Perpetual Wholesale Australian aims to provide long- term capital growth and regular income through investment in quality industrial and resource shares. Outperform the S&P/ASX 300 Accumulation Index (before fees and taxes) over rolling three-year periods. Perpetual researches companies of all sizes using consistent share selection criteria. Perpetual’s priority is to select those companies that represent the best investment quality and are appropriately priced. In determining investment quality, investments are carefully selected on the basis of four key investment criteria: conservative debt levels, sound management quality business and in the case of industrial shares, recurring earnings. Derivatives may be used in managing the Fund.
The portfolio’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and La Francaise des Jeux SA. Conversely, the portfolio’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd (not held), and Woolworths Group Ltd (not held).
The overweight position in mining royalty firm Deterra Royalties Ltd (+7.64%) contributed to relative performance. Deterra Royalties performed strongly as Iron ore prices remained resilient through the month defying other commodities which in large ended the month lower. Despite BHP’s Q3 operational review reporting a decrease in production of 3.9% compared to the prior quarter, in general MAC continues to ramp up as expected with full production expected to be reached by end FY24. The company receives an ongoing royalty of 1.232% of Australian dollar-denominated quarterly free on board revenue from the MAC royalty area. The business has growth levers through M&A however they are yet to execute on any to date.
Santos contributed to performance in the month (+3.00%) as the price of oil rallied. In addition, Santos sold an initial of 2.6% of PNG LNG (Papua New Guinea Liquefied Natural Gas) to Kumul with an option for Kumul to acquire another 2.4%. The total consideration from the 2.6% is $576 million cash and the assumption of approximately $160 million of project finance debt. Santos is our favoured oil and gas producer with material growth prospects that are attainable. Santos is a global energy company with strategic assets across Australia, Papau New Gunea, Timor Leste and the United States of America that aims to play a key role in helping the world decarbonise to reach net-zero emissions through reliable, affordable and sustainable energy.
The overweight to Healius detracted from performance in September (-17.86%) as the market continued to speculate that the bid by smaller rival ACL could be blocked by the ACCC. Healius’ assets have attracted interest from private equity and there are activist investors on the register. With the combined value of Healius’ radiology and pathology businesses estimated to be around $2.6 billion this represents a substantial uplift from the current market capitalisation of $1.7 billion. We are encouraged with the progress Healius has made with improvements in their radiology business under new leadership. Pathology segment continues to track below what the business could achieve given in person GP visits are still around 20% below pre pandemic, which leads to lower pathology requests. We believe some of the co-pay introduction are deterring GP visits, consumers continue to defer and there are evidence that primary care screenings are being deferred. We believe GP visits and Pathology volumes will re-bound in the future and that we will start to see pathology segment margins improve from here.
The overweight position in casino operator Star Entertainment Group (-34.02%) detracted from relative performance. The stock ended the month lower after the casino operator engaged the equity markets to raise $750m priced at $0.60 a share following Star also recently securing a $450 million debt package with the aim of paying off Star’s existing loans and handling costs at Queens Wharf in Brisbane. The raise has provided further clarity on the balance sheet and we are still seeing value in Star’s conservatively stated net tangible asset value.
What is Perpetual Wholesale Australian Perpetual Wholesale Australian is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Value Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Perpetual Wholesale Australian has Assets Under Management of 489.06 M with a management fee of 0.99%, a performance fee of 0 and a buy/sell spread fee of 0.15%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Perpetual Wholesale Australian has returned 2.47% in the last month. The previous three years have returned 6.31% annualised and 13.01% each year since inception, which is when the Perpetual Wholesale Australian first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Perpetual Wholesale Australian first started, the Sharpe ratio is NA with an annualised volatility of 13.01%. The maximum drawdown of the investment product in the last 12 months is -5.02% and -45.1% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Perpetual Wholesale Australian has a 12-month excess return when compared to the Domestic Equity - Large Value Index of -2.09% and 0.26% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Perpetual Wholesale Australian has produced Alpha over the Domestic Equity - Large Value Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Value Index category, you can click here for the Peer Investment Report.
What level of diversification will Perpetual Wholesale Australian provide?
