Three months comes around quick and it is time for our first quarterly NAPS review for the 2024 Calendar year. If you wish to revisit the launch email of the Australian and New Zealand NAPS portfolio from January, including the selection criteria and the follow on from the previous year, please read it here.

But just briefly, our Australia and New Zealand NAPS (No Admin Portfolio System) is run as an education tool and not intended to be taken as advice or portfolio recommendation. As the name suggests, we perform no changes to our very rudimentary selection of selecting the highest StockRank scores in each sector, for companies large enough for us to consider. For a reminder of the rules be sure to read that first article.

This update is purely for the purposes of interest and is a shared learning exercise to see if a passive/stock specific fund can beat the market.

As with the previous year, we are measuring the market as the S&P/ASX300, therefore we compare ourselves against the total return of the VAS Vanguard Australian Shares Index ETF as that is the closest way we can invest in the top 300.

Remember: Past performance is no indicator of future performance.

Performance for 3 months (01 January 2024 - 31 March 2024)

* -0.06% lower due to currency conversion of VCT into AUD

The NAPS portfolio does not represent the actual return of a financial product. It is used purely for the purposes of education. The performance figure should not be relied upon in any way.

Just as a reminder, the portfolio of 20 stocks was equally weighted and compounds upon the returns from the 2023 portfolio. The total value of the portfolio at the end of 2023 had increased from an initial $200,000 to $216,496 including $10,583 in cash from dividends received. Therefore $10,825 will be allocated to each stock (after allowing for brokerage).

We mentioned at the end of the 2023 review that it is incredibly difficult for the NAPS portfolio to outperform when the market is on a strong run. Pleasingly in the first quarter, we have seen the portfolio keep in step with the broader market (and even slightly outperform it.)

If only investing were always this easy. 6% each quarter equals 24% for the full year and we know that is not at a clip which is sustainable. Even when looking at the 12 months passed, the 15.48% return is very impressive. For those that have been on this journey since the first NAPS portfolio was released, the gain is 13.49%.

Long story short, we hope the portfolio will be suitably insulated to retain much of its gains should, and when, the market takes a breather.

Stock Review

We will divide the stocks into winners, laggards and losers for the first quarter. As previously mentioned no changes have been made to the portfolio and this is used solely for the purposes of education.

The winners

GQG Partners (ASX:GQG) Current StockRank™ 97 3mth total gain +32.75%

The best performing stock in the NAPS portfolio for the first quarter was GQG Partners with a total return of 32.8%. Funds under management (FUM) is the primary driver of returns for a funds management business like GQG and from November to February, FUM has increased from US$112.6 million to $137.5 million (March FUM has not yet been disclosed). That is an increase of 22%. Given that markets were hitting record highs in March, FUM is all but certain to have increased further.

GQG released their full year results in mid-February. They revealed revenue growth of 18.5% for 2023 and EPS growth of 19%. 90% of earnings were paid out as dividends, with GQG now trading on a forecast dividend yield of 8.3%.

In mid-March they announced the launch of a private capital business and acquired several assets from the ASX listed Pacific Current (ASX:PAC), as well as hiring several key employees.

The StockRank has slipped slightly from 98 to 97 due to the decline in the Value score as the price has increased.

Southern Cross Electrical Engineering (ASX:SXE) Current StockRank™ 99 3mth total gain +24.83%

Southern Cross Electrical has been the second best performing stock in the portfolio with a return of 24.8% for the quarter. The StockRank hasn’t improved, but given it was already 99 there is not a lot of room to move.

Southern Cross have made a number of positive announcements during the quarter. The first was the half year results, which were in line with expectations. The completion of some major resources projects was offset by increased activity in infrastructure projects including the Sydney Metro Pitt Street station and Western Sydney Airport. Management highlighted the growing number of opportunities with data centers and infrastructure projects as well as electrification and decarbonisation initiatives across the economy.

In March they were added to the All Ordinaries Index and they also announced they had been awarded over $70 million in new projects in data centers and resources. All of this positive news has lit a fire under the share price.

