Australian and New Zealand NAPS 4th quarter review - last for 2023

We were going so well, and then November/December came. It is important to note that the way the NAPS portfolio was structured it was always going to be tough to outperform in a raging bull market, and so it proved to be the case this year.

But first as a final refresher, 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

If you wish to re-read the 2nd quarterly update you can do so here

If you wish to re-read the 3rd quarterly update you can do so here

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 a portfolio recommendation. As the name says, we perform absolutely no changes to our very rudimentary selection process, irrespective of how bad a stock may turn throughout the year. Next year we will be making a slight alteration to the selection process and we will inform you of that when we publish the next article. At this stage it is likely to be tomorrow sometime.

For now all we do within the portfolio is select the two highest StockRank scores at the start of the year, in each sector, large enough for us to consider.

This update is purely for the purposes of interest. True to word for the NAPS in 2023, 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 all quarterly reviews, 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.

Finally remember: Past performance is no indicator of future performance

General observation

Stockopedia is a tool, not a tip sheet. As is traditionally the case in raging bull markets, good, cheap and strong stocks, where the focus can only remain with a maximum in 2 sectors , will tend to underperform. Likewise this has been the case in the later half of 2023. We start again with a new process in 2024. As the process suggests, the idea is to liquidate our entire position and start again on January 1. Notwithstanding the underperformance this year, it has still been a good return for doing absolutely nothing.

Performance for 3 months (30 September 23 - 31 December 2023)

* -0.01% due to currency conversion of GNE into AUD

Performance for 12 months to 31 December 2023

* -0.01% lower 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 and how they look at the end of their review period.

Stock Review

We will divide the stocks into winners, laggards and losers for the latest quarter, though the brief commentary will be relevant for the year. As previously mentioned no changes have been made to the portfolio and this is used solely for the purposes of education.

The Winners

Charter Hall (ASX:CHC) Current StockRank™ 72. 3mth total gain +29.7%

Long touted as a premier participant in the space, it was good to see CHC return to some favour this quarter. While the obvious challenges remain for the sector, the lower than expected property valuation write downs and the fact large buildings can't just ‘disappear’ means that there will be a place for good operators in the space. Despite higher interest rates it was good to see the bounce.

Lycopodium (ASX:LYL) Current StockRank™ 98. 3mth total gain +27.0%

Our winner this year from both a capital and income perspective was LYL . Long noted for its value, the sector has experienced a return to favour in 2023 culminating in Private Equity making a US$371 Million acquisition of fellow African focussed driller BLY. LYL has experienced a number of consistent earnings upgrades over the past 12 months and has announced a stream of continued contract wins that have supported the business. Closing at close to 52 week highs, the stock is a worthy winner.

BlueScope Steel (ASX:BSL) Current StockRank™ 95. 3mth total gain +20.4%

From a personal perspective, I have always avoided BSL as I can never get it right. The past year would have been another example . Despite challenges for the sector, both here and overseas. That said, the company flagged it was performing below expectations October, however tThe recent acquisition by Nippon Steel of US Steel at US$55 per share has supported the price, in particular now that the majority of earnings come offshore. So with little in the way of franking credits, expect them to continue with their buyback regime.

Data#3 (ASX:DTL) Current StockRank™ 94. 3mth total gain +19.2%

One of the great outperformers of this, and many recent seasons, has been DTL. Continued digital transformation across big companies and organisations has supported the business over the years and will likely continue to support the reasonable dividend yield, good operational performance and lofty valuation for some time yet. All this despite the recent departures of long serving CEO Laurence Baynham and Chairman Richard Anderson.

Ansell (ASX:ANN) Current StockRank™ 92. 3mth total gain +13.8%

ANN started the year in a quagmire of over supply, and for the year it has stayed that way with the the most recent AGM further confirming as such. However with a defensive earnings nature, an expected improvement in margins to come will help. At the bare bones, the company is very profitable and it has positive cash flow providing a base from which to turn around. A price rebound in the last few months has definitely helped the overall return. Though for the year it has been a challenge.

Graincorp (ASX:GNC) Current StockRank™ 97. 3mth total gain +9.3%

Fortunately the last quarter has been kind to GNC, notwithstanding the recent price decline of the commodities it deals with. Operationally the company is performing strongly, but like a mining stock, it is a price taker and its share price reflects as such. The company released its full year results, and as expected, there was a comedown from recent all-time high levels. That said, grain volumes are solid and early indications are that the winter harvest in 2024 on the east coast looks good. On a further positive note, the company will look to oilseeds to break out of this sideways move.

The Laggards

Hotel Property Investments (ASX:HPI) Current StockRank™ 92. 3mth total gain +8.6%

HPI started the year with much promise. However as talk of the 360 Capital move died down so too did the prospects of the company as funds under operation fell. That said, there has been a strong rebound within the REITs sector now that interest rate rises seem to be abating. The company has also managed to maintain its dividend recently and the slower they go, along with the easing of property price declines will all help HPI.

Shaver Shop (ASX:SSG) Current StockRank™ 99. 3mth total gain +4.8%

It's been a tough year for many retailers, but at least SSG has held its own. Much of that is to do with the defensive nature of the business and the strong level of cash flows and margins. It's ability to grow revenues ahead of store rollouts is also impressive, as has been their high yield. That said they did flag falling sales growth on post COVID boost levels, however in comparison to pre-pandemic trading is still well up. While flying under the radar of most, 2023 will go down as a solid year for the company.