Perpetual Wholesale Australian has a correlation coefficient of 0.96 and a beta of 1.01 when compared to the Domestic Equity - Large Value Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Perpetual Wholesale Australian and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Perpetual Wholesale Australian with the ASX Index 200 Index?
For a full quantitative report on Perpetual Wholesale Australian compared to the ASX Index 200 Index, you can click here.
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To sort and compare the Perpetual Wholesale Australian financial metrics, please refer to the table above.
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Comments from SMSF Mates
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Performance Commentary - August 31, 2023 The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and La Francaise des Jeux. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd (not held), and CSL Limited.
The overweight to Premier Investments (+16.14%) strongly contributed during August. Premier like most retail has struggled with its share-price since early May as pressures on the consumer increased resulting in negative industry sales, not aided by significant cost headwinds. All while cycling very strong comparative trading outcomes. Market analysts were very uncertain about just how bad FY23 & FY24 outcomes might be. PMV has long been part of our core retail investments- it is a quality business, supported by a particularly strong net cash balance sheet and overseen by engaged and experienced executive leadership personnel. The business also has future growth potential across several offshore geographies with the retail sector normalising post the widespread 2020/2021 covid restrictions. On 21st August 2023, PMV surprised the market with three separate announcements. Firstly with FY23 sales and profit guidance modestly ahead of market consensus but very reassuring nonetheless. Secondly that CEO Richard Murray has resigned effective 15 September 2023 with CFO John Bryce to act as interim CEO for the foreseeable future. Given Solomon Lew’s executive chairmanship and exceedingly strong divisional leadership and Richard’s relatively short tenure in the role, there is little for the market to be concerned with here. And finally, PMV announced a strategic review is to be initiated focussing on the corporate, operating and capital structure of the various brands and businesses held by the company. Future conclusions of this review are difficult to narrow down at this time and are potentially very wide ranging but including that there may be no change at all.
The overweight to Goodman Group contributed strongly to performance in August (+13.73%) as the company reported a solid result and provided an upbeat update highlighting their current and potential investments into data-centre development. We took the opportunity to establish a position in Goodman Group late last year when the market was generally worried about large property groups’ performance in a rising rate environment. However, Goodman’s focus on the Industrial & logistics segment has delivered strong results driven by tenants’ ecommerce expansion and supply chain optimisation in an environment of limited supply of modern and well-located warehouses. We believe that Goodman will continue to grow earnings across its global portfolio supported by profitable development and ongoing rental increases with a conservatively geared balance sheet. Goodman’s management team has consistently demonstrated their ability to identify strategic locations, secure long-term leases with blue-chip clients, and maximize property value through efficient operations through the cycle. Finally, Goodman Group is committed to sustainability and responsible corporate practices, aligning with evolving investor values and regulatory requirements. Their green initiatives not only reduce environmental impact but is aligned with blue-chip tenants’ requirements. In conclusion, Goodman Group’s best-in-class status, focus on the booming industrial and logistics sector, financial stability, exceptional management team, and commitment to sustainability make it a compelling long-term investment choice in the Australian property market for the right price.
Iluka Resources fell -16.54% during August due to growing concerns over the health of the Chinese property market and destocking from global pigment producers. This comes after an exceptional rise in the share price over the past few years. Iluka is the worlds largest producer of rutile that is used to produce pigment (paint) and zircon that is used to produce ceramics (tiles etc). These minerals generate the earnings and cashflow for the company currently, and the company has responded to soft near-term demand by idling some production to avoid inventory and working capital build. Iluka has a very strong balance sheet (net cash) and also owns a valuable stake in Deterra Royalties, which was spunoff in an IPO, so is able to buffer these periods of demand distortion that is a feature of these markets. Risk of a capex increase for the fully integrated rare earths refinery being built in WA to break China’s stronghold on these markets also dominated market attention, although we would highlight that construction is funded from a non-recourse loan of more than $1 billion from the federal government that has a $200m overrun facility.
