Investing in Australian Microcap companies

Transcription

1 Investing in Australian Microcap companies -- Boyd Peters Contango MicroCap Limited Contang o (-ngg-) n. (pl. ~s) implies that prices will be higher in the future than today. [orig. unkn.] The market is said to be in contango when the forward price is higher than the spot price.

2 Investing Lesson # 1 (If you don t know who the bunny is...) 2

3 Today 1. Learn some useful tools about some stocks 2. Ask, Discuss 3. Enjoy Why Microcaps How to Select Them Let s look at a portfolio in operation Assumption: A small degree of investor savvy 3

4 Lessons in Microcap investing A clear case for holding Microcap stocks Markets are especially inefficient in Microcaps Limited research & information on them Which provides the opportunity to those who focus on them Portfolio Diversification is vitally important Know your investment structure Requires a combination of Top-Down and Bottom-Up research Australian Microcaps are particularly impacted by global themes Have a plan Shareholders in CTN receive quality information, often 4

5 Contango MicroCap Limited (ASX: CTN) Listed in 2004 A company listed on the ASX that invests in Microcap companies: A diversified portfolio of ASX-listed Microcap companies with a targeted market capitalization between $10m & $350m. There are over 1,100 stocks in this universe with a total market cap. of approx $70 billion. Investment Objective: Outperform the ASX All Ordinaries Accumulated Index Provide shareholders with regular Dividend income (6% pa of NTA) Investment Style: Style Neutral: We manage the portfolio on the basis of sensitivity to economic and market factors as well as stock specific considerations. At some stages of the cycle we have a growth bias while in periods of economic weakness we typically have a bias to value/defensive stocks. 5

6 CTN: Market Leader- Transparency and Information 6

7 CTN: Market Leader- Research & Presence 7

8 Why portfolios can use a Microcap allocation Diversification Of ~2100 listed companies- most funds only invest as deep as ASX300 Many fund managers hold the same ASX100 stocks Reduces the Blue-Chip risk factor of being over-exposed to the ASX100 Opportunity Microcaps are often the fastest growing companies on the sharemarket There is very little research undertaken on Microcap companies Those specialising in Microcaps can find growing companies and invest in them Performance Microcap companies offer some of the best opportunities for investors Increases in revenue can = great impact on profit for Microcap companies The S&P/ ASX Emerging Companies Index has outperformed broader market 1 vs All Ords Accum and Small Ords Accum Over 3 & 5 years to 31 March

9 The ASX is skewed Microcaps are an ignored opportunity More commission for brokers Market Cap # of Companies BHP Billiton $ 98,618,162, Largest $ 355,838,321, Largest $ 673,483,568, All other $ 476,685,829, Largest ASX Companies $ 969,508,590, Largest ASX Companies $ 1,054,150,959, Largest ASX Companies $ 1,090,280,373, All Ex-Top 300 $ 59,889,024, As at Source: Contango MicroCap Limited 9

10 How YOU can find profit in Microcaps (What you have to know) 10

11 What are your Trading Strategies? 11

12 This is how you have to view a company 12

13 You need to KNOW each company Australia has some of the world s largest mining companies 40% of listed mining companies (ASX 300 Resources) have assets offshore Australian Mining Company Assets and Contango visits NFE EAU CPL BKY AQG GXY AUT RSG MDL TGZ PRU NBL CFE EXT PDN ADU DML AMX GRY SDL EQN AQP PLA WOR MRU PNA KCN KRM SRQ WEC CVN IAU MML IRN NDO OGC AWE HIG OSH HZN BTU CNX MNC TRY BDR KAR MBN Some Contango site visit since 2010 Australian company location of assets 13

14 Timing strategies The 3 rd day Stop Losses George and Ethel Margin Lending The power of Cash The Power of 1- retain a share Get on the register, stay on the register 14

15 Summary Its fun It can be very profitable Know what you are doing Have a plan Don t let emotion rule you The Rabbit 15

16 Looking forward: Valuations remain compelling As at Portfolio Fundamentals for FY13 (as at ) S&P/ ASX 100 Small Ordinaries Small Resources Small Industrials Price/ Earnings 11.0x 8.7x 5.3x 1076x EPS growth 13.6% 40.0% 265.4% 14.2% Dividend Yield 5.6% 4.7% 1.9% 5.7% Return on Equity 15.5% 12.9% 13.0% 12.8% Notwithstanding short term issues related to Europe we retain a favourable view on Australian Microcap companies This data has been produced by CAML for CTN and is extracted from internal proprietary research and broker data feeds. No reliance should be made on this data. Daily volatility may change the nature of these figures by the time of reading. 16