Whitehaven Coal (ASX:WHC) Current StockRank™ 99. 3mth total gain +4.6%

It was bloody hard for thermal coal in 2023. Despite its continued use, the sector remains discounted and is still cheap. WHC is no island in terms of its performance for the year, though it saw a much improved performance in the second half of the year, especially at the time of its September update. Further the acquisitions of BMA’s (BHP + Mitsubishi) Daunia and Blackwater projects are transformational as it turns it into a metallurgical coal producer in line with its strategy, with pro-forma revenues of around 70% metallurgical coal and 30% thermal coal. As an added bonus, at least the price has stabilised for the minute making the 6.6 PE more palatable in the near term, notwithstanding floods and government intervention.

Lindsay Australia (ASX:LAU) Current StockRank™ 99. 3mth total gain +4.5%

Starting the year as our best performer, though finishing second overall was LAU . The company benefited greatly from the demise of Scott's Transportation refrigeration logistics business, however after more than doubling in price initially, it has eased somewhat. Pleasingly the juicy dividends have helped, increased by 100% at the half year and 50% at the full year, resulting in a 66.7% increase over the full year. At the company’s AGM, they flagged EBITDA growth of 16% over their FY23 result, a pleasing outcome if achieved.

Monash IVF (ASX:MVF) Current StockRank™ 90. 3mth total gain +3.2%

MVF was again a quiet achiever going about its business without much fuss. The growing demand for fertility services locally (as well as around the world) and the shrewd acquisitions it has made (most recently in WA) bode well for this slow and steady performer achieving both capital growth and an OK yield as re-affirmed at the AGM.

Telstra (ASX:TLS) Current StockRank™ 92. 3mth total gain +2.8%

The mighty TLS is a very different business today than what it was over a decade ago. While this has been discussed ad nauseum, there hasn't been much from the company itself, with the exception of the purchase of additional spectrum (ie mobile highway). Patient investors will appreciate the calm management, re-affirmation of EBITDA guidance and CAPEX spend. Its reduced dividend as well as the new corporate structure are also welcomed. This is a very different company from its recent record.

Genesis Energy (NZE:GNE) Current StockRank™ 87. 3mth total gain +2.7%

GNE did exactly what it was supposed to this year. It was stable and paid a yield. That said, following an initial spike the price has since retraced quite a bit until November when the company made clear its intention to focus more on renewable energy as it funneled $1.1B from the Kupe Oil field to build new renewable generation and grid scale battery storage. It also has the aim of simplifying the retail operating model that it announced six weeks earlier. Its all in the name of reducing costs and even lifting the dividend higher. Both updates were a nice way to end the year.

Michael Hill International (ASX:MHJ) Current StockRank™ 89. 3mth total gain +1.7%

Despite its strong dividend, MHJ was amongst the poorer NAPS performers for the entire year. With a recession in New Zealand and 13 rate rises in well under two years here in Australia, it was always going to be tough for a jeweller at the pointy end of consumer spending. Despite the transformational acquisition of Bevilles in the last quarter of the year, it needs more favourable trading conditions to help the share price regain some sparkle.

The Losers

Tabcorp Holdings (ASX:TAH) Current StockRank™ 88. 3mth total loss -11.2%

The best of a bad batch, though you wouldn’t know it to look at the price. It was tough for TAH within an environment where their competitors were slaughtered and experienced significant erosion. The year finished on a positive note with the announcement of the new Victorian agreement which brings them onto a more level playing field, and to be fair is all the company has asked for. But with its competitors on their knees, it won't want to stoop that low I am sure. Though the announcement of group revenue down 6.1% at the company’s last quarterly update is not a good omen.

Coronado Global Resources (ASX:CRN) Current StockRank™ 83. 3mth total loss -9.5%

It has been a very tough 12 months for coking coal producers. Already feeling the strain of flooding from over a year ago, a slowdown in China led by the weakening property sector was enough to put the skids on demand for iron ore and coking coal. CRN suffered as a result. It's cheap, spits cash and there is strong underlying demand for its services. Though as a price taker there is not much it can do.

Incitec Pivot (ASX:IPL) Current StockRank™ 90. 3mth total loss -8.0%

It was a case of too little too late for investors in IPL that joined as a result of the NAPS portfolio. The drain on fertilizer products was too great to support the $1B capital return and $400 million share buyback announced at the sale of Waggaman. Moving forward, both will likely support price and total returns in the new year - for those patient enough to hang around.

Hansen Technologies (ASX:HSN) Current StockRank™ 80. 3mth total loss -3.8 %

While the prospects remain solid, and the management restructure makes sense for HSN, the price in the latest quarter hasn't done much to excite things, even following the positive run of the market. With forecast mid single digit earnings growth the market is just not excited by the consistency of the story.

Insignia Financial (ASX:IFL) Current StockRank™ 61. 3mth total loss -3.3%

Good riddance to our worst performer this calendar year in IFL. The CEO was sacked in October, all with significant capital expenditure, as well as capital erosion in that time. They have replaced the incumbent with someone that has done the same elsewhere so investors need to question will this time be different? The traditional financial planning model is strained. Not even the MLC acquisition has helped. Investors are hoping that the market bounce will further assist price, or at least stem the outflow of funds under administration and management..

McMillan Shakespeare (ASX:MMS) Current StockRank™ 70. 3mth total loss -0.9%

Supported by a continued move towards EVs, MMS experienced a spike in price in August, but that has come back significantly in recent times. It has paid the second highest in terms of distribution for the full year and that has supported the price recently. Assuming it doesn't fall below October lows, the stock should find solace in recent upbeat forecasts. That said it encounters the same challenge as many that are top of the tree in a crowded space, no better exemplified by the announcement in December when it announced the loss of the Maxxia South Australian Government contract.

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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 author hold interests in the following stocks mentioned in this article: BSL, CHC, SSG, WHC This position can and will change at any time without notice.