GWA (ASX:GWA) Current StockRank™ 98 3mth total gain +23.88%

Bathroom products firm GWA had a strong first quarter. Their half year results came in above expectations and the share price surged 14%. Despite a marginal decline in revenue, underlying NPAT increased by 10.2%. The operating margin improved as did the return on equity. Cash flow also improved markedly. The interim dividend was increased by 17% to 7c per share, resulting in a dividend yield of 5.5% fully franked.

Sales are largely driven by new builds and renovations, with 60% coming from the renovations and replacement segment in Australia. The outlook for new builds looks good with continuing demand for health and aged care facilities, a solid level of new residential homes due for completion and increasing activity in multi-residential construction. Demand for renovations is expected to remain subdued.

The StockRank has been maintained at 98. The market has awoken to the quality of the business and the stock generated a return of 23.9% for the first quarter including grossed up dividends.

Kina Securities (ASX:KSL) Current StockRank™ 97 3mth total gain +17.41%

Kina Securities was one of the top performing stocks in the portfolio delivering a total return of 17.4% for the quarter. This was bolstered by a dividend return of 6.4% on top of the share price gains of 11%.

Kina reported their full year results at the end of February. They included revenue growth of 12% and operating growth of 18%, however net profit declined by 9.5% due to an increase in the corporate tax rate from 30% to 45%.

Operationally the business was strong. Customer acquisition increased 20% and the net loan book grew by 19%. Capital adequacy is high at 20%. Their wealth management offering also performed well with revenue growth of 56%.

This strong performance from the operating business resulted in the StockRank increasing from 92 to 97 during the quarter.

Beach Energy (ASX:BPT) Current StockRank™ 83 3mth total gain +16.26%

As mentioned previously, BPT is an oil producer with a significant natural gas portfolio. But as a price taker its price should mirror that of the commodity for the quarter and it has. That is with exception of a period after the release of its half year result where it reported that both production and underlying NPAT were down ~10% however the business overall was supported by its first sales from Waitsia LNG and condensate cargoes.

The share price was further buoyed at the end of the month when it said that it was undertaking a comprehensive strategic review as it looked to deliver increasing returns to shareholders and drive efficiency. The first step of that was a targeted headcount reduction of 30% to be undertaken across the business. With a number of executives being moved on and a new structure in place by early this month.

Investors will look to the implementation of this strategy as a driver for performance beyond oil and gas prices.

Monash IVF (ASX:MVF) Current StockRank™ 90 3mth total gain +10.91%

Assisted reproductive services firm Monash IVF had a strong first quarter with a total return of 10.9%. The StockRank held steady at 90. It has generated an annualised return of 46% since first entering the NAPS portfolio in January 2023.

Revenue grew by 21.7% in 1H FY24. The biggest contributor to growth has been the Australian IVF business. Within this, the contributors in order of significance were:

● Acquisitions of additional practices

● Price increases of 5% - 8% comparing 1H FY24 with 1H FY23

● Organic market share growth

● Industry growth

The Day Surgery Unit has also made a significant contribution to growth, with the opening of the Day Surgery Unit on the Gold Coast in October 2023.

Underlying NPAT grew 18.7% in the first half which was at the top end of the guidance range. Management are forecasting underlying NPAT growth of between 13% to 18% for FY24 with the market leaning towards the top end with a 16.7% forecast.

Shaver Shop (ASX:SSG) Current StockRank™ 98 3mth total gain +9.13%

Shaver Shop is only covered by one market analyst, but that analyst has been gradually lowering their forecasts for EPS. Those forecasts dropped again following the release of the latest interim results and this has contributed to a decline in the Momentum score. However the overall impact has only been a one point decline in the StockRank from 99 to 98.

Over the quarter the total return from SSG was 9.1%, including a 6.1% grossed up half year dividend payment. Shaver Shop consistently pays high dividends and is currently trading on an actual dividend yield of 8.8%.

