 operational landmark digital sites and is forecasting FY18 to exceed 100. This should underpin FY18 growth and help the company exceed its EBITDA guidance of at least $43M next year. Consensus estimates are sitting at $45M of EBITDA. QMS is now trading in line with its larger listed peers in OML and APO and so any further consolidation in the industry between those players and possibly HT1 will be driven more by synergy potential rather than an earnings multiple arbitrage. Since APO and OML have been blocked by the regulator from merging, in our mind QMS remains the only true, high growth digital outdoor media player left to consolidate. With media reforms on the verge of passing through the senate soon, we think this will bring more possible suitors for QMS from more traditional media players such as Seven Media and News Corp. Only time will tell, and in the meantime it is pleasing to see QMS directors buying more shares on market. We value QMS at $1.35. Freedom Insurance (FIG) delivered a fourth profit upgrade for the FY17 year in only 10 months of being listed. Revenue was up 81% to $53.5M. EBITDA was up 195% to $22.3M (exceeding upgraded guidance) and underlying NPAT was up over three times to $15M. EPS grew 220% to 6.7 cents. New Business sales increased 82% to $64.4M and the total in force premiums book grew by 66% to $110M, representing 289,000 customers. The company has been extremely busy over the last 12 months growing and diversifying its insurance products on offer. Going forward the company is now set to launch its highly anticipated Mortgage insurance product and a range of other simple to understand direct life insurance products into the marketplace. The business has ramped up its cost base to meet this upcoming expansion and we anticipate significant growth in sales and profits over the next few years. FY18 will see most of the new product traction in the second half of the year, and management has indicated that by the February half yearly results, it will be able to provide more accurate earnings guidance for the year. The company has over $30M of net cash (following the sale of its holding in Noble Oak) and no debt and is well funded for continued growth. Unfortunately the shares finished the month down. Investors have turned their attention from a wonderful set of results to a potential sell down by founders of their stock coming out of escrow. We view a small sell down by management as reasonable. We value FIG at $

7 PORTFOLIO AND PERFORMANCE REVIEW The Fund ended August 2017 holding an interest in 20 ASX listed businesses. As demonstrated by the below chart Fund concentration: Cumulative % FUM across Holding Categories as at 31 August 2017 the Fund continues to remain concentrated with just over 78.03% of FUM concentrated across the top 15 holdings. The portfolio continues to be diversified across a range of industry sectors as shown by the below Chart GICS Sector and Cash Weighing of total FUM as at 31 August Additionally, the Fund s portfolio is spread across key market capitalisation bands within our investment universe of companies capitalised under $500 million, as shown in the chart % of Invested FUM in market cap band as at 31 August At 31 August 2017 total FUM exposed to equities was 89.19% with the balance held in cash. PERFORMANCE Over the month of August the unit price of the Fund decreased by -0.82% whereas the XSOAI increased by +2.71% resulting in underperformance by the Fund over the XSOAI of -3.53% over the period. From inception of the Fund (6 May 2013) to 31 August 2017, the Fund has returned 16.03% pa (including reinvestment of all distributions and net of all fees) whereas the XSOAI has returned 6.04% pa resulting in an outperformance by the Fund over the XSOAI of 9.99% pa. The chart below shows the change in value of $100,000 invested in the Fund compared the XSOAI from Inception to 31 August 2017 (including reinvestment of all distributions and net of all fees). We look forward to providing our next report in the middle of October Yours Sincerely, Ron Shamgar and the TBF Team 7

8 TBF SMALL CAP VALUE GROWTH FUND Unit Price 1 $ Annualized return since inception 2 August % -0.82% Monthly performance3 For the month ending 31 August Year Per Annum Since Inception P.A. TBF SCVGF -0.82% -0.12% -0.87% -1.74% -4.00% 7.46% 10.83% 16.03% Small Ordinaries Accumulation (XSOAI) 2.71% 5.12% 3.06% 4.21% 3.20% 14.27% 6.13% 6.04% Outperformance-TBF SCVGF vs XSOAI -3.53% -5.24% -3.93% -5.95% -7.21% -6.81% 4.70% 9.99% Value of $100,000 invested in TBF SCVGF Fund vs XSOAI since inception (6 May 2013 to 31 August 2017) 30- Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul- 17 $220,000 $210,000 $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 31/08/ /08/ /08/ /08/2017 GICS Sector and Cash Weighting % of Total FUM as at 31 August 2017 Consumer Discretionary (Consumer Durables & Apparel) Consumer Discretionary (Consumer Services) Consumer Discretionary (Media) Consumer Staples (Food, Beverage & Tobacco) Financials (Diversified Financials) Financials (Insurance) Healthcare (Healthcare, Equipment & Services) Industrials (Commercial & Professional Services) IT ( Software & Services) Telecommunication (Diversified Telecommunication Services) Cash 8

9 % of FUM Invested in Key Market Cap Band % of FUM Invested in Key Market Cap Band 0 to 25 million 25 to 50 million 50 to 100 million 100 to 150 million 150 to 200 million 200 million + Cash Fund Concentration: Cumulative % FUM Across Holding Categories as at 31 August