Australian and New Zealand NAPS 2nd quarter review

We have reached the halfway mark of the calendar year and for our NAPS (No admin portfolio system) for Australia and New Zealand.

If you wish to revisit the launch blog post of the Australian and New Zealand NAPS portfolio from January, including the selection criteria, please read it here.

If you wish to re-read the 1st quarterly update you can do so here

As a reminder, the Australia and New Zealand NAPS (No Admin Portfolio System) is run as an education tool and is not intended to be taken as advice or portfolio recommendation. As the name says, we perform no changes to our very rudimentary selection process.

All we do is select the two highest StockRank scores in each sector, large enough for us to consider.

This update is purely for the purposes of interest. True to word, we will not make any changes, irrespective of any shift in rankings (or personal biases). Rather, this is a shared learning exercise to see if a passive/stock specific fund can beat the market.

As mentioned in the last quarterly review, 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

It general it was a much better quarter for the NAPS portfolio, irrespective of some very obvious challenges. Interestingly, the performance was strong enough to get it ahead for the half year.

Performance for 3 months (31 March 23 - 30 June 2023)

* -0.09% lost due to currency conversion of GNE into AUD

Performance for 6 months to 30 June 2023

* -0.05% lost due to currency conversion of GNE 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.

Here is the list of 2023 Australian and NZ NAPS Portfolio inclusions from January and how they currently look.

Stock Review

We will divide the stocks into winners and laggards for the latest quarter. As previously mentioned no changes will be made to the portfolio and this is used solely for the purposes of education.

The Winners

Lycopodium (ASX:LYL) Current StockRank™ 98. 3mth total gain +27.78%

Top of the NAPS for the second consecutive quarter was LYL. We have talked about the company’s pricing model before and why it is preferred amongst analysts. Early in the quarter the company provided a positive business update flagging that they were continuing to see strong demand for their services. This was further backed up by the awarding of the drilling contract for Barrick’s Reko Diq Copper-Gold Project in Pakistan estimated to be worth circa $55M. With strong momentum in the sector, investors have been rewarded with a strong price return

McMillan Shakeseare (ASX:MMS) Current StockRank™ 96. 3mth total gain +25.42%

Another winner last quarter on the back of a growing order book, MMS performed strongly over the month. We discussed back then that growth was coming from the servicing of NDIS customers and the government tax incentives for businesses to turn their current car fleets into electric vehicles. There has been no new news from the company since we last wrote about. Chris recently wrote quite an extensive piece on the company that members can read here.

Lindsay Australia (ASX:LAU) Current StockRank™ 98. 3mth total gain +21.28%

It was another strong quarterly performance from logistics firm LAU. In April the company provided an update confirming a further upgrade of guidance for underlying EBITDA to be 25% higher at the mid point than previously thought for FY2023. Despite wet weather challenges in the quarter, it has experienced a surge in demand for its transport services following the, as discussed, collapse of Scott's Refrigerated Logistics. According to the company the increased demand follows an already tightening supply chain after the continued exit of smaller operators over the past two years. The appointment of an experienced logistics executive as CEO and recent acquisition of WB Hunter, which will give the company’s Rural business a network of agricultural supply markets across the entire East Coast of Australia also bodes well for the continued health of LAU.

Graincorp (ASX:GNC) Current StockRank™ 99. 3mth total gain +13.31%

Keeping with the rural theme, and turning from laggard last quarter, to one of the better performers, GNC saw investor favour return to it. Last quarter we discussed the mismatch between fundamental performance and price, and patient investors were rewarded. In the last quarter the company delivered its 1H23 result showing EBITDA of $383 million and NPAT of $200 million. The Agribusiness side of the company did suffer a little, cycling off a record high in the previous half, but pleasingly the company took the chance to pay a special dividend (going ex on 6 July of 10 cps) and it upgraded previous guidance for FY23 EBITDA $500 – 560 million (previously $470 – 530 million) and NPAT: $220 – 260 million (previously $180 – 220 million).

Further, the company is assessing the creation of new oilseed crush capacity, which the company is achieving strong results from currently. With growing demand for renewable fuel feedstocks, Graincorp is keen to play a major role in that going forward.

Hansen Technologies (ASX:HSN) Current StockRank™ 77. 3mth total gain +11.9%

Another laggard turned winner was billing software provider to the utility sector, HSN. The company suffered a hit to its stock rank score in the previous quarter on the back of flat revenue and falling EPS. But as our rules stipulate, we keep every stock for the entire 12 months and fortuitously the stock rebounded last quarter. We discussed their sticky client base, so the immediate challenge has been growth. In recognition of this, the company has appointed a new CEO to free up Andrew Hansen, founder and Managing Director to allow him more time to focus on Hansen’s strategic growth activities. This is more a relinquishing of operational responsibilities and Andrew remains a significant shareholder in the business.