Sales for the first half were down 3.7% due to lower volumes of in-store sales. Online sales held steady. This resulted in an 8.6% decline in net profit. Trading patterns improved in the October to December quarter compared with July to September. This trend continued in the new year with sales growth of 0.9% for the first 7.5 weeks, compared with the equivalent prior period.

Stockland (ASX:SGP) Current StockRank™ 75 3mth total gain +8.79%

As expected, a big drop off in the StockRank was experienced in SGP when it released its first half results. Much of that was due to the reporting of the acquired planned communities from Lend Lease for the first time which resulted in both the Quality and Value scores dropping as funds from operations pulled back. Particularly as debt levels ballooned inlight of the settlement period due this coming half of the year.

Fortunately Momentum has remained strong not only because of the long term potential of the deal, but also the broader rebound in the sector that has many believing we are at the top of our rate hike cycle and that cuts, particularly in global rates, are due any time soon.

When one reads the latest half year result, the other thing that is pleasing to see is that there is likely to be a material skew towards the second half of earnings which is enough to keep the true believers on board. It also reaffirmed the FY24 Distribution per security as being within Stockland’s targeted payout ratio range of 75% to 85% of post-tax FFO.

Karoon Energy (ASX:KAR) Current StockRank™ 92 3mth total gain +6.21%

Karoon Energy has seen their price track that of oil with the expectation of a period of disconnect in January. That could be attributed to the update provided by the business where it declared that it was lowering production guidance from the main Brazil asset and that costs were anticipated to be a little higher than was previously declared. This update came as a shock to many watchers as they did not expect such a divergent update from the recent positive commentary.

Pleasingly for investors, the 30% interest “Who Dat and Dome” petrol and oil gas field continues to progress well, As of writing this piece, the company had also received approvals to drill in the Gulf of Mexico. In the same breath the company also increased its capital expenditure guidance as expected in response. They will likely produce a quarterly update to the market at the end of April and going on the recent price recovery investors will be hoping the previous troubles are a blip rather than a sign of something endemic.

The laggards

Super Retail (ASX:SUL) Current StockRank™ 99 3mth total gain +4.8%

Super Retail had a strong start to the year when in mid-January they pre-empted their half year results by issuing a trading update which was very well received by the market. It showed a positive result of overall sales growth of 3% and like-for-like sales growth of 1%. The Christmas and Black Friday period saw robust trading despite cost of living pressures.

The half year profit before tax figure was $204 million. This was well above market expectations and even beat their guidance range from a month earlier. Gross margins improved by 30 basis points to 46.5%. But the cost of doing business (CODB) increased as had been previously foreshadowed, resulting in a 5% decline in profits compared to the prior corresponding period.

The StockRank has held steady. After the surge in stock price following the January trading update, the share price has largely tracked sideways except for a dip when they went ex-dividend. The net result has been a positive performance of 4.8%, including the dividend.

Vector (NZE:VCT) Current StockRank™ 90 3mth total gain +4.75%

VCT delivered an impressive first half year result for NZ’s largest distributor of electricity and gas. Not only was the company able to record impressive NPAT growth, but it did so with a NZ$60Mil impairment of their gas distribution business which came about as the Commerce Commission decided to lower both future returns to owners of gas distribution networks, and interest rate changes.

They have entered into an agreement to sell the remaining assets of the natural gas trading business and they expect that to complete on 1 July 2024, for a sale price of $9.7 million.

There was a bit of air time spent on the distributions expectations of the business, and while the latest half year saw an increase, the company was quick to caution that with key regulatory decisions impacting future cash flow yet to be determined, the board has been unable to consider revisions to their past dividend policy at this time.

Pleasingly though they did reaffirm guidance and said they were tracking towards the top end of it.

Ricegrowers (ASX:SGLLV) Current StockRank™ 99 3mth total gain +4.26%

Ricegrowers has a fiscal year end of April. Consequently there has been no news of much significance during the first quarter. Despite this, the share price has continued to climb steadily, albeit with rather erratic swings. Trading volumes are fairly thin.

