The end of the Financial Year means that we have come to the half way mark of the NAPS (No Admin Portfolio System) for 2024T. If you are interested you can read:

• Launch post here

• First quarter review post here

As a reminder, our Australia and New Zealand NAPS is run as an education tool and not intended to be taken as advice or a portfolio recommendation. As it says in the title, we perform no changes to our basic selection of selecting the highest StockRank scores in each sector at the start of the year. Of course they need to be large enough for us to invest in as well. To remind yourself of the rules be sure to read the launch email.

This update is delivered in between reporting seasons for most businesses, however it is purely for the purposes of general interest and we share this learning exercise to see if a passive/stock specific fund can beat the market.

Just to refresh your memory, 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.

And always remember: Past performance is no indicator of future performance.

Performance for 3 months (01 April 2024 - 30 June 2024)

* -0.01% lower due to currency conversion of VCT into AUD

Performance for 6 months (01 January 2024 - 30 June 2024)

* -0.07% 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.

This year, the portfolio of 20 stocks selected was equally weighted and it compounds upon the returns from the original 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).

Markets remain not too far from all time highs. However the past three months the broader index has been at a stalemate. Without a magnificent 7 in the IT sector driving performance, we are relying on our Banks and Commodity stocks. In the last quarter, collectively they have lagged the powerful US Tech lead index in the last quarter.

Speaking of the last quarter we saw an exceptionally strong performance from the collective. That has settled down somewhat, though pleasingly the NAPS portfolio has still outperformed, though is outperformance can attribute to a few, further emphasising the importance of diversification..

While credit can be attributed to the diversified nature of the portfolio, the other major benefit is the Long-Only strategy which leaves potential gains uncapped.

Out of interest, for the 12 months passed the portfolio has a total return of 14.93%. Since inception back in 2023 it is 12.63%

Last quarter we mentioned that we hoped “the portfolio will be suitably insulated to retain much of its gains should, and when, the market takes a breather.” Treading water is not quite the same, however there are risks at the minute that investors need to be aware of which include concentration risk. But in the spirit of this piece, there will be no changes until the new list is derived in 6 months time. We look forward to the next quarterly review.

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Stock Review

We will divide the stocks into winners, laggards and losers for the second quarter. As previously mentioned no changes have been made to the portfolio and this is used solely for the purposes of education. However do note, their were no laggards this period (ie stocks that outperformed the VAS but were negative.)

The winners

Southern Cross Electrical Engineering (ASX:SXE) Current StockRank™ 93 3mth total gain +67.96%

Southern Cross Electrical has had an outstanding run, up 68% for the quarter and 109% for the year to date. This makes it the top performing stock in the portfolio over both time periods.

The StockRank has actually fallen from 99 to 93, driven by the Value score falling from 81 to 54 as the share price has skyrocketed. The other ranks have been steady.

Southern Cross made eight price sensitive announcements during the quarter including two profit upgrades. In mid April they announced they had been awarded contract extensions on two data centres they were building plus a number of other building projects totaling about $50 million in value. A few weeks later they announced the award of their largest initial contract by value of $160 million for the Collie Battery project.

The award of the Collie Battery project was followed by confirmation that FY24 earnings would be on target, along with an upgrade to FY25 forecast earnings. Only a week later, they announce the acquisition of MDE group and upgraded FY25 earnings forecast further. Two days later they announce an increase to their project bonding facilities with CBA to support their record order book.

GQG Partners (ASX:GQG) Current StockRank™ 91 3mth total gain +27.79%

GQG Partners has had another quarter of stunning performance, taking its total return for the year to date to 69.2%. The StockRank has slipped from 97 to 91. The two main contributors were a decline in the Quality score of 10 points to 88 and a drop in the value score from 65 to 47. Contributing to the fall in the Quality score was a 1 point fall in the Health Trend. The level of the Value score is inversely related to the trajectory of the price, all else being equal.

As is always the case for a funds management business, funds under management (FUM) is the primary driver of returns. Net inflows of US$9.1 billion for the year to date, along with strong performance, have resulted in FUM increasing from US$112.6 billion at the start of the year to US$150.1 billion at the end of May (June FUM has not yet been disclosed). That is an increase of 33%.