Tabcorp Holdings (ASX:TAH) Current StockRank™ 99. 3mth total gain +11.56%

Also coming from the back of the field into the winners circle is TAH. Leading into this quarter the landscape for gaming companies was challenging, and that still remains the case. However, by positioning itself as a voice of reason amongst the current debate over advertising gambling services in the domain, TAH seeks to strengthen its brand recognition by squeezing out lesser known emerging competitors. They did not release any news of note over the quarter, but investors took heart from the company’s ability to sound like it is in control of its own destiny and expect it to continue to deliver strong fundamentals when it reports its full year financials next quarter.

Monash IVF (ASX:MVF) Current StockRank™ 90. 3mth total gain +7.01%

We discussed the defensive nature of MVF’s earnings last quarter, and that continues to be recognised by investors. Likewise no new news from the company over the quarter, though they have completed the acquisition of the PIVET Medical Centre in WA which now gives MVF a total national offering as they seek to gain market share.

Insignia Financial (ASX:IFL) Current StockRank™ 88. 3mth total gain 2.92%

As markets stabilised, so too did the performance of IFL with the wealth manager experiencing a return to some favour. Consolidating after the massive acquisition of MLC, the company provided an update in the quarter just passed, telling investors that they had seen net inflows for the quarter and that its workplace super product is progressing well. This offset some sluggishness in the adviser side of the business as a reduction of 25% of active advisers in the company impacts revenue. The company continues to restructure the division and says it is committed to getting it back to break-even. What was clear though was the impact rising FUM has on returns as a good first quarter saw net funds under administration rise $4.2b to $205.5b. A good April - June period will likely help further.

BlueScope Steel (ASX:BSL) Current StockRank™ 99. 3mth total gain +1.99%

A quarter of consolidation for BSL after a strong first month and concerns around global economic growth and the immediate future of the construction industry acted as a bit of a dead weight on price. We last heard from the company in April when it announced it expects underlying EBIT for 2H23 to be in the range of $700 million to $770 million, a 77% jump from the mid-point. Much of this was expected by the market and the company attributed the jump in expectations to better price spreads in both the US and Australia (i.e. higher prices) and marked improvement in the US North Star business. This was a significant change from previous rhetoric where the Building products and Coated Products divisions were expected to have tough periods, but instead they have done quite well. If they continue the change in sentiment when they report in August it may support another run up.

Telstra (ASX:TLS) Current StockRank™ 82. 3mth total gain +1.9%

Not much new to report from TLS as Vicky Brady takes the helm of the T25 transformation former CEO Andy Penn instigated. Despite the knock back of the ACCC of the rural network sharing deal with Vodafone, the company remains focused on its broader transformation strategy. It is unlikely this will disrupt the trajectory of the company. It will be interesting to see if the company has maintained the momentum from the mobile business it generated on account of the Optus cyber security issues. If so this could be another strong result from our largest telco provider.

Ansell (ASX:ANN) Current StockRank™ 92. 3mth total gain +0.75%

The cycling off on the extraordinary times of COVID and their impact of PPE Manufacturer ANN are well documented. Investors would have been pleased with the relative stability of the previous quarter. There has been no new news over the quarter for ANN. Investors will be looking to the upcoming half year result to assess the impact of plans by some of the larger industrial and life science distributors in Europe and the US to reduce their inventory levels for ANN’s Single Use styles and life science portfolio. This was something that was spoken about at the last AGM.

The laggards

Shaver Shop (ASX:SSG) Current StockRank™ 99. 3mth total loss -10%

Is it any wonder that the two worst performing stocks in the NAPS Australia and New Zealand portfolio were retail stocks? Rate rises have gone some way to curb consumer enthusiasm for spending money and SSG has been impacted. While many retailers have downgraded to date, SSG has not despite flagging a drop in foot traffic at the time of their half year report. Investors will be hoping that the 10 year history of growing sales can continue, however in the current climate there are many that suspect it won’t. With a big addressable market investors will hope that the radio silence is a sign that maybe they are doing better than everyone thinks?

Michael Hill International (ASX:MHJ) Current StockRank™ 95. 3mth total loss -9.14%

The second largest laggard of the quarter was MHJ who has felt the impact of rate rises acutely, not just in Australia, but also in NZ where some may argue the rate rising cycle has been more aggressive. In late May the company told investors that group sales for the second half of FY23 are down 3.5%, though they were quick to point out that this is better than the broader Jewellery classification has experienced across the industry. On a positive note, it hopes to get a leg up in sales following the acquisition of previous competitor Bevilles Jewellers. This will be on top of the 5.5% that total group sales are currently up thus far in FY23.