The international rice segment is the largest component of revenue at 46%. Rice is sold into a wide range of countries. In addition to sourcing rice from their own Riverina rice pool, they also source rice from a wide network of other countries. Favourable conditions over the first half to October 2023 enabled them to increase revenue by 26% and profits before tax by 163%. Rice prices in commodity markets continued rising until mid-February but then retraced their gains to end the quarter slightly below where they started. This segment also faces risks from currency fluctuations, in particular the Papua New Guinea Kina where there is no international hedging facility. The PGK continued its depreciation during the quarter which puts pressure on their margins.

Despite these challenges the business looks strong and has delivered a return of 4.3% for the quarter which whilst below the benchmark is still solid for an agribusiness producing a staple food product.

Telstra (ASX:TLS) Current StockRank™ 94 3mth total gain +0.56%

There was not much fuss to be taken from the Telstra half year report. Much like the economy it was able to grow sales and profit, but the shrinking margins were a focus of many. The company continues to invest heavily in infrastructure and while some may point to the high balance of capex, others may say that they build an ever stronger economic moat.

While there is no need to go further into the T25 strategy, as it has been discussed ad nauseum, investors would have been pleased by the fact the dividend lifted in the recent period. This increase though would have invoked memories of the bad old days from investors as the 9 cent payment was more than the EPS of 8.4 cents per share for the half. The company believes it is sustainable for now and its hard to disagree looking at their future capital expenditure requirements and cash on hand which in Stockopedia we can see still remains strong.

Investors are patiently awaiting the next move from the telco giant to reaffirm the positive business trajectory and more importantly,the cost savings that will come because of it.

Data#3 (ASX:DTL) Current StockRank™ 91 3mth total gain +0.05%

While the headlines of businesses transitioning to AI are frequent, Data#3 remains in the background doing its thing. Its “thing” was enough to see the price run up to the report, however in the eyes of some it was disappointing, and in fact the price fell heavily on the update.

Since then the price has rebounded a little, and while expectations for this high Quality business may have been lofty, its half year result confirmed what we already knew. Revenue is increasing, so is work on hand, profits and cash flow. The only blemish was the company’s reluctance to offer formal guidance for the year ahead, preferring to let its history do the talking. The problem is that the market is ‘forward looking’ and in an environment where the cost of doing business is going up and margins are tight, they weren’t happy with the vagaries.

The losers

Mount Gibson Iron (ASX:MGX) Current StockRank™ 98. 3mth total loss -21.96%

By far and away the worst performing stock thus far in this year's NAPS portfolio is MGX. Despite the bulging and growing cash balance, the company has come under significant strain, as all Iron Ore miners, have as Price Takers, where the price of the key commodity is falling.

The reason for this fall is growing skepticism over China’s coming yearly GDP target, and in particular the impact it will have on Steel producers given that, even if it did occur, it likely won’t be the construction sector which does the heavy lifting.

Investors will be hoping that this recent correction in the commodity price sparks some broader sector consolidation to which MGX stands to benefit following its strong cash holding and the sale of its mid-West hematite interests. Production at Koonan Island remains strong as per their most recent quarterly update with records being achieved in most areas. Also pleasing is that with the Ore price decline they should still remain profitable, but that could easily change.

Dicker Data (ASX:DDR) Current StockRank™ 91. 3mth total loss -8.33%

The scourge of expectation also seemed to hit Dicker Data on what was another solid result but the market, as always, wanted more to justify the price run to all time highs before the announcement.

As previously flagged they were able to grow net profits by over 10% and for a company focused on the demand for software, networking and storage in the AI world all metrics were suitably strong.

So desperate was the market to find something wrong that it latched onto the revelation that founder David Dicker had to sell down part of his significant holding to fund a divorce with his ex-wife Delwyn Dicker. While his exploits may command the social pages - this recluse businessman whose company bears his name is not afraid to say it how it is with the acronym AI used frequently at the time of the firm's half year presentation. The company believes it will underpin the company’s growth moving forward. I have yet to find anyone that disagrees.