Performance of a funds management business is closely linked to the performance of their funds. On this front, GQG has done exceptionally well in recent times. As at 30 April, all four of their major strategies had outperformed their benchmarks over the short term and the long term, and by considerable margins.

Resolute Mining (ASX:RSG) Current StockRank™ 99. 3mth total gain +20.93%

This African based miner is “super exposed” to the recovery in gold prices offering investors not just exposure to the underlying commodity, but also to the continent as well. This basically equates to big resources, but a lot of geo-political uncertainty as well.

However, as a lot of gold stocks have seen a bounce in performance the market is looking deeper to identify value and it did that with RSG this month. It did help that by the time of its quarterly, it said it remained on track to deliver its guidance for 2024 production guidance.

Further in June we got word that the promissory note it provided Ravenwood Gold Pty Ltd was re-negotiated. The deal with Ravenswood was briefly discussed at the launch of the NAPS portfolio for 2024. The end result was that A$30 million extra payment was received by RSG, with a further A$20 million due by September 2024. Growing cash balances and stable AISC means that investors have been more pleasantly surprised. Further, the deal will remain quite lucrative for as long as gold prices remain solid.

Ricegrowers (ASX:SGLLV) Current StockRank™ 95 3mth total gain +11.47%

Ricegrowers has a fiscal year end of April and released their full year 2024 results just prior to the end of June. The results were strong and the share price immediately jumped 8.5%, but being a rather volatile stock it retraced about half of that gain over the following days.

Revenue increased 15% and EBITDA was up 23%. Normalised EPS increased 9.4%. Over half of the revenue of $1.9 billion is derived from outside Australia. Whilst rice might seem to be a very generic product, 70% of revenue comes from branded products. This strong branded portfolio enabled them to be largely resilient in the face of inflationary pressures.

Revenue also benefited from the abundant supply of rice in the Riverina district which enabled them to make more inroads into the Middle East, Europe and the UK. They also participated in additional government tenders, primarily in Japan.

The StockRank has declined a little from 99 to 95. This is due to a large drop in the Momentum score on the back of volatile analysts earnings forecasts. It is worth noting that there are only 2 brokers providing forecasts for SGLLV.

Ansell (ASX:ANN) Current StockRank™ 96. 3mth total gain +8.01%

After a small decline in the first quarter, Ansell has bounced back to be a top five stock for the second quarter. The StockRank also bounced, increasing from 93 to 96 on the back of positive momentum.

The big news for Ansell during the quarter was that they were acquiring the Personal Protective Equipment business of Kimberley Clarke. Kimberley Clarke designs and markets gloves, body and eye protection products to the scientific and industrial segments. This provides a good complement to Ansell’s other product lines. It was a company they had been eyeing for years so when the opportunity arose they decided they had to seize it.

They paid US$640 million in cash on an implied EV/EBIT multiple of 9.7x. This was funded through an institutional placement and share purchase plan as well as US$377 million in new debt. The equity raising was well supported with the SPP well oversubscribed resulting in an extension of the amount raised as well as a significant scale back.

The market reacted positively to the acquisition, with the shares rallying on the belief it would bring earnings growth and broaden their market penetration.

Kina Securities (ASX:KSL) Current StockRank™ 98 3mth total gain +4.49%

Kina Securities had another good quarter to back up the strong first quarter. It has returned 22.4% for the year to date making it the third highest performing stock in the portfolio.

There was not much of note announced during the quarter however there were a couple of things that highlight the risks of investing in a small company where compliance standards may not be as high as other financial institutions. The first was at the start of the quarter when they were suspended for a day because they were late in filing their reports.

The second, more serious incident, occurred mid June when an incident of fraud was revealed. The share price dropped as much as 9% following the news of a fraud that could cost them between 12 - 15 million PGK (about $4.6 - $5.8m AUD). That is a lot when compared to their net profit of about 100 million PGK. The problem was compounded when they botched the calculations of the impact on the bottom line understating the bottom end of the range by a considerable margin. They issued a correction the following day and the share price duly rebounded.

There was very little change in the factor rankings and the overall StockRank was unchanged for the quarter at 98.

