Glennon Small Companies Ltd · ASX:GC1
Glennon Small Companies — Investor Presentation (March 2016)
63 slides from Glennon Small Companies's investor presentation, Mar 11, 2016
Slide 1: Specialist Small Companies Investment Manager
For personal use only SPECIALIST SMALL COMPANIES INVESTMENT MANAGER March 2016
Slide 2: About Glennon Capital
ABOUT GLENNON CAPITAL For personal use only Established in 2008 Extensive small company as a specialist experience in investing, small companies along with extensive investment manager contacts among small listed companies Only invest in quality Focused on business; it’s as much finding value about
Slide 3: Our Values
OUR VALUES For personal use only We want our We want to We want to add investment to grow be aligned absolute value with our client’s with our clients investments We want to communicate We want to We want to with our clients so they think creatively be long term have confidence in our and outside an
Slide 4: Investment Philosophy
INVESTMENT PHILOSOPHY For personal use only We believe the market shows varying degrees of inefficiency We add value by concentrating our research efforts in areas where inefficiencies exist We have found that larger companies tend to have better information flows, and as a result their prices tends
Slide 5: Why Small Caps?
WHY SMALL CAPS? For personal use only Microcaps Opportunity Small Ordinaries ASX 100 No of companies 5
Slide 6: People
For personal use only PEOPLE 6
Slide 7: Investment Credentials
INVESTMENT CREDENTIALS For personal use only 17 years experience in financial markets and over 15 years experience as a portfolio manager and director of several boutique investment management firms. Michael is one of the most experienced small cap fund managers in Australia. Michael was also one of
Slide 8: Investment Credentials
INVESTMENT CREDENTIALS For personal use only 10 years experience in funds management as an analyst and portfolio manager with several leading boutique investment management firms. After starting his career at Cadence Capital researching small companies, Alex joined Eight Investment Partners with res
Slide 9: Experience Through Cycles
EXPERIENCE THROUGH CYCLES For personal use only The above represents a composite index of institutional portfolios. Performance from portfolio management at Republic from October 2000 to December 2002, Paradice from January 2003 until December 2003, and from ASAM from January 2004 until September 20
Slide 10: What We Do
For personal use only WHAT WE DO 10
Slide 11: Investment Process
INVESTMENT PROCESS For personal use only 01 02 03 04 Idea Research Meeting Primary Analysis Generation Agenda Prioritisation & Visit Preparation 08 07 06 05 Weekly Buy, Hold or Detailed Company Portfolio Sell Decision Analysis Visit Review 11
Slide 12: What We Look For
WHAT WE LOOK FOR For personal use only Superior management Growth prospects track record of success industry or market share skin in the game revenue or margins Sustainable businesses Industry with barriers to entry Undervalued without excessive debt reduces competition potential flexi
Slide 13: Market Overview
For personal use only MARKET OVERVIEW 13
Slide 14: The Australian Market in 2015
THE AUSTRALIAN MARKET IN 2015 For personal use only 15% 10% 5% 0% -5% -10% -15% S&P/ASX 100 S&P/ASX Small Ords Small caps outperformed large caps in 2015 14
Slide 15: Stock Selection in Small Caps
STOCK SELECTION IN SMALL CAPS For personal use only BEST 10 STOCKS FROM WORST 10 STOCKS FROM SMALL ORDINARIES SMALL ORDINARIES SMALL ORDINARIES INDEX RETURN +352% -72% 6.4% BEST 10 STOCKS WORST 10 STOCKS ASX 100 FROM ASX 100 FROM ASX 100 INDEX RETURN +63% -42% -2.6% Best small caps outperform worst
Slide 16: Small Caps in 2015
SMALL CAPS IN 2015 For personal use only • Active management in small caps is critical • There were many disasters • Slater & Gordon • Arrium • Energy sector • But also many opportunities to deliver returns • Outdoor advertising • Blackmores and Bellamy’s • Selected gold stocks • Some drivers are se
Slide 17: The Australian Market in 2016
THE AUSTRALIAN MARKET IN 2016 For personal use only 2% 0% -2% -4% -6% -8% -10% -12% S&P/ASX 100 S&P/ASX Small Ords Small caps outperformed large caps so far in 2016 17
Slide 18: Small Caps in 2016
SMALL CAPS IN 2016 For personal use only 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% S&P/ASX Small Industrials S&P/ASX Small Resources Small resources substantially outperforming small industrials so far in 2016 18
