Merlon Capital Partners

Transcription

1 Click to edit Master text styles Second level Third level Fourth level Merlon Capital Partners Strategy Outlook & Kings of Yield Update 2 September 2015

2 Disclaimer The information contained in this presentation is current as at September 2015 unless otherwise specified and is provided by Fidante Partners Limited ABN AFSL (Fidante Partners). It is intended solely for holders of an Australian Financial Services License or other wholesale clients (as defined in the Corporations Act 2001 (Cth)). It must not be passed on to retail clients. Any information provided or conclusions made, whether express or implied, do not take into account of any person s objectives, financial situation or needs. Because of that, each person should, before acting on any this information, consider its appropriateness, having regard to their objectives, financial situation and needs. Past performance is not a reliable indicator of future performance. Fidante Partners Limited ABN AFSL (Fidante Partners) is the responsible entity of the Merlon Wholesale Australian Share Income Fund ARSN (Fund) and issues the interests in the Fund. Offers of interests in the Fund are contained in the current relevant product disclosure statement (PDS) provided by Fidante Partners which is available on the Fidante Partners website The PDS should be considered before making any decision whether to acquire or continue to hold units in the Fund. In preparing this presentation, Fidante Partners has relied on publicly available information and sources believed to be reliable, however, the information has not been independently verified by Fidante Partners. While due care and attention has been exercised in the preparation of the presentation, Fidante Partners gives no representation, warranty (express or implied) as to the accuracy, completeness or reliability of the information. The information in this presentation is also not intended to be a complete statement or summary of the industry, markets, securities or developments referred to in the presentation. Fidante Partners is not licensed or authorised to provide tax advice. We strongly recommend that an investor seek professional taxation and social security advice for their individual circumstances. Any examples used are for illustration purposes only. Any opinions expressed in this presentation, including as to future matters, may be subject to change. Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved. 2

3 Consistent Objectives Over Ten Years Gross distribution yield above market Lower level of risk than market Capital growth above inflation 3

4 Merlon Differentiating Features Sustainable yield premium, paid monthly and majority franked Benchmark unaware diversification Transparent and consistent below market risk Value-style stock selection track record 4

5 Reporting Season Dominated by Macro Events Daily drawdown chart using Merlon Wholesale Australian Share Income Fund unit prices (after fees, excluding franking) 5

6 Reporting Season Delivered Good Outcomes Growth vs 2014 Variance to Merlon Analyst Forecast 4.8% 5.0% 3.3% 2.7% 0.5% -0.3% -0.5% -0.9% Revenue EBITDA Gross Cash Free Cash Median revision since 30 June 2015 of 77 Merlon covered companies that have reported full year results 6

7 Merlon Sustainable Free Cash Revisions Downgrades Number of Companies Upgrades BHP BKN CIM FXJ ILU ORG WHC 7 ANN BLD CGF CWN DOW DSH IAG MYR ORI RIO SWM BOLD = Portfolio holding ARI IOF MFG ORA RMD SPO TWE AWC CSR DMP HSO TEN TPM UGL 7 7 More than 20% 10-20% 0-10% 0-10% 10-20% More than 20% Revision since 30 June 2015 of 133 Merlon covered companies. Excludes companies with no change. 7

8 Woolworths Coca-Cola Amatil AMP QBE Aurizon Wesfarmers Bendigo Bank Boral IAG Bank of QLD Banks Consumer Staples Contractors Energy Industrials Health Care Infrastructure Insurance Financials REIT Resources Cash Fund Positioning Aligned to Fundamental Value Largest Active Positions Sector Weights 6% Fundamental Equity Portfolio Hedge Overlay 20% Fundamental Equity Portfolio Hedge Overlay 4% 15% 2% 10% 5% 0% 0% -2% -5% -10% Initial weights based on research output Stock, sector, liquidity & short selling constraints Net Market Exposure Portfolio ASX200 Fundamental Equity Portfolio 93% 100% Cash 6% - Hedge Overlay -25% - Net Market Exposure 69% 100% Disciplined and transparent process Data as at 28 August 2015 Source: Merlon, Fidante Partners 8 Portfolio Analytics Portfolio ASX200 Number of Equity Positions Number of Hedge Positions 34 - Active Share 76% - Valuation Upside +31% +1% Gross Distribution Yield 7.7% 6.7% Price / Earnings Ratio 14.6x 15.8x

9 Kings of Yield Update Code Company Gross dividend yield (%) PE (x) Holding (%) GMA Genworth MND Monadelphous SWM Seven West Media DSH Dick Smith NEC Nine Entertainment As at 31 August Source: Bloomberg, Merlon Capital Partners. Gross Dividend Yield is based on 12 month forward Bloomberg estimates 9

10 Genworth GMA 2016 EPS 2017 EPS 2018 EPS Key Issues: Credit metrics softer during the June quarter No capacity to adjust pricing if there is a downturn Tail risk Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug As at 31 August Source: Bloomberg 10

11 Monodelphous MND 2016 EPS 2017 EPS 2018 EPS Key Issues: Conditions soft and margins under pressure Working capital increasing given change in mix Capex and opex reductions - Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug As at 31 August Source: Bloomberg 11

12 Seven West Media SWM 2016 EPS 2017 EPS 2018 EPS Key Issues: Streaming and other media presents challenges AFL cost inflation from FY18 onwards Emerging losses from early stage investments - Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug As at 31 August Source: Bloomberg 12

13 Dick Smith DSH 2016 EPS 2017 EPS 2018 EPS Key Issues: Industry conditions favourable Ongoing store rollout despite weak LFL sales Currency decline a threat to gross margin Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug As at 31 August Source: Bloomberg 13

14 Nine Entertainment NEC 2016 EPS 2017 EPS 2018 EPS Key Issues: Weak and short ad market Cost inflation under new NRL deal from 2018 Strong balance sheet Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 - As at 31 August Source: Bloomberg 14

15 Merlon Differentiating Features Sustainable yield premium, paid monthly and majority franked Benchmark unaware diversification Transparent and consistent below market risk Value-style stock selection track record 15

16 Merlon Wholesale Australian Share Income Fund Preliminary Performance to 31 August Performance 2 (after fees including franking) Month (%) Quarter (%) 1 Year (%) 3 Years (% p.a.) 5 Years (% p.a.) 7 Years (% p.a.) Fund total return (net) ASX % ASX200 30% Bank Bills Average market exposure 3 70% 69% 69% 69% 70% 72% 1 The performance figures shown above are preliminary and may be subject to change. 2 Fund Distribution and Franking Returns calculated on daily average fund balance. Fund total returns are grossed up for franking credits. S&P/ASX200 Accumulation Index total return grossed up for franking credits. Portfolio inception date is 30/09/2005. Past performance is not a reliable indicator of future performance. 3 The Strategy aims to be fully invested at all times with minimal physical cash exposure. For the Income Strategy, the target market exposure is 60-80% which approximately translates into a target beta of 0.7x. Average Market Exposure represents the daily average net market exposure of the Fund, exposure of long equity positions net of delta adjusted option exposure. 16