Shaver Shop (ASX:SSG) Current StockRank™ 99 3mth total gain +3.54%

Shaver Shop consolidated its strong first quarter with the price rising a further 4 cents to $1.17.

The StockRank has returned to its starting level of 99 on the back of improving momentum.

Australian retail sales data, recently released, showed that retail sales rose 0.6% in May following a rise of 0.1% in April. This was stronger than expected, suggesting that the sentiment around a slow-down may be a bit overdone, although in seasonally adjusted terms the trend remained flat.

Some positive news that emerged specifically for Shaver Shop was the securing of an exclusive agreement to distribute Skull Shaver’s range of products in Australia and New Zealand. Skull Shaver is a popular brand and accounts for the top three hair clipper products that Shaver Shop sell. They have to pay an upfront fee for the exclusivity arrangement, but will make that back in time with a material reduction in the cost of goods, as well as being the exclusive supplier.

Data#3 (ASX:DTL) Current StockRank™ 94 3mth total gain +1.09%

There has literally been no news from DTL which is probably a good thing, given it likes working in the shadows and helping their customers shine. After the disappointment of the half year result, the price of the business has somewhat stabilised. It will likely move on any future update.

The continued focus of implementing Artificial Intelligence should underpin demand for their services and at the time of their half year result they expected sales to increase. That is all we can go by at the moment.

The losers

Beach Energy (ASX:BPT) Current StockRank™ 64 3mth total loss -18.80%

Things were going so well for BPT, then they announced in early April that the Waitsia 2 stage joint venture development was experiencing quality issues (as we had already been told) and that work had to be conducted to improve on the current situation. First production was going to be delayed and it was going to cost more than initially anticipated.

This has seen a raft of EPS downgrades from analysts over the quarter, further validating the price drop. A half glass full perspective may be that at least the worse is now known. It has also previously been mentioned that Kerry Stokes looms large over the business through the Seven Groups Holdings interests. It also explains the heavy advertising from the gas industry in recent times.

In a recent “Strategy Review Outcomes” presentation the company mentioned it was focused on the Free Cash Flow break even point. The company will expect it to be positive even if oil falls to US$30/bbl, and the only words mentioning a date were “Free Cash Flow Break Even through the cycle”. That has left some feeling empty, particularly as it is from here that future dividends are to be paid.

Lindsay Australia (ASX:LAU) Current StockRank™ 94. 3mth total loss -18.39%

Lindsay Australia’s declining share price accelerated during the second quarter.

The StockRank has fallen from 99 at the start of the year to 94 today. The Quality score dropped from 8 points in the last 30 days and the Momentum score has fallen all the way from 91 to 67. The Quality score has been impacted by a 2 point fall in the Health Trend which is now down to 4.

Their trading update in early May, forecasted EBITDA for FY24 to be in the range of $88 to $94 million. This is a long way short of the guidance of $102 to $108 million. As recently as late February they had confirmed that they still expected to achieve that guidance range, albeit at the lower end.

The shortfall was attributed to wet weather which caused lower horticultural volumes across the entire business but especially in North Queensland, rail disruptions in March and April including a four week outage on the east-west corridor and lower efficiency due to disrupted freight flows. Demand was also soft.

They foresee good conditions for the horticultural sector in the near future given soil moisture profiles and water storage levels in key irrigation areas.

Karoon Energy (ASX:KAR) Current StockRank™ 96 3mth total loss -15.28%

Karoon Energy was tracking nicely until oil prices started to retrace. But the share price really fell off a cliff in mid April as news of the “B” rating from S & P Global as well as Fitch Ratings started to weigh heavily on the company. Particularly as it needed a lot of debt for th Who Dat and Dome acquisitions that were going to be funded enlarge part through debt. (A poorer credit rating often leads to a higher interest bill payable.)

However since then, a number of updates from the company in regards to drilling and production progress at the 30% owned Who Dat site (particularly a the East Wall) have settled nerves. Further the re-initiation of production from the Bauna site commencing on schedule has seen small favour return to the business, as it tries to prove that some of the operations issues are derisked.