Slide 19: Small Cap Booms and Busts
SMALL CAP BOOMS AND BUSTS For personal use only • Active management in small caps is critical • Resources as a proportion of the small cap index was • 12% in 2002 • 46% in 2011 • 12% in 2015 • Keeping an eye out for bubbles; investors buying stocks at • cyclically high revenues • unsustainably high
Slide 20: Small Caps Change Significantly Over Time
SMALL CAPS CHANGE SIGNIFICANTLY OVER TIME For personal use only 500 S&P/ASX Small Ordinaries Acc Resources Resources Boom Boom Mk2 400 Industrials S&P/ASX Small Resources Acc Boom Industrials 300 S&P/ASX Small Industrials Acc Boom 200 Dot Com Dot Com Boom Bubble Bursts 100 0 1994 1995 1996 1997 1998
Slide 21: Dividends
For personal use only DIVIDENDS 21
Slide 22: Long Term Dividends Are Important
LONG TERM DIVIDENDS ARE IMPORTANT For personal use only 500% 400% 300% 200% 100% 0% -100% All Ordinaries All Ordinaries Accum Reinvesting dividends yields substantially better results over the long term 22
Slide 23: Dividends
DIVIDENDS For personal use only • Reinvesting dividends allows capital to compound • This is true for listed investment companies also • GC1 has a dividend reinvestment plan (DRP) in place • The GC1 DRP allows investors to reinvest dividends at a discount to the prevailing market price • Under the D
Slide 24: The Offshore Trend
For personal use only THE OFFSHORE TREND 24
Slide 25: International Market Returns
INTERNATIONAL MARKET RETURNS For personal use only 80% 70% 60% 50% 40% 30% 20% 10% 0% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb 13 13 13 13 13 13 13 13 13 13 14 14 14 14 14 14 14 14 14 14 14 14 15 1
Slide 26: International Market Returns
INTERNATIONAL MARKET RETURNS For personal use only 10% 5% 0% Mar Mar Apr Apr May May Jun Jun Jun Jul 15 Jul 15 Aug Aug Sep Sep Oct Oct Nov Nov Nov Dec Dec Jan Jan Feb Feb Mar 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 16 16 16 16 16 -5% -10% -15% -20% -25% MSCI ACWI USD MSCI ACWI AU
Slide 27: International Market Returns
INTERNATIONAL MARKET RETURNS For personal use only 15% 10% 5% 0% Mar Mar Apr Apr May May Jun Jun Jul Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Dec Jan Jan Feb Feb 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 16 16 16 16 -5% -10% -15% -20% -25% S&P 500 (lcy) MSCI Europe (lc
Slide 28: Offshore Impact
OFFSHORE IMPACT For personal use only • Over the past 3 years the Australian dollar has fallen from a high of $1.05 to 75c. This has been a significant benefit to holders of equities with non-AUD earnings • Listed in Australia • Listed overseas • The impact of this benefit has stalled • Some currenc
Slide 29: Interest Rates, Dividends, Yield
For personal use only INTEREST RATES, DIVIDENDS, YIELD 29
Slide 30: Global Economics
GLOBAL ECONOMICS For personal use only • Low interest rates globally • Asset price bubbles form when interest rates are low • Central banks are still buying bonds post the GFC • However, the rate of buying has slowed • The US is no longer buying • China is selling • Selling increases interest rates
Slide 31: Why Are Interest Rates Low?
WHY ARE INTEREST RATES LOW? For personal use only Source: Riskelia Massive expansion of Central bank balance sheets 31
Slide 32: The Implication for Australia
THE IMPLICATION FOR AUSTRALIA For personal use only 32
Slide 33: Australian Banks Not Reinvesting
AUSTRALIAN BANKS NOT REINVESTING For personal use only 33
Slide 34: ASX Payout Ratio
ASX 100 PAYOUT RATIO For personal use only 34
Slide 35: Resources
For personal use only RESOURCES 35
Slide 36: The Boom in Parts
THE BOOM IN PARTS For personal use only PRICES CAPITAL VOLUME EXPENDITURE The resource boom was actually multiple booms 36
Slide 37: Prices
PRICES For personal use only Prices have fallen substantially 37
Slide 38: Capital Expenditure
CAPITAL EXPENDITURE For personal use only Source: Goldman Sachs Capital expenditures have also fallen substantially 38
Slide 39: Volumes
VOLUMES For personal use only Volumes have continued to increase as supply increases 39
Slide 40: Resources Are Not All the Same
RESOURCES ARE NOT ALL THE SAME For personal use only Vast array of resources provide different returns; though 2015 a poor year in USD terms 40
Slide 41: Small Cap Resources
SMALL CAP RESOURCES For personal use only 500 400 S&P/ASX Small Resources Acc 300 200 100 0 -100 Small resources back to levels last seen in 2003 41
Slide 42: Some Bright Spots
