Blog

February 28, 2020

On 26/02/2020, Viva Leisure (ASX:VVA) reported their half year results.  The result was solid and in line with our estimates and broker consensus numbers. On the day of the result the shares traded down 17% from their prior closing price.  The chart below shows the intraday trading range, with the share price fluctuating between $2.2 to $2.6 on low volumes.  A lot of the selling was retail selling with the market wanting massive upgrades.  Viva has a good growth profile and trades on an attractive multiple.

This large intraday movement illustrates that the market is being influenced by news headlines. This experience wasn’t just confined to VVA, many companies saw the same price action.  Afterpay was down initially after their result was released and ended up on the day. 

Small Cap growth stocks returns since 12 February 2020

As investors with a fundamental approach to investing, the noise and fluctuations prove annoying and distracting.  This is where it pays to remem...

February 21, 2020

On 17/02/2020, Money3 Corporation (ASX:MNY) reported stronger than the market expected earnings. As a result, the share price jumped by 8%. Glennon Capital started to accumulate MNY in August and it has become one of our large positions. In the past six months, MNY has returned over 50% for us. How do we find this stock and why do we own it?

In a post-Royal Commission world, banks are targeted by regulators. They are closely monitored and therefore, reluctant to lend money. The main reason is to avoid any further damage to bad publicity. As a result, the supply of loans is reducing. To satisfy the customer demand on borrowing, non-banking is stepping up to fill the gap and gain market share. We looked for listed lenders who are at top quality among other players. MNY is one of them.

In our September webinar, our portfolio manager Alan Crozier discussed his thoughts on MNY in detail. MNY got through a transition year in FY19. MNY had two main divisions, automotive loan business and small...

February 7, 2020

On 30/1/2020, NEA announced a downgrade to its revenue guidance. This resulted in the share price falling -29%. Fortunately, Glennon Capital avoided this loss, having sold the last of our shares at $2.97. How did we achieve this and what does it reveal about our approach to high growth stocks?

As a small companies specialist, Glennon Capital engages with all types of investment situations, whether they be roll-ups, owner-operators, deep value or high growth disruptive business models like NEA.

Different situations require different approaches. Our approach to high growth stocks is to closely monitor the key metric which will propel the share price higher in the eyes of the share market.

For example, when we first invested in NEA at a share price of $2.04, we believed that:

i.) the growth in Average Contract Value (ACV) that NEA management was targeting for FY20 (+30%) was achievable, with an upwards bias

ii.) if NEA achieved those ACV growth metrics, the share price was likely to...

January 31, 2020

The financial planning market is undergoing significant disruption due to rising compliance & educational standards, as well as removal of product trail commissions. How does one make money in this environment?

As we mentioned in May 2018, many financial planners and dealer groups previously reliant on the trail commissions that come from selling products which don’t necessarily meet clients’ needs, can no longer survive.

Nevertheless, we believe one of our portfolio holdings Fiducian (ASX:FID) can grow its market share through selectively acquiring competent financial planners who are leaving the larger dealer groups.

We believe the key driver of FID’s continued success is its integrated wealth management model which provides cost-effective services to underlying clients across:

1)     Fund of funds: allocating the funds of its clients across different expert managers in return for a multimanager fee

2)     Platform: administering the funds of its clients by prov...

January 24, 2020

Viva Leisure Limited (ASX:VVA) operates in the health and leisure industry in Australia, with its primary business being a health club operator (gym). VVA has built its brands on passion and the belief that first-time gym users and casual fitness members can achieve their personal fitness goals in a supportive and non-intimidating environment. Through the company’s Club Lime brand, VVA has become recognised in its market as a brand that stands for value, quality and a club or community atmosphere. Here is the list of VVA’s brand.

VVA was founded in Canberra in 2004. Over the last 15 years, VVA acquired 11 clubs and opened 21 clubs. It also expanded to regional NSW, regional VIC and QLD. In June 2019, the company took a further step to expand and list on the ASX through raising capital. The money was spent on acquisition and expanding the established business. We believe this company has a great growth potential with an attractive price.

Business Model and Strategy

VVA operates on what it...

January 17, 2020

Probiotec Limited (ASX:PBP) is a leading manufacturer, packer and distributor of a range of prescription and over-the-counter pharmaceuticals, medicines and consumer health products.

PBP (the “Group”) is comprised of three businesses, the parent entity Probiotec, and the subsidiaries being South Pack Laboratories (SPL) and Australian Blister Sealing (ABS).

For the past 4 years, the Group has established a new senior management team who have adopted a new strategy to divest and exit non-core operations. Furthermore, capital has been allocated to growing both organically and through acquisitions within the contract manufacturing areas. Since then, the Group has made a turnaround and is growing rapidly. The rise in return on equity from 5.36% to 8.16% in the past four years proves the quality of new senior management.

Business Segment

Probiotec (the parent entity) services a wide range of large multinational companies, including Pfizer, Proctor & Gamble, Johnson & Johnson and Blackmores. Key...

October 3, 2019

City Chic Collective is a specialty retailer of women’s fashion products, focusing on plus-size women’s apparel, accessories and footwear products. The company operates in Australia, New Zealand, Europe and the US. The company recently announced a potential acquisition of a U.S. plus size e-commerce business, in line with its business strategy. The details of the acquisition are yet to be announced and will be subject to confirmation of the transaction. Let’s have a general look at the company. We will then discuss our views on the potential acquisition.

According to FY19 results:

  • Revenue of $148.4 million, up 12.55%

  • Comparable sales growth rate of 12.2%

  • Gross margin 57.8%, down from 59.0%

  • Underlying EBITDA of $24.9 million, up 25%

  • Underlying EBITDA margin 16.8%, up from 15.1%

  • EPS before significant items 7.4 cents

The company has 104 stores in Australia and New Zealand, an online platform, and a growing partner business in North America and Europe. Despite...

September 27, 2019

Dr. Michael Burry, the investor who bet against the subprime bubble in the United State a decade ago and one of the main characters in “The Big Short”, recently spiked some discussions in the financial news about the current stock market. He believed the shift in focus to passive investing creates opportunity for small cap investors. One of the key reasons is liquidity. With the rise of passive index funds, the shares of small cap companies are being held by some passive funds. The lack of liquidity reduces the trade volume and fewer investors get into this market. As a result, the market is inefficient.

We, as a small cap fund, believe this dynamic also rings true in Australia. There is a general belief that small caps should outperform large caps in the long run, given that small cap contains a higher degree of risk. But in the past decade, large cap clearly outperformed the broader market. Why is that? One reason is that the market is being impacted by the rise of passive funds. Rese...

September 20, 2019

Enero Group (ASX:EGG) is an advertising agency that was re-birthed from the ashes of Photon Group about a decade ago. Under new chairman John Porter and the new management team led by Matthew Melhuish, the company has undergone a significant transformation in terms of both its earnings profile and balance sheet. The stock has experienced a substantial share market re-rating. The group has diversified geographically via acquisition, and is now operating in Australia, the U.K. and the U.S. It has also diversified its business model to now offer a completely integrated communications and advertising proposition. We expect to see further acquisitions fuelling earnings growth and continued share price re-rating, albeit not without some cyclical risk around its market segment.

One of the main reasons we specialise in small cap is the lack of market efficiency. Enero Group Ltd (ASX:EGG) is a perfect case in point. The company reported its full year results for the period ending June 30 2019. I...

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