Hunter Hall Investor Presentation...Hunter Hall Investor Presentation Peter Hall AM, Founder and...
Transcript of Hunter Hall Investor Presentation...Hunter Hall Investor Presentation Peter Hall AM, Founder and...
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Hunter Hall Investor Presentation
Peter Hall AM, Founder and Chief Investment Officer
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• Founded in 1993 by Peter Hall and listed in 2001
• International and Australian equities
• Value investor
• Bias to mid and small cap shares
• Five retail investment funds
• Listed investment company launched 2004
• One of Australia’s largest dedicated ethical investment managers with FUM of $1.1bn
• Given 5% of pre tax profit each year to charity (now over $10 million)
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Introduction to Hunter Hall
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Only the Paranoid Schizophrenics
SurvivePeter Hall AM
Chief Investment OfficerHunter Hall Investment Management
May 2016
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1. Investing is NOT a competition. Its objectives are to preserve capital and to make money NOT to outperform indices or other managers.
2. However, the investment management industry IS a competition. Its objectives are outperform benchmarks and other managers.
3. It is therefore highly prone to dangerous behaviours such as being fully invested at all times, index-hugging, selling positions because they have become a large part of the portfolio or favouring momentum over value.
Schizophrenia
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Value Growth Trust: 2 May 1994 to 2 May 2016
Source: Hunter Hall, Bloomberg.
VGT $170,136
MSCI World $37,285
All Ords $62,745
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
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• Annual return: + 13.8% p.a. for 22 years• MSCI World A$: + 6.2% p.a. (+ 7.6% p.a. outperformance)• All Ords: + 8.8% p.a. (+ 5% p.a. outperformance)• Maximum loss in any financial year: - 22.0% (2009)• Maximum gain in any financial year: + 53.7% (1997)• Positive absolute returns: 18 years• Negative absolute returns: 4 years• Years outperforming MSCI World: 16 of 22 (72.7%) • Years outperforming All Ords: 15 of 22 (68.2%)
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Happy 22nd Birthday
Financial year end
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• Temperament – resolve, agility, paranoia• Value investment strategy• Ethical policy• Long time horizon/go anywhere• Small to mid cap bias• Option stocks = Operating and/or financial leverage
• Our biggest winners include Sirtex Medical, St Barbara, PZ Cussons, M2 Telecommunications, Virgin Media, Macmahon, Woongjin Thinkbig, JDS Uniphase
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How did we do it?
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What is Value?
Momentum investing:
What a stock can be sold for = “exchange” value
Value investing:
The cash a stock will generate = “utility” value
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Utility Value = Intrinsic Value
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Intrinsic Value =
The Net Present Value of Future Cashflows after
• Capital Investment to maintain Operating Capital• Capital investment to maintain Competitive Position• Capital Investment for Growth• Tax• Inflation
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Momentum InvestingPrice movement as a Guide to Investment decisions
Share Price
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Value InvestingIntrinsic Value as a Guide to Investment decisions
Margin Of SafetyPotential for Capital Growth
Investment Zone
Intrinsic Value
Share Price
$1.50
$1.00
$0.50
$0.00
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Discount to Intrinsic Value
Targeted return 15% per annum 20% per annum
3 years 66c 58c
5 years 50c 40c
For example: $486
3 years at 15% $739
5 years at 20% $1209
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Value Investing applied to Alphabet Inc
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$ billion Current 15% over 3 years
20% over 5 years
Paranoid View
Market Capitalisation $486Implied Intrinsic Value $739 $1208 $391Net Profit (2015) $16.1Years to Payback (P/E) 46 75Implied Discount Rate 10% 8% 8%Implied annual Growth Rate +21% + 18% p.a. +11% p.a. +10%
Implied Life span 40 years 20 years 40 years 20 years
Share of world GDP 0.025% to 20.3% 0.4% 0.65% 0.1%
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Value Investing applied to Commonwealth Bank
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$ billion Current 15% over 3 years
20% over 5 years Notes
Market Capitalisation $128Implied Intrinsic Value $194 $317Net Profit (2015) $9Years to Payback (P/E) 22 35Implied Discount Rate 8% 8%Implied annual Growth Rate + 6.5% + 4.5% p.a. +7.3% 2008 – 2015
Implied Intrinsic Value assuming a 6.5% growth rate and 8% discount rate
$274
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Distribution of Opportunities in the Stock Market
UndervaluedOvervalued
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Macro Issues
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Economic:• Valuation of equities extended• Weak sovereign balance sheets• Further monetary expansion difficult for Japan/US/Europe• Weak banking systems in Europe and China (NPLs as much as
10% of all loans and 10% of GDP)• ZIRP/NIRP• Unfunded pension/health/environmental liabilities
Environmental• Global warming• Biodiversity loss• Drought/disease/overpopulation/war/immigration
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Arctic Sea Ice Extent - down 1 million km2
Source: National Snow & Ice Data Center, Daily Image Update
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Share of World Trade
20Source: Grants Interest Rate Observer Conference, April 2016, Scott Bessent, Keysquare
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Japan on the brink (2016 Budget)