Incitec Pivot (ASX:IPL) Current StockRank™ 98. 3mth total loss -8.44%

Last quarter review we discussed how IPL experienced a tough 3 month period on account of falling fertiliser prices. The other scuttlebutt which dominated the investing radio waves was the potential that this prolonged weakness may result in plans to split that business from the explosives side being cancelled. The company denied this at the time of their half year report, with EBIT falling to $108m versus $257m pcp, it is obvious that the Board won’t be jumping too quickly to make a decision. Overall the report was slightly disappointing as only the explosives business of North America was worth noting. However the company did say it expects a skew to the second half of earnings for both the Explosives and Fertiliser business. It also reinstated its $400m buyback program and intends to consider other capital management initiatives once complete.

Coronado Global Resources (ASX:CRN) Current StockRank™ 89. 3mth total loss -5.54%

With concerns over a Chinese economic slowdown over the quarter, metallurgical coal business CRN saw prices weaken a little. The company did provide a quarterly update which was not too bad. Group Revenue of $766 million for the March quarter, up 6.8% on the Dec Qtr. Cash on hand grew and they reaffirmed their previous sales and production targets. This does not appear to be an operational story, rather it is a commodity based cyclical narrative. Should Chinese Coking Coal prices improve then expect the share price of CRN to do so as well, though at the moment with Coking Coal prices deflated, there is little impetus for a rerate just yet

Hotel Property Investments (ASX:HPI) Current StockRank™ 98. 3mth total loss -4.88%

We talked of resilience in last quarter’s review of HPI and fortunately it was able to consolidate that somewhat. Property values are important to property trusts, though we are yet to get any update in that regard from HPI. However we did receive a positive business update where the company announced the acquisition of two new properties, increased its distribution guidance by 0.2 cents and reinstated its distribution reinvestment program. As mentioned previously, their portfolio of pub and leisure outlets adds an element of stability.

Genesis Energy (NZE:GNE) Current StockRank ™ 95. 3 mth total loss -2.97%

Power company GNE continued with much of the same themes it exhibited when we last spoke about it 3 months ago. In a business update in April the company confirmed continued customer growth, and reduced churn. The amount it makes on every unit of energy (Netback) continues to grow, mostly from the LNG division. Though it should be noted that the Kupe project is in field production decline. As previously mentioned, wet weather and cyclones actually boosted Hydro production capacity, up 153% on averages. Though much of this was priced in last quarter and therefore the price has eased a little since. Continued strong operational metrics will help support price.

Data#3 (ASX:DTL) Current StockRank™ 83. 3mth total loss -1.1%

After a record half performance from IT services and solutions provider DTL, the market perhaps got a bit bored and sold it down a little. However it did rebound quite a bit in the last week of June recouping much of the quarterly loss. Without any commentary the market will look to their coming annual result for guidance on what’s ahead. Hopefully the increased payout ratio of 90% changes investor sentiment if they deliver a strong result at their annuals.

Whitehaven Coal (ASX:WHC) Current StockRank™ 98. 3mth total loss -0.30%

After what can only be described as a putrid quarter last time around, thermal coal business WHC stabilised this quarter finishing flat for the past three months. It didn’t start the quarter off very well, as at their 3Qtr production update they flagged that production was below plan primarily due to operational constraints at Maules Creek, including ongoing labour shortages. Further, a milder northern hemisphere winter meant that customers’ inventory levels remained high in the March quarter, so demand was softer and thermal coal prices moderated. The company though sees demand remaining strong and it has net cash of over $2.7B. This remains a dirt cheap stock focused on returning capital to shareholders in the form of buybacks and high dividends. The price has rebounded since the lows of May, but it still has some work to do. All eyes will be on the next production report to be released this month. Investors will hope operationally things have stabilised, though as mentioned with CRN, they are beholden to market prices and government intervention. Speaking of which, it is unlikely the China decision to remove bans on Australian coal will likely impact prices that much. Broader macro factor will remain more important.

Charter Hall (ASX:CHC) Current StockRank™ 98. 3mth total loss -0.28%

The previous quarter was when the full force of interest rate rises were felt by REITs and CHC was no exception. However the price has stabilised over the past few months providing a reprieve. We learnt in June that the company had the entire portfolio independently reviewed which resulted in -2.8% (or $1.9b) reduction across the board. Unsurprisingly the Office and Retail divisions were the hardest hit with only their industrial portfolio rising a miserly +0.1%. Whilst no other guidance was provided, the company was able to pay a distribution of 21.7 cents which was higher than the previous half year and investors will take heart from the companies focus on Industrial & Logistics as an opportunity.

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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.

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