What would lead to a massive re-rate is obviously the price of the commodity it deals. More specifically the price of Oil and Gas going up. Also as it earns the majority of its earnings offshore, a strengthening USD would also help.

Super Retail (ASX:SUL) Current StockRank™ 97 3mth total loss -13.35%

Super Retail’s strong start to the year reversed during the second quarter with the stock taking a significant tumble during April and May, followed by a small rebound in June.

They were hit with some controversy at the senior executive level following the revelation of a secret relationship between the CEO and the Head of HR who has now left the company. At least four staff have commenced legal action against the company over alleged governance breaches. The damages claim could be as high as $50 million.

They released a trading update in early May which was fairly weak. Like-for-like sales were flat over the 43 weeks of the year to date and had declined 1% in the last 16 weeks. This was most pronounced at BCF where sales dropped 5% in the recent period reflecting a soft Easter period.

Management commented that foot traffic and transaction volumes were continuing to grow, but the number of items per sale was less, which they attributed to cost of living pressure. They had opened 20 stores and closed 4 during the financial year, and anticipated opening another seven stores by the end of June.

Monash IVF (ASX:MVF) Current StockRank™ 91 3mth total gain -11.07%

Assisted reproductive services firm Monash IVF gained 11% in the first quarter and then lost 11% in the second quarter, finishing the half year 1 cent below where it started. The dividend of 2.5 cents provided a small gain for investors.

The company did not make any significant announcements during the quarter. Despite this, there were some movements within the factor ranks although the overall StockRank remained fairly steady just rising from 90 to 91.

The Quality rank fell from 88 to 83. Of note is the deterioration in the bankruptcy risk from the cautious zone to the distress zone. This reflects a decline in the equity value of the firm compared to its liabilities. A detailed analysis of the factors contributing to the low Altman Z score was provided in this article written in March.

The Value score has risen from 52 to 58 largely due to the falling share price. Momentum has fallen from 96 to 94, also reflecting the share price.

Monash IVF has been in the NAPS portfolio since its inception in January 2023 and despite the poor quarter, is still showing an overall return of 30%p.a.

Stockland (ASX:SGP) Current StockRank™ 72 3mth total loss -10.6%

Was a victim of circumstance three months ago as some of the Masterplanned Communities (MPC) items landed on their balance sheet and saw a big deterioration in their ranking scores. That said it has also underperformed over the past quarter.

Concerns emerged on the ACCC delaying the final decision on the sale of the Lend Lease assets to it to July 4. Further to that the ACCC have voiced concerns that other developers of masterplanned community projects may not be able to compete sufficiently with Stockland after the acquisition in some regions with the strongest highlighted in the Illawarra region of New South Wales. How this all ultimately plays out will have a big barring on price.

Prior to that it did provide a quarterly update, telling investors that in and amongst some asset sales of what it believes are no core holdings, and that gearing was likely to be at the upper end of its 20% - 30% range, its FY24 FFO per security guidance range was still maintained of 34.5 to 35.5 cents. And as previously reported there will be a larger Group FFO skew to 2H than in FY23, driven by timing of its MPC settlements.

GWA (ASX:GWA) Current StockRank™ 98 3mth total gain -10.45%

After a strong first quarter, bathroom products firm GWA experienced a reversal with the share price retracing all the gains it had made for the year by mid June, but bounced off its lows slightly in the last two weeks of the financial year. Despite these fluctuations, the StockRank has retained its previous level of 98.

A trading update just prior to the end of the financial year stated that revenue would be about the same level as the previous year. Normalised operating income is expected to to be 4 to 5% above the prior year.

The business performance in the Australian market has been solid with continued volume growth. Their strategy to launch entry level products targeted at maintenance plumbers also appears to be paying off. The UK business also attained volume growth, despite a contraction in the broader UK market.

The recession in New Zealand has resulted in continued deterioration in the housing and construction markets. New Zealand accounts for about 10% of revenue. Given the extended downturn in that market, they are now looking to downsize the New Zealand business.