SOME BRIGHT SPOTS For personal use only • Small cap resources are down to levels last seen in 2003 • Some sign of supply side constraint; eg. Oil • Company cost bases are different • a gold producer in Australia has benefitted from selling gold in US dollars, while paying Australian dollar mining co
Slide 43: Reporting Season Overview
For personal use only REPORTING SEASON OVERVIEW 43
Slide 44: Observations from Reporting Season
OBSERVATIONS FROM REPORTING SEASON For personal use only • The market is hyper sensitive to small earnings misses. There have been some over-reactions on the downside Reckon Surfstitch Bellamys Super Retail Wellard Source: Morgans 44
Slide 45: Observations from Reporting Season
OBSERVATIONS FROM REPORTING SEASON For personal use only Source: Goldman Sachs 45
Slide 46: Booms & Cycles
For personal use only BOOMS & CYCLES 46
Slide 47: Tulips
TULIPS For personal use only Booms and busts have been around for a long time 47
Slide 48: South Sea Bubble
SOUTH SEA BUBBLE For personal use only Booms and busts have been around for a long time 48
Slide 49: Poseidon Nickel
POSEIDON NICKEL For personal use only Five months of euphoria 49
Slide 50: Dot Com Bubble
DOT COM BUBBLE For personal use only Source: WSJ The new paradigm; this time it’s different 50
Slide 51: Southern Boulder
SOUTHERN BOULDER For personal use only 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 The deposit will extend at length and depth! 51
Slide 52: What We Can Learn from Bubbles
WHAT WE CAN LEARN FROM BUBBLES For personal use only • Buy real businesses at reasonable valuations • Real business make a profit and generate cashflow • The world doesn’t change overnight • Don’t buy leaders that will become minnows • Keeping an eye out for bubbles; investors buying stocks at • cyc
Slide 53: Investment Case Studies
For personal use only INVESTMENT CASE STUDIES 53
Slide 54: National Veterinary Care Limited
NATIONAL VETERINATY CARE LIMITED (ASX: NVL) For personal use only Operator of vet clinics across most states in Australia. Currently has 32 clinics. Attractive industry characteristic Overview where the largest competitor only has 5.6% market share. Management are both ex-Greencross. The business ha
Slide 55: SilverChef Limited
SILVERCHEF LIMITED (ASX:SIV) For personal use only Provider of finance to small and medium businesses. The business historically provided asset financing to the food Overview industry for stainless steel kitchen fittings. The company has now expanded into other finance offerings, predominantly for c
Slide 56: Capilano
CAPILANO (ASX:CZZ) For personal use only The business buys honey from beekeepers, processes and packages the honey, then sells branded products Overview mostly to supermarkets. Capilano has a dominant 75% market share in domestic retail honey sales through brands such as Capilano, Allowrie and Wesco
Slide 57: Information on GC1
For personal use only INFORMATION ON GC1 57
Slide 58: GC1 Performance
GC1 PERFORMANCE For personal use only $11,200 $11,000 GROSS PORTFOLIO RETURN $10,800 $10,600 $10,400 $10,200 $10,000 Inception Aug 31 Sep 30 Oct 31 Nov 30 Dec 31 Jan 31 5.00% 4.00% GC1 portfolio GROSS PORTFOLIO RETURN 7.55% 3.00% 2.00% Since inception 1.00% 0.00% Aug 2015 Sep 2015 Oct 2015 Nov 2015
Slide 59: How to Buy GC1
HOW TO BUY GC1 For personal use only ONLINE OFFLINE PLATFORMS ANY BROKER STOCK BROKERS HUB24 ETRADE FINANCIAL PLANNERS MACQUARIE WRAP COMMSEC LEVERAGE EQUITIES COLONIAL NETWEALTH 59
Slide 60: Glennon Weekly Newsletter
GLENNON WEEKLY NEWSLETTER For personal use only REGISTER AT GLENNON.COM.AU 60
Slide 61: Stay in Touch
STAY IN TOUCH For personal use only SOCIAL MEDIA INDEPENDENT COVERAGE GlennonCap /glennon-capital /glennoncapital MORE INFORMATION @misterglennon glennon.com.au www.glennon.com.au glennon.com.au 61
Slide 62: Contact Information
CONTACT INFORMATION For personal use only Michael Glennon Alex Shevelev Office Address Chairman & MD Portfolio Manager Level 11, 179 Elizabeth Street Sydney, NSW, 2000 E michael@glennon.com.au E alex@glennon.com.au T 02 9021 7783 T 02 9021 7782 E info@glennon.com.au T 02 8060 9519 M 0488 350 000 M 0
Slide 63: Important Information
IMPORTANT INFORMATION For personal use only This presentation is prepared by Glennon Capital Pty Ltd (AFSL 338567, ABN 84 137 219 866) (Glennon Capital) for general information purposes only and has been prepared for use in conjunction with a verbal presentation and should be read in that context. E
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