A2 Milk detracted from returns during August (-10.9%). A2’s FY23 results met expectations with A2 navigating the challenging China label transition well to date holding average selling price in a highly competitive market. However guidance was cautious as A2 expects FY24 to be challenging as China’s birth rate hits record lows. Despite the recent softness in the share price, which trades at a fraction of the $20 per share peak in 2020, we think that A2 is fundamentally well positioned. The business has transitioned from a fast-growing start-up to an established and professional operator in recent years. The A2 brand remains strong in China with healthy lead indicators and growing market share in emerging cities. Management of inventory and pricing is sound, and we have growing confidence its investment in marketing is generating solid returns.
Performance Commentary - July 31, 2023 The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and Santos Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group (not held), and BHP Group.
Domino’s Pizza Inc (NYSE:DPZ) was the largest positive contributor to performance in July with the stock rising +16.3%. While we have avoided the ASX listed Domino’s Pizza Enterprises (ASX:DMP) on valuation and earnings sustainability concerns, we have watched its US counterpart for a few years through the lens of the Australian business. Domino’s Pizza Inc is a high quality business model with a strong global brand and healthy franchisee economics driving a long growth runway for store openings and ultimately Domino’s earnings. Whilst inflationary pressures over the past 12-18 months have put pressure on the delivery business, we saw no change to the long-term potential for the company and used the share price volatility to establish a position. Dominos has a fantastic long term track record of earnings growth and shareholder returns and we see a favourable outlook ahead.
An underweight to Macquarie Group was the second largest contributor to returns as the stock fell -1.5%. The stock trades at a significant premium to our assessed valuation and hence the fund does not have a position. We exercise caution as excluding trading and investment income at $7.5 billion and 39% of the group’s income, there was no revenue growth which accounts for our caution in capitalising it into a higher valuation for the business.
Iluka Resources fell -8% during July due to growing concerns over the health of the Chinese property market and destocking from global pigment producers, although this comes after an exceptional rise in the share price over the past few years. Iluka is the worlds largest producer of rutile that is used to produce pigment (paint) and zircon that is used to produce ceramics (tiles etc). These minerals generate the cashflow underpinning the bulk of the current valuation of the company. Iluka also owns a valuable stake in Deterra Royalties, which was spun-off in an IPO, as well as a substantial amount of cash. Iluka is also the recipient of a non -recourse loan of more than $1 billion from the federal government to develop a fully integrated rare earths refinery, making it one of only two outside of China. We believe that this will be the key driver of future value for the company in the decade ahead.
Healius fell -9.8% in July as the market speculated that the bid by smaller rival ACL could be blocked by the ACCC. Healius’ assets have attracted interest from private equity and there are activist investors on the register. With the combined value of Healius’ radiology and pathology businesses estimated to be around $2.6 billion this represents a substantial uplift from the current market capitalisation of $1.7 billion.
Performance Commentary - May 31, 2023 The Fund’s largest overweight positions include Insurance Australia Group Ltd, Flutter Entertainment Plc, and Santos Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group, Ltd. (not held), and BHP Group. The overweight position in insurance provider Insurance Australia Group Ltd (+4.2%) contributed to relative performance. The stock finished higher after being upgraded to ‘overweight’ from ‘neutral’ at JPMorgan, with its target price increased to A$5.75 from A$5, representing a 20% upside to its price at the time of the upgrade. The overweight position in oil and gas producer Santos (+3.1%) contributed to relative performance. During the month, the company announced that its Moomba CCS project was 60% complete and is on track to start storing CO2 next year. Once complete, the project is set to support Santos in reducing its own emissions, in addition to working with other hard-to-abate sectors to look at ways of using Moomba CCS to help reduce their emissions as well. According to the company, in the next six weeks, there will be a direct air capture facility installed at the project and that will work for nine months trialling the company’s new technology for direct air capture.
The overweight position in mineral sands miner Iluka Resources (+2.5%) contributed to relative performance. The stock price rose sharply after being upgraded to ‘outperform’ from ‘neutral’ by Macquarie analysts, with its target price increasing to A$12.30 from A$12, representing a 12% upside to its price at the time of the upgrade.