Dicker Data (ASX:DDR) Current StockRank™ 88. 3mth total loss -8.84%

While not specifically related to AI, investors had high hopes for DDR. However, when the company released a trading update in mid-May and said that, “Quoting activity and pipeline strength in Q124 was in line with the prior corresponding period…” alarm bells rang and it was now likely to experience quarter in quarter revenue decline as there was a large order book this time last year. This is not a great result given the sector should be running hot now. The drop in revenue over the quarter was not appreciated either.

Inlight of that update, we witnessed some big cuts to 2024 estimates and those of 2025. What also didn’t help the price at the time was the declaration of its quarterly distribution which went ex-div on May 16,just before the update. While the price had stabilised for a while, it has since fallen again and is looks like it will test those levels of May which it has to hold for its sake.

While the founder David Dicker is still at the helm though, expect this to be a continued strong dividend payer.

Telstra (ASX:TLS) Current StockRank™ 89 3mth total loss -6.22%

It hasn’t all been smooth sailing at TLS despite what the company would have had you believe. In fact if you had listened to them prior to Mid-May you could be excused for thinking, “It’s fine, it’s fine, it’s fine, now it is not fine?”

The update delivered a disappointing outcome for investors, however in reality it continued the downward trend the company has experienced for much of 2024. That said, it has proved to be a bit of a cathartic moment and the market has returned some favour in the business bouncing to levels not seen since that fateful May day. In the last NAPS review we noted the company paid out more in dividends than they made in earnings. Positively, they also followed through with targeted cost savings, however there is no word on any business development.

Fact of the matter is, TLS should be doing better than it is, and investors have expressed their disgust by walking away from the business. Demonstrable evidence that it has put the recent challenges of the past behind it is needed to convince investors the worst is behind it.

Mount Gibson Iron (ASX:MGX) Current StockRank™ 95. 3mth total loss -4.65%

It was the worst performing stock last quarter, but this quarter losses were more tepid as the iron ore price decline settled. Despite this, question marks remain on this single commodity, and technically complex single mine operation

But in its quarterly update delivered at the start of the period, operationally for the moment things remain on target with robust cash flows and sales on track to hit full year guidance. While there was no mention of the company's cash balance, it did say that “the Company’s cash and investments balance increased by $72 million to $430 million at 31 March 2024, equivalent to $0.35 per share, compared with $358 million at the end of December.”

Further hedging contracts have also helped in a tough iron ore price environment, though it is quick to say that its current product commands a premium to regular spot prices. All in all - as a price taker, we await for what it will do with its growing cash balance. Weakness in the sector is a got to be a driver for doing something with it.

Vector (NZE:VCT) Current StockRank™ 93 3mth total loss -4.40%

VCT, the Auckland focussed Utility business is doing well operationally. It has leveraged the recent growth in Auckland residences well and it remains the largest distributor of electricity and gas in the country.

In a 3rd Qtr update delivered in April, it mentioned that Electricity Volumes were up 3.2% as were LPG Volumes which were up 6.1%. With the currency holding its own this quarter expect much of that to make its way to investor pockets in the form of a dividend.

Its share price reflects however, that of a company under strict government oversight within the current cost of living pressures climate. Further the NZ economy is technically in recession, its second within 18 months. This will likely impact perceptions on future demand of the company’s power.

The price had a solid run until mid-June and then fell back down again. But it doesn’t move much and therefore dividends and currency will likely be the biggest contributing factor to the NAPS portfolio moving forward.

Cedar Woods Properties (ASX:CWP) Current StockRank™ 93. 3mth total loss -1.46%

Not much happened with Cedar Woods Properties (ASX:CWP) over the quarter, We got word that they had sold and settled their Williams Landing Asset that they were selling. Further, they announced the sale of 2ha of shopping centre land for $13m. Not a bad outcome when 86h was bought for $49.5 million in late 2021. Basically they have sold off 2.3% of the land for 28% of the purchase price.

In a quarterly update, it announced that things were going well. Not only did they re-affirm their NPAT guidance of between $36M - $39M, and their strong sales pipeline to date, but they also disclosed new partnerships and the reasons behind its WA land purchase.

The company also pointed to the strength of its balance sheet, which in the current environment is a good thing. WA and Queensland make up the majority of sales for the company at the moment, which the company claims is good because it offers them exposures to states that have “an affordability advantage”