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• Total government debt: 1225 trillion (1.225 quadrillion)• = 236% of GDP• = A$15.5 trillion (as compared with current Australian
government debt of about $400 billion or 39x)• Tax revenues: 57.6 trillion yen• Expenditures: 96.7 trillion yen• Net deficit: 34.4 trillion yen• Interest payments on Debt: 9.9 trillion yen (=17% of tax
revenues)• Interest rate on debt: 0.81%
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Sovereign debt
22Source: Ministry of Finance Japan, Japanese Public Finance Factsheet, December 2015, www.mof.go.jp
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A fragile truce between the big four
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• Europe/Japan/US industrial activity and employment very vulnerable to a weakening Chinese currency
• Pressure to increase US rates• Japan/China and Europe very sensitive to higher interest
rates• Vulnerable to economic slowdown• Collapse of European Union or currency system
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VGT/HHV Portfolio structure – the Barbell
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1. 20- 25% cash
2. 20% gold stocks
• St Barbara• Doray Minerals• Beadell Resources• Richmont Mines• Novagold
3. 55 - 60% other equities
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Gold Discoveries have fallen since 1980s
Source: Grants Interest Rate Observer Conference, April 2016, Pierre Lassonde, Franco Nevada Corp.25
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Gold Demand up about 3% a year since 1980
Source: Grants Interest Rate Observer Conference, April 2016, Pierre Lassonde, Franco Nevada Corp.26
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ZIRP tending towards NIRP
Source: Bloomberg; World Gold Council* As of 21 March 2016. Includes sovereign debt from Australia, Canada, Denmark, Euro area (investment grade), Japan, Sweden, Switzerland, the United Kingdom and the United States. Real yields computed as nominal yield minus the most recently available year-on-year CPI inflation rate. Totals may not equal 100% due to rounding 27
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Equities to Gold Valuation
Source: Grants Interest Rate Observer Conference, April 2016, Pierre Lassonde, Franco Nevada Corp.
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St Barbara Limited (‘SBM’ )
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• Australian-domiciled gold miner• One of the lowest cost mines in Australia• Large reserves with potential to grow• Financially leveraged • Short term upside to $3.00• Excellent management might be able to deploy cashflow
into new projects and grow a major mining house, further upside to $3 or $4.
• Not a bad time to be looking at long term resource investments
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Share Price movement
Chart Source: Morningstar, daily closing prices for SBM 13 Feb 2009 – 3 May 2016.
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Price ($)
Bought conv. notes at $5.34 and ord. shares at $2.40
Started selling
at $2.80
Allied Gold acquisition announced
Started selling
at $2.50
Re-enteredat 10.25c
Final Exitat $1.54
Not invested
Converted notesreducing cost to $1.86
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St Barbara Operations
Source: St Barbara
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Large, low cost reserves
Source: St Barbara
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St Barbara Valuation
36Source: Bloomberg, St Barbara, Hunter Hall
2015 2016 e 2017 e 2018 e
Share Price $1.43 $2.30 $2.30 $2.30 Shares on issue (m) 495 519 519 519Market Cap (m) $706 $1194 $1194 $1194 Net Debt (m) $ 270 $134 ($45) ($201)Enterprise Value (m) $ 976 $1328 $1149 $993Free Cashflow (m) $113 $220 $200 $ 240 EV/FCF 8.6 x 6.0x 5.7x 4.1x
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Base Resources
37Source: Morningstar Direct, share price movements from May 2011 to May 2016
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Entered at $0.03
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Base Resources
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• Operates rutile/zircon mine at Kwale, Kenya• Second highest margin mineral sands mine in the world• C 5 million tonnes of HM reserves with exploration
potential• Mine cost c $420m to build • Mineral sands prices have fallen more than 50% since
2012 as a result of new supply and industrial slowdown• In recent months supply reduced by Rio Tinto and Iluka• High operating and financial leverage• Good management
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Kenyan operations
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Base Resources Valuation
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30 June ($m) 2015 2016 (e) 2017 (e) 2018 (e)Price 5c 6c 6c 6cIssued Capital 563m 795m 795m 795mMarket Cap $28 $48 $48 $48Net Debt $241 $250 $200 $170Enterprise Value $269 $298 $248 $218Net Tangible Assets $220 $220 $220 $220Revenues $145 $170 $190 $190EBITDA $55 $60m $80 $80EV/EBITDA 4.9x 4.8x 3.1x 2.7xPrice: NTA 13% 13% 13% 13%
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Medical portfolio
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ActivityGain/Loss
on Cost
Sirtex Medical liver cancer treatment + 54%Photocure bladder cancer diagnostics - 8%Medical Developments pain control + 58%Fitbit health monitoring + 4%Avita Medical skin repair + 48%Nanobiotix cancer treatment + 1%Mesoblast stem cells - 8%Gilead Sciences pharmaceuticals -16%Rex Bionics exoskeletons - 73%Factor Therapeutics wound care + 9%GI Dynamics removable bariatric device - 95%Viralytics virology 0%
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Performance (after fees)Value Growth Trust
Source: Hunter Hall, Bloomberg. Returns beyond 1 year are compound annual returns.¹ ‘MSCI World’ refers to the MSCI World Total Return Index, Net Dividends Reinvested, in Australian Dollars.² Inception: 2 May 1994.
