Perpetual Wholesale Industrial aims to provide long-term capital growth and regular income through investment predominantly in quality Australian industrial shares and to outperformance the S&P/ASX 300 Industrials accumulation index (before fees and taxes) over rolling three-year periods. Perpetual researches companies of all sizes using consistent share selection criteria. Perpetual’s priority is to select those companies that represent the best investment quality and are appropriately priced.
The portfolio’s largest overweight positions include Suncorp Group Limited, Flutter Entertainment Plc and Premier Investments Limited. The portfolio’s largest underweight positions include Macquarie Group Ltd (not held), Woolworths Group Ltd (not held), and CSL Limited.
The overweight position in financial services provider Suncorp Group (+2.49%) contributed to relative performance. The share price continued it’s upward trajectory post it’s positive FY23 result which shows Insurance margins increasing excluding covid effects. The stock’s recent performance has been impressive, receiving a significant boost towards the end of the month after being upgraded to ‘overweight’ by JPMorgan from its previous ‘neutral’ status. Notably, the target price has been raised to A$14.30 from A$14.00, representing a 6% upside to its price at the time of the upgrade.
Seven Group Holdings contributed to performance in September (+12.30%) following on from a solid result in August. Seven Group Holdings represents a quality diversified exposure to ongoing infrastructure and mining investment. The August result delivered improvement in key metrics including margins, cash flows and balance sheet measures. Seven Group Holdings portfolio spans across leading industrial services, media, and energy including names sch as Boral, Westrac, Coates Hire, Skyes, SGH Energy, Allight, Beach Energy and Seven West Media.
The overweight position in casino operator Star Entertainment Group (-34.02%) detracted from relative performance. The stock ended the month lower after the casino operator engaged the equity markets to raise $750m priced at $0.60 a share following Star also recently securing a $450 million debt package with the aim of paying off Star’s existing loans and handling costs at Queens Wharf in Brisbane. The offer price was also lower than the $1.20 a share at which Star last raised $800 million at in February. The raise has provided further clarity on the balance sheet and we are still seeing value in Star’s conservatively stated net tangible asset value.
The overweight to HMC Capital Limited detracted from performance in September (-12.45%). The firm gave back some strong performance earlier in August and July as the market fretted over rate staying higher for longer. This is despite raising $800 million in June for its first Last Mile Logistics Fund,. HMC originally was listed on the ASX in 2019 as a highly geared property fund that owned Masters sites and had a complicated capital structure. Since then, they have bought into healthcare assets and large format retail sites and set up a listed property trust. Targeting $10b in FUM by the end of 2023 and $20 billion over five years, the business continues to evolve.
What is Perpetual Wholesale Industrial Perpetual Wholesale Industrial is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Value Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Perpetual Wholesale Industrial has Assets Under Management of 1.33 BN with a management fee of 0.99%, a performance fee of 0 and a buy/sell spread fee of 0.15%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Perpetual Wholesale Industrial has returned 6.78% in the last month. The previous three years have returned 8.7% annualised and 12.81% each year since inception, which is when the Perpetual Wholesale Industrial first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Perpetual Wholesale Industrial first started, the Sharpe ratio is 0.43 with an annualised volatility of 12.81%. The maximum drawdown of the investment product in the last 12 months is -8.36% and -45.64% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Perpetual Wholesale Industrial has a 12-month excess return when compared to the Domestic Equity - Large Value Index of 0.29% and -0.43% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Perpetual Wholesale Industrial has produced Alpha over the Domestic Equity - Large Value Index of -0.03% in the last 12 months and -0.01% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Value Index category, you can click here for the Peer Investment Report.
What level of diversification will Perpetual Wholesale Industrial provide?
Perpetual Wholesale Industrial has a correlation coefficient of 0.97 and a beta of 1.13 when compared to the Domestic Equity - Large Value Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Perpetual Wholesale Industrial and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Perpetual Wholesale Industrial with the ASX Index 200 Index?
For a full quantitative report on Perpetual Wholesale Industrial compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Perpetual Wholesale Industrial to do my own analysis?
