Intelligent Investor Portfolio Update - August 2018
View the latest updates on the Intelligent Investor Equity Income and Growth Portfolios
Equity Income Portfolio / ASX:INIF
Major contributors during the month included the fund’s largest holding and New Zealand’s largest online classifieds business Trade Me (9.6%); Monash IVF (9.5%); and Wesfarmers (6.3%). Detractors included the fund’s nominal holding in minnow printing company PMP (-17%), Ansell (-12.6%) and Newscorp (-7.4%).
Trade Me’s NZD22-cent special dividend was the main attraction from its annual result, but a 40% jump in premium advertising or ‘depth products’ from business customers helped fuel a 12% increase in total classified revenue despite stagnant listings. Focusing on increasing the revenue from existing customers is the same approach that’s driven the enormous success of REA Group.
Trade Me’s Motor’s classifieds business edged out the Marketplace division as the company’s largest by revenue. Longer-term Marketplace faces increased competition from the likes of Facebook, but as the classifieds business continues to grow with a larger team in place, it will become less important to the company’s value.
All of the key metrics for Monash IVF went backwards in 2018. Increased competition, and the high sensitivity of profits to small changes in revenue due to the company’s high fixed cost base, saw a 3% fall in revenue turn into a 28% fall in profits. By focusing on premium patients in an industry that’s guaranteed to grow, we believe the price-to-earnings ratio of 13 is more than compensating for the risks.
Equity Growth Portfolio
Major contributors during the month included the fund’s now second largest holding TPG Telecom ( 51%); Thorn Group ( 15%); and the fund’s largest holding and New Zealand’s largest online classifieds business Trade Me ( 9.6%). Detractors included Ansell (-12.6%); Newscorp (-7.4%); and IOOF (-4.3%).
Hogging the headlines this month was the marriage of equals Vodafone and TPG Telecom. The deal combines Australia’s third-largest mobile operator, Vodafone, which boasts 22m customers, with the country’s second largest broadband provider, TPG, which has 6m customers including a wide range of business customers that Vodafone doesn’t have.
The combination has many benefits, such as the company being able to offer more attractive bundles for mobile and broadband services that reduce customer losses, and the company will pay half of its profits as dividends.
There are some negatives, though. TPG founder, and one of Australia’s most successful businessmen, David Teoh will be relegated to chairman with his shares escrowed for two years. The combined company also still has to spend large sums for items like spectrum to provide 5G services and access to the NBN to resell fast internet services. Further details are expected regarding a one-off special dividend and the split of the Singaporean division, amongst others.
Thorn Group has become much safer after reducing its exposure to potential bad loans from its rapidly growing Business Finance division by introducing a new investor. The deal has eliminated a potential capital raising, as Thorn’s cash now exceeds its corporate debt, and the company still profits from originating and managing the loans.
View more information on the Growth Portfolio.
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