17 CTN FY13 Valuations remain compelling As at Portfolio Fundamentals for FY13 (as at ) CTN Small Ords PE 8.6x 8.7x EPS growth 66.4% 40.0% Div yield 3.0% 4.7% Return on Equity 18.0% 12.9% Net Debt/Equity 5.9% Portfolio Turnover (annual) ~80% Notwithstanding short term issues related to Europe we retain a favourable view on Australian Microcap companies This data has been produced by CAML for CTN and is extracted from proprietary research and information from best information available. It relates to the underlying CTN investment portfolio which does not include the CCQ holding within CTNs total pool of assets. Refer notes and disclaimer. 17

18 CTN: Top 20 Holdings As at largest stock holdings and their weights within the CTN Investment Portfolio Code Stock Wgt % Code Stock Wgt % MMS McMillan Shakespeare 3.25% AUB Austbrokers Holdings 1.90% MTU M2 Telco Group 2.34% TRY Troy Resources 1.77% ASL Ausdrill 2.34% FGE Forge Group 1.75% GRR Grange Resources 2.21% TOX Tox Free Solutions 1.74% MYE Mastermyne Group 2.13% BSE Base Resources 1.73% ANG Austin Engineering 2.12% DLS Drillsearch Energy 1.72% CDD Cardno Limited 2.12% FXL FlexiGroup 1.67% MLD MACA Limited 1.99% NCR Nucoal Resources 1.63% SXY Senex Energy 1.95% BDR Beadell Resources 1.61% MAD Maverick 1.92% NWH NRW Holdings 1.58% Up to date portfolio information can be found in the monthly NTA document The CTN Investment Portfolio held 91 securities at 30 June This table does not include the Cash holding nor CTNs holding of Contango Capital Partners (CCQ) which investments respectively represent 5.5% and 7.0% of CTNs total NTA. 18

19 Why CTN may be suitable for a MicroCap allocation Responsible way to manage your MicroCap allocation The stock is a portfolio..of approx. 100 fully researched ASX-listed MicroCap stocks Established management team 9 dedicated investment professionals researching MicroCap companies CTN listed March Bulk of team have been with Contango >10 yrs Strong Performance Underlying portfolio outperformed benchmark over long time periods 18.4%pa vs All Ords 6.8%pa since inception in Performance is derived from multiple sources.not a few lucky picks Preferred Structure LIC: Closed-ended: Yield Low cost entry, tax friendly, easy to buy/ sell, transparent Doesn t face redemptions pressure forcing manager to sell stocks Dividend Policy to pay 6%pa of the July 1 NTA (which at was $1.411) 1 To CTN performance is of the underlying portfolio before fees. Past performance is not necessarily indicative of future performance. 19

20 Information provides confidence 20

21 Contact Boyd Peters National Distribution Manager Contango MicroCap Ltd (ASX: CTN) Add: Level 24, 360 Collins St, Melbourne, Vic 3000 Ph: Dir: M: E: W: Disclaimer For more information phone Contango Asset Management on or visit Contango Asset Management (Contango), ABN and Australian Financial Services License Number , is the Responsible Entity of the Fund. Contango has prepared this presentation for information purposes for the National AIA conference in July/ August 2012 only. It does not contain investment recommendations nor provide investment advice. Neither Contango nor its related entities, directors or officers guarantees the performance of, or the repayment of capital or income invested in the Fund. Performance figures quotes are on the underlying portfolio of securities before fees and expenses are accounted for. Consideration should also be given to observing share price performance plus also the performance of the NTA of the fund. Past performance is not necessarily indicative of future performance. Professional investment advice can help you determine your tolerance to risk as well as your need to attain a particular return on your investment. You should not act in reliance on the information contained in this presentation. We strongly encourage you to obtain detailed professional advice and to read the relevant product disclosure statement in full before making an investment decision. Applications for an investments can only be made on an application form accompanying a current product disclosure statement (PDS) which can be obtained by contacting Contango Asset Management. This material is provided on the basis that you are a professional investor within the definition of ASIC class order 03/