Performance Commentary - October 31, 2022 The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and BHP Group. The overweight position in online betting and gaming provider Flutter Entertainment Plc (+20.8%) contributed to relative performance. The stock was assisted by the announcement that its CFO, Jonathan Hill, is to take on the new Group COO role. Paul Edgecliffe-Johnson, currently CFO and Group Head of Strategy at InterContinental Hotels Group, will join as CFO and Executive Director of the group in H1 of 2023. The company indicated that given Jonathan’s expertise, knowledge of the business, and role in shaping Flutter’s strategy, he is well placed to set up the new Group COO function for success.
The underweight position in iron ore miner BHP Group (-3.0%) contributed to relative performance. The stock price came under pressure during October, with headwinds coming from falling iron ore prices (down 5.4% over the month) and sinking to a two-year low. The iron ore weakness was primarily driven by falling demand from China, which struggled with renewed lockdowns due to its COVID-zero strategy and waning real estate market.
Not holding Iron ore miner Fortescue (-12.6%) contributed to relative performance. The stock also fell on the back of weakening iron ore prices over the month as demand for the steel-making ingredient from China slowed. Increasingly bearish sentiment from the broker community also impacted the stock after Fortescue released its decarbonisation plans for the Pilbara and aims to reach net zero emissions by 2030, which is considered to impact its dividend payments over the coming years.
The overweight position in mineral sands miner Iluka Resources (-4.5%) detracted from relative performance. The miner reported Zircon production of 69.7 Kt vs quarter-ago 80.4 Kt, Rutile 24.9 Kt (vs quarter-ago 48.3 Kt), Synthetic Rutile 59.2 Kt (vs quarter-ago 59.8 Kt), and Ilmenite 150.9 Kt (vs quarter-ago 170.7 Kt). Mineral sands revenue of $357.3M fell from $540.9M a quarter ago despite robust zircon demand from Iluka customers. Sales were also impacted by production and logistics constraints, softness in the Chinese ceramics market, and high energy costs affecting tile production.
The underweight position in Commonwealth Bank of Australia (+15.4%) detracted from relative performance. The stock rose sharply following an upbeat Annual General Meeting. Although it didn’t provide any details on its performance during the current quarter, CEO Matt Comyn indicated that overall, the bank remains fundamentally optimistic about the medium to long-term opportunities for Australia, as well as it’s capacity to provide support in the immediate future for its customers. It was also announced that the bank would continue to invest in its core retail, business, and institutional banking franchises to reinforce its proposition and extend its digital leadership.
Performance Commentary - September 30, 2022 The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and BHP Group.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+18.5%) contributed to relative performance. The stock rallied upon release of a stronger-than-expected half year result. Flutter saw an 11% rise in revenue compared to the first half of 2021, however, adjusted EBITDA fell 19%. Positive revenue momentum was driven by recreational player growth, with average monthly players up 14% at the group level. In the US, its sports betting market share accelerated to 51% in the June quarter, driven by FanDuel’s efficient customer acquisition and strong operational execution. However, its UK & Ireland June-half performance reflected safer gambling initiatives. The overweight position in dairy producer a2 Milk Company (+23.0%) contributed to relative performance. During the quarter, the company reported a 19.8% increase in its full-year FY2022 revenue to NZ$1.446.2M, leading to a 42.3% jump in net profit after tax to NZ$114.7M and beating the market consensus estimate of NZ$113.9M. This was driven mainly by double-digit infant formula sales growth from both its China and English label products, reflecting A2’s significant increase in marketing investment, which prompted further gains in brand health metrics and record market shares. Investors were further pleased with the announcement of a NZ$150M on-market share buyback. The overweight position in insurance provider Insurance Australia Group Ltd (+6.7%) contributed to relative performance. The stock rallied hard late in the quarter to recover most of its earlier losses incurred leading up to the release of its preliminary full-year financial results. While IAG’s growth of 5.7% was in line with its mid-single digit growth guidance, its reported insurance profit margin came in at 7.4%, down 6.1% year-on-year and missing its 10% to 12% guidance. Management blamed the miss on its net natural peril costs of $1.119B, which were $354M above the original allowance of $765M.