To sort and compare the Perpetual Wholesale Industrial financial metrics, please refer to the table above.
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Comments from SMSF Mates
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Performance Commentary - August 31, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, Suncorp Group Limited, and EVT Limited. The Fund’s largest underweight positions include Macquarie Group Ltd, Woolworths Group Ltd, and Transurban Group Ltd all of which are not held.
The overweight to Premier Investments (+16.14%) strongly contributed during August. Premier like most retail has struggled with its share-price since early May as pressures on the consumer increased resulting in negative industry sales, not aided by significant cost headwinds. All while cycling very strong comparative trading outcomes. Market analysts were very uncertain about just how bad FY23 & FY24 outcomes might be. PMV has long been part of our core retail investments- it is a quality business, supported by a particularly strong net cash balance sheet and overseen by engaged and experienced executive leadership personnel. The business also has future growth potential across several offshore geographies with the retail sector normalising post the widespread 2020/2021 covid restrictions. On 21st August 2023, PMV surprised the market with three separate announcements. Firstly with FY23 sales and profit guidance modestly ahead of market consensus but very reassuring nonetheless. Secondly that CEO Richard Murray has resigned effective 15 September 2023 with CFO John Bryce to act as interim CEO for the foreseeable future. Given Solomon Lew’s executive chairmanship and exceedingly strong divisional leadership and Richard’s relatively short tenure in the role, there is little for the market to be concerned with here. And finally, PMV announced a strategic review is to be initiated focussing on the corporate, operating and capital structure of the various brands and businesses held by the company. Future conclusions of this review are difficult to narrow down at this time and are potentially very wide ranging but including that there may be no change at all.
The overweight to Goodman Group contributed strongly to performance in August (+13.73%) as the company reported a solid result and provided an upbeat update highlighting their current and potential investments into data-centre development. We took the opportunity to establish a position in Goodman Group late last year when the market was generally worried about large property groups’ performance in a rising rate environment. However, Goodman’s focus on the Industrial & logistics segment has delivered strong results driven by tenants’ ecommerce expansion and supply chain optimisation in an environment of limited supply of modern and well-located warehouses. We believe that Goodman will continue to grow earnings across its global portfolio supported by profitable development and ongoing rental increases with a conservatively geared balance sheet. Goodman’s management team has consistently demonstrated their ability to identify strategic locations, secure long-term leases with blue-chip clients, and maximize property value through efficient operations through the cycle. Finally, Goodman Group is committed to sustainability and responsible corporate practices, aligning with evolving investor values and regulatory requirements. Their green initiatives not only reduce environmental impact but is aligned with blue-chip tenants’ requirements. In conclusion, Goodman Group’s best-in-class status, focus on the booming industrial and logistics sector, financial stability, exceptional management team, and commitment to sustainability make it a compelling long-term investment choice in the Australian property market for the right price.
The overweight position in Omni Bridgeway (-25.53%) contributed to relative performance. OBL reported its FY23 results during August. Whilst the revenue and cashflow had been pre-released in July, the profit result for OBL was slightly softer than market expectations due to higher expenses. Overall FY23 was a tough year for OBL with delays in case realisations impacting financial results. The timing of case outcomes are inherently hard to forecast and thus it is not unusual for there to be periods of weaker realisations. We do not believe this reflects any fundamental issues in OBL’s underwriting capability and continue to believe there is significant value in the funds management platform OBL has developed which we expect will start to generate meaningful earnings and cashflow in the years ahead.
The funds overweight to Endeavour Group (-8.28%) detracted from performance over the month. Endeavour has struggled over recent months as it matures into its standalone status after demerger from Woolworths, faces into continuing erratic selldown of the residual WOW shareholding, cycles inconsistent covid impacted trading in its retail and hotel divisions and mostly remains vulnerable to numerous erratic political responses to gaming regulation. Given all these mixed headwinds it has been difficult for the market to discern what normalised future trading might look like. For its part, Endeavour has struggled to articulate its actions and, at this still early stage, to demonstrate outcomes around its existing asset base. As an active investor we purposefully interact and engage with the company, particularly around capital allocation and return hurdles and will continue to do so. Regardless Endeavour possesses significant assets, capable management, and a solid balance sheet. Endeavour is far and away the country’s leading liquor retailer with >1700 outlets around the nation as well as the biggest single hotel operator (but where the approximate 354 hotels are probably only c9% market share within a highly fragmented market) and a growing Paragon Wine Estates vineyard portfolio.