30 April 2016 VGT MSCI World (AUD)¹
Relative Returns
6 months 3.4% -7.5% 10.9%1 year 14.3% -1.0% 15.2%3 years 20.6% 17.8% 2.8%5 years 11.1% 13.9% -2.8%10 years 6.4% 4.1% 2.3%15 years 10.1% 1.8% 8.3%20 years 14.5% 5.9% 8.6%Since inception ² - compound annual 13.7% 6.1% 7.5%
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Portfolio HoldingsValue Growth Trust
Top 10 Holdings Main Business Country %St Barbara gold explorer and producer Australia 13.8Sirtex Medical liver cancer treatments USA 8.2Vocus telecommunications Australia 6.6Doray Minerals gold explorer and producer Australia 4.5Prada fashion Italy 3.6Lumentum hardware USA 2.4Viavi Solutions communications equipment USA 2.4Gategroup airline caterer Switzerland 2.3Genworth Financial insurer USA 2.1RCG Corp consumer discretionary Australia 2.0Other 28.9Cash 23.3
The Value Growth Trust holds 56 stocks in total
30 April 2016
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PerformanceGlobal Value Limited (ASX: HHV)
Source: Hunter Hall, Bloomberg. Returns beyond 1 Year are Compound Annual Returns.The performance figures indicate the achievement of the investment manager in managing the HHV portfolio, not the returns to shareholders as measured by movements in the HHV share price, which is dependent on market sentiment towards the HHV shares. ¹ MSCI (A$) refers to the MSCI World Total Return Index, Net Dividends Reinvested in Australian Dollars. 2 Inception: 19 March 2004
Performance quoted excludes the impact of tax and the exercise of options and assumes dividends have been reinvested.
30 April 2016 HHV PRE-TAX MSCI (AUD)¹ Relative Returns MSCI¹
6 months 4.3% -7.5% 11.8%
1 year 14.3% -1.0% 15.2%
3 years 21.9% 17.8% 4.1%
5 years 13.0% 13.9% -0.9%
7 years 14.3% 11.1% 3.2%
10 years 5.6% 4.1% 1.5%
Since inception 2 - compound annual 8.3% 5.9% 2.3%
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Global Value Limited (ASX: HHV)Regular and consistent dividends since 2013
Dividend for the half year ended 31 December 2015 of 3 cents is fully franked which is approx. 4 cents grossed up
*Partially franked or unfranked dividends. 45
5.06.0
1.7* 2.5* 3.5* 3.0* 4.0* 4.0*3.0
Jan-000.0
5.0
10.0
Jun-08 Jun-10 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Cents per share
Reporting Period
4.0*
Our objective is to deliver regular and consistent stream of fully franked dividends to our shareholders
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• Managed by Peter Hall AM
• Ethically screened global equities• Concentrated, high conviction, high risk, unconstrained
portfolio of max 20 holdings
• Return objective to outperform RBA Cash Rate target +3%
• 180.1% cumulative net return since inception
• Net assets $27.2m (of which HH & PH = c$13m)
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Seeded on 11 December 2014High Conviction Equities Trust
Performance to 30 April 2016.
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Performance (after fees)High Conviction Equities Trust
Source: Hunter Hall, Bloomberg.
30 April 2016 HCT
3 months 30.6%
6 months 34.1%
1 year 105.7%
Since inception (compound annual) - 11 Dec 2014
110.3%
11 Dec 2014 – 30 April 2016
HCT, 26,032
RBA +3%, 10,676
$0
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Top 10 Portfolio Holdings at 30 April 2016High Conviction Equities Trust
Top 10 Holdings Main Business Country %St Barbara gold explorer and producer Australia 29.2Base Resources mineral sands Australia 14.2Doray Minerals gold explorer and producer Australia 13.2Sirtex Medical liver cancer treatments USA 7.6Medical Developments pharmaceuticals Australia 6.2Avita Medical Ltd skin repair Australia 4.5SRG Ltd engineering services Australia 3.7Onterran Ltd non-residential building constr Australia 1.9Viralytics virology Australia 0.9Talisman materials Australia 0.8
Cash 17.3
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Q&A