Resolute Mining (ASX:RSG) Current StockRank™ 96. 3mth total loss -3.55%

As previously mentioned, despite gold being at record highs, African focused RSG has not kept pace in terms of price relative to other producers. But the performance for the last month would have made many feel better. As previously mentioned it is cheap in terms of gold miners and it seems that this is starting to be acknowledged by some, despite the obvious sovereign risks.

Adding to the positive disposition was the strong minerals resource update provided in March. Especially at the previous depleting Senegal operation where a maiden Mineral Resource

Estimate (“MRE”) was given for the Tomboronkoto satellite deposit of 403 koz grading 1.2g/t. Though it was in line with expectations, it is pleasing to see, and with more exploration drilling to come.

The quarterly update was as expected, except AISC rose a little more than anticipated. The company has released its well worn, “AISC should reduce” statement and investors will want evidence of that when the next quarterly result is released this month.

Lindsay Australia (ASX:LAU) Current StockRank™ 96. 3mth total loss -3.18%

Lindsay Australia has been mildly disappointing over the first quarter of the calendar year. The StockRank has fallen from 99 to 96. The Quality score dropped from 98 to 93, but the big mover was the Momentum score, falling from 91 to 73 as analysts downgraded their expectations and the price declined slightly.

The half year results released late February were on the surface very good, with growth in all the key metrics. However, the market was expecting a bit more and the price dropped as did EPS forecasts.

The rural business, including the recently acquired Hunter business, experienced EBITDA declines due to the impact of adverse weather and reduced demand. EBITDA increased 22% in the transport business. A lot of this was due to the addition of the Scotts Refrigerated Logistics business which was acquired when it went into administration last year.

Cedar Woods Properties (ASX:CWP) Current StockRank™ 93. 3mth total loss -1.70%

Another stock that flagged “a stronger second half ahead” was Cedar Woods Properties (ASX:CWP). As per SGP, they too experienced a big fall off in reported profit as property revaluations started to bite. The day before their half year result they announced that they had sold the Williams Landing Shopping Centre for $60 Million which was above the fair value attributed by most to the business.

Long story short, the company expects to make a larger profit next year on the back of the sale and hence why their statement. But the reality is everyone knew this was coming so there has been little reaction in price. Particularly as Net Gearing was expected to reduce this period, when in fact it rose. Once again the company expects that amount to drop following receipt of funds from the Williams Landing sale and residential settlements progressively occur, but some immediate respite would have been nice.

While it declared a fully franked 8 cent distribution, the Dividend Reinvestment and Bonus Share Plans remain suspended. It is also important to note that this represents a drop from the previous interim distribution paid and investors will be expecting an increase on the previous annual to demonstrate that things are back on track.

Ansell (ASX:ANN) Current StockRank™ 93. 3mth total loss -1.56%

Ansell was one of the few stocks in the portfolio to decline during the quarter, but after taking into account the dividend it was only down 1.6%. The StockRank held steady at 93.

Sales and profits have been declining at Ansell since 2021 and the most recent half year results continued that trend. Sales were down 6% and adjusted EPS was down 19%. Statutory EPS was down 69%. The big difference between the two EPS figures is because management are excluding the costs associated with their investments in productivity improvements from the adjusted figures along with costs associated with shareholder class actions. Whilst investments in productivity should bring long term benefits, it comes at a short term cost which can’t just be adjusted away.

The result didn’t come as a surprise to the market, and the share price, along with analyst’s EPS forecasts have tracked sideways since. The outlook provided by management was fairly upbeat with an expectation that both the Industrial and Healthcare divisions will see sales growth in the second half.

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Information in this commentary is current as at date prepared unless otherwise stated. However, please bear in mind that investments can go up or down in value, and that past performance is not a reliable indicator of future performance. For more Important Information please refer to the Disclaimer section of this website.

This communication may contain general financial product advice. It has been prepared without taking into account your personal circumstances, and you should therefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it.

If our advice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement (PDS) before making any decision.

The authors hold interests in the following stocks mentioned in this article: DTL, MVF, SUL, SSG, TLS. This position can and will change at any time without notice.