Performance Commentary - July 31, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, Suncorp Group Limited, and EVT Limited. The Fund’s largest underweight positions include Macquarie Group Ltd, Woolworths Group Ltd, and Transurban Group Ltd all of which are not held.
The funds overweight to Costa Group contributed to performance over the month as the stock rose 21.7% during July following a bid from private equity firm Paine Schwartz. This certainly vindicated our view that there was substantial value in this agricultural name. We had noted that Paine Schwartz had been creeping up the register and that its attractive asset base made it a potential target. Costa is the leading producer in several agricultural categories including mushrooms, tomatoes and has best-in-class genetics in the berries segment (especially blueberries). We had recently visited China where we believe Costa has substantial growth prospects, especially in the blueberry market where consumption per capita is a fraction of US and Australian levels and where its IP gave it superior product versus peers. An underweight to Macquarie Group was the second largest contributor to returns as the stock fell -1.5%. The stock trades at a significant premium to our assessed valuation and hence the fund does not have a position. We exercise caution as excluding trading and investment income at $7.5 billion and 39% of the group’s income, there was no revenue growth which accounts for our caution in capitalising it into a higher valuation for the business. Flutter PLC was a detractor in July, falling -1.87% in AUD terms. There was no exceptional newsflow and the stock has more or less drifted sideways to slightly down since May. It is worth noting the stock had rallied +26.44% in AUD terms in the prior two months. Post month end, Flutter reported its 1H23 results which were highly anticipated by the market given the potential for its core US division Fanduel to report its maiden half year profit. Pleasingly, Fanduel delivered £0m of EBITDA during the half which materially exceeded the markets expectations. Fanduel remains the key asset within Flutter and as the division inflects from up-front losses to profits, it will drive material earnings growth for the Flutter group. Outside of Fanduel, the manager was pleased with the Flutter results which demonstrated ongoing growth in the key growth markets of Italy and India.
Endeavour Group fell -3.7% during July partly as Consumer Staples fell out of favour and also due to a surprise announcement from the Victorian government which had potential to impact earnings, the market took a short first approach to valuation. The Andrews administration announced on the 17th of July Endeavour de-merged from Woolworths in 2021 and is the largest liquor retail distribution network in Australia with an approximate 40% market share and 1600+ individual stores. It also owns the largest network of hotels with 9% market share offering food, beverages, gaming and accommodation. Endeavour also owns a strong private label drinks business, Pinnacle Drinks as well as Endeavour X, a full and growing suite of digital and fulfillment capabilities and platforms, loyalty propositions and oversight of speciality trading and eCommerce businesses. Despite quality assets the stock trades in line with its 2021 IPO price, at a discount to our appraised value, and offers a solid defensive dividend.
Performance Commentary - May 31, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, EVT Limited, and Suncorp Group Limited. The Fund’s largest underweight positions include Transurban Group (not held), Macquarie Group, and CSL.
The overweight position in financial services provider Suncorp Group (+6.6%) contributed to relative performance. The stock’s recent performance has been impressive, receiving a significant boost towards the end of the month after being upgraded to ‘overweight’ by JPMorgan from its previous ‘neutral’ status. Notably, the target price has been raised to A$14.30 from A$14.00, representing a 6% upside to its price at the time of the upgrade.
The overweight position in Omni Bridgeway (+17.5%) contributed to relative performance. During the month, the company entered into in an agreement to sell a participation in its Fund 1 to Gerchen Capital Partners for an initial payment of $38.0M. The sale includes the deferred fair value of OBL’s retained residual interest in the Fund, recorded on its financial statements as $35.7M. The transaction is subject to documentation and is expected to close prior to the end of FY2023. A Net balance of cash proceeds of $30.0M is to be immediately distributed to OBL. The transaction will result in an estimated net gain to the company on closing of approximately $20.3M and the deconsolidation of the Fund. OBL will continue to manage the Fund on behalf of Gerchen Capital Partners subject to certain removal rights.
The overweight position in property and investment company HMC Capital (+9.2%) contributed to relative performance. The stock outperformed following the release of a trading update and outlook. HMC indicated that it has established 3 new scalable growth initiatives in the past 12 months which are taking advantage of compelling opportunities in the current environment. Management noted that the firm is on-track to achieve A$10B AUM target by year-end 2023 (12 months ahead of previous target) following its A$1.2B Healthscope Hospital Portfolio transaction. It also reaffirmed its FY23 Dividend guidance of 12c per share.
The overweight position in retail outlet investment company Premier Investments Ltd (-13.9%) detracted from relative performance. The stock fell on the back of signals of a deteriorating consumer environment from Apr/May-23, as discretionary retail conditions deteriorated in April/May-23, evidenced by four listed retail updates showing sales, on average, moving from -1% y/y in January/February 2023 to -14% y/y in March-May 2023.
Performance Commentary - April 30, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, EVT Limited, and Suncorp Group Limited. The Fund’s largest underweight positions include Transurban Group Ltd., Macquarie Group, and Woolworths Group, all of which are not held in the portfolio.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+12.1%) contributed to relative performance. During the month, it was revealed that the Company is said to be in talks to appoint John Bryant as its new chairman. Bryant is based in the US and serves on Ball Corp and Macy’s boards. Reports speculate that this could lead to Flutter giving up its listing on the London Stock Exchange.
The overweight position in building and construction materials provider Boral (+17.0%) contributed to relative performance. On Thursday, 20 April, Boral was reinstated as a ‘buy’ recommendation by sell-side analyst Bank of America, with a target price of A$4.41 per share, representing a 13% potential upside.
The overweight position in property and investment company HMC Capital (+9.2%) contributed to relative performance. HMC Capital announced it had acquired a 3% stake in Lendlease. The Australian reports that HMC supports Lendlease’s current direction but believes a simplified business model would reduce risk and allow for greater focus on core operations. Consequently, HMC suggests that Lendlease should exit more challenging areas such as buildings and minimise exposure to non-core segments like communities and retirement.
Performance Commentary - March 31, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, EVT Limited, and Suncorp Group Limited. The Fund’s largest underweight positions include Transurban Group Ltd., Macquarie Group, and Woolworths Group, all of which are not held in the portfolio.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+34.9%) contributed to relative performance. The stock benefitted during the quarter after announcing that it will commence shareholder consultation on an optimal share listing structure based on the Board’s view that an additional US listing will yield several long-term strategic and capital market benefits, including; enhancing the group’s profile in the US, better enabling the recruitment and retention of US talent, providing access to deeper capital markets and to new US domestic investors, providing greater overall liquidity, and optionality to pursue a primary US listing (one of the criteria for access to US indices). The overweight position in lotteries and Keno operator Lottery Corporation Limited (+16.3%) contributed to relative performance. The market reacted positively to a stronger-than-expected first-half financial result released by the company, reporting an NPAT of $207.3M (vs consensus of $190M) from revenue of $1.92B (vs consensus $1.93B) and an EBITDA of $409.4M (vs consensus of $384.4M). This followed an 8c per share fully franked interim dividend and a fully franked special dividend of 1c per share.
The overweight position in automotive dealership manager Eagers Automotive (+28.9%) contributed to relative performance. The company impressed with an FY underlying operating profit before tax of $405.2M (vs consensus $397.6M), revenue of $8.54B (vs consensus $8.62B), and an underlying NPAT of $283.1M (vs consensus $273.6M). The company noted it had commenced FY2023 with a solid foundation for the year ahead. Demand for new vehicles continues to outstrip supply as the company