Blog

November 15, 2019

Service Stream is a provider of essential network services to the telecommunications and utilities industries. The company announced several contract extensions and awards in September 2019. SSM benefits from the ongoing 4G maintenance capex and 5G installation. We believe telecom and utility companies will continue investing in infrastructure.  We have therefore invested in Service Stream which is a financially healthy and very profitable business.

Stable Revenue Flow From Contracts

Service Stream usually signs multi-year agreements with telecom and utilities customers. This business model creates a predictable and stable revenue stream. For example, Service Stream recently secured a 5G wireless design & construction agreement with Optus. The term of the agreement is three years with the option of a one-year extension. We like this business model because of the stability and reliability of income. Moreover, the company has a good history of contract renewal, indicating a good relationsh...

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...

February 1, 2019

Macmahon Holdings is a mining services contractor. During the 2018 financial year they generated revenue of over $700 million, almost double from FY2017. They have forecast over $950 million for FY2019. EBIT was over $41 million (FY2017) and they project $70-$80 million for FY2019.

January 25, 2019

Volatility is a frightening word to many investors and many of you will no doubt say that you have seen enough of that lately. We agree, insofar as providing a smooth investment journey to our shareholders is important to us, but we also know how to make a bit of hay when the sun shines.

December 7, 2018

Within Australian equities, investors may choose between large caps or small caps. In the long term, large caps grow at, or around, GDP and are generally heavily weighted with financial and material stocks (see the graphs below). This does not provide sufficient diversification for most investors.

November 30, 2018

Alliance Aviation, Afterpay Touch and Stanmore Coal

November 23, 2018

We visited the management of Macmahon Holdings (ASX:MAH) in Perth this week. It is one of GC1’s largest holdings and in the wake of some downgrades in the sector and chatter about union disruption, labour and equipment tightness we though it prudent to see how they are viewing current conditions.

November 2, 2018

There is a store in the city selling $10 notes for $8.70. You would think that the queue would wrap around the block but this hidden gem seems largely undiscovered……

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