The overweight position in healthcare services and hospital operator Ramsay Health Care (-21.2%) detracted from relative performance. The stock fell after the KKR-led consortium confirmed that it had ceased discussions with Ramsay regarding a potential acquisition. Ramsay’s board advised KKR to increase its offer to $88 per share for due diligence to be granted. However, the consortium advised that it would not proceed with an alternative proposal on the belief that the business had materially deteriorated over the past six months. Ramsay indicated that it remains open to engaging in talks relating to a change of control.
The overweight position in explosives and blasting systems manufacturer Orica Ltd. (-16.2%) detracted from relative performance. The stock fell during the quarter following its successful $650M equity capital raise to partly fund the acquisition of geospatial tools manufacturer Axis Mining Technology in a deal worth up to $350M for an up-front cash consideration of $260M. The excess capital raised will be used to fund incremental trade working capital requirements arising from global supply chain dislocations and to help strengthen its balance sheet.
Performance Commentary - August 31, 2022 The Fund’s largest overweight positions include Santos Limited, Flutter Entertainment Plc, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, CSL Ltd, and Woodside Petroleum Ltd (not held)
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+27.3%) contributed to relative performance. The stock rallied upon release of a stronger-than-expected half year result. Flutter saw an 11% rise in revenue compared to the first half of 2021, however, adjusted EBITDA fell 19%. Positive revenue momentum was driven by recreational player growth, with average monthly players up 14% at the group level. In the US, its sports betting market share accelerated to 51% in the June quarter, driven by FanDuel’s efficient customer acquisition and strong operational execution. However, its UK & Ireland June-half performance reflected safer gambling initiatives. The overweight position in dairy producer A2 Milk Company (+22.2%) contributed to relative performance. During the month, the company reported a 19.8% increase in its full-year FY2022 revenue to NZ$1.446.2M, leading to a 42.3% jump in net profit after tax to NZ$114.7M and beating the market consensus estimate of NZ$113.9M. This was driven mainly by double-digit infant formula sales growth from both its China and English label products, reflecting A2’s significant increase in marketing investment, which prompted further gains in brand health metrics and record market shares. Investors were further pleased with the announcement of a NZ$150M on-market share buyback. The overweight position in oil and gas producer Santos (+9.7%) contributed to relative performance. Santos reported revenues of US$3.77B, an 85% leap over the prior corresponding period. Underlying net profit after tax (NPAT) jumped 300% to US$1.27B with management declaring an interim dividend of 7.6 US cents, up 38% from the same period last year. This was driven by record production, a significant increase in the price of oil and LNG, and from its merger with Oil Search. Management also advised that it had increased its previously announced on-market share buyback from US$250 million to US$350 million.
Performance Commentary - July 31, 2022 The Fund’s largest overweight positions include Santos Limited, La Francaise des Jeux SA, and Insurance Australia Group Limited. Conversely, the Fund’s largest underweight positions include Commonwealth Bank of Australia, Macquarie Group (not held), and Woodside Petroleum Ltd (not held). The underweight position in iron ore miner BHP Group (-6.2%) contributed to relative performance. The stock sold off alongside most of the miners following a decline in commodity prices as concerns of demand destruction in a recessionary environment continue to mount. Significant iron ore weakness (falling 17.5%) was attributed to heightened fears over China’s real estate developers following reports of homebuyers boycotting mortgage repayments on stalled construction projects. China’s real estate woes compounded broader economic growth concerns, threatening to hobble demand for construction inputs such as iron ore.
Not holding oil and gas producer Woodside Petroleum (+0.4%) contributed to relative performance. The stock underperformed the benchmark, constrained by falling oil and gas prices, with WTI and Brent crude oil declining 6.0% and 6.9%, respectively, due to unfavourable demand and supply dynamics stemming from fears of a recession. This came despite reporting a 68% quarter-on-quarter increase in its June-quarter production, a +44% q/q increase in sales revenue, and an increase in its full-year Production Guidance to 145-153 MMboe (from its previous guidance of 92-98 MMboe).
Not holding iron ore miner Rio Tinto (-4.7%) contributed to relative performance. The stock similarly declined over the month along with the broader mining sector, driven predominantly by the correction in commodity prices, particularly iron ore, which sold off on the back of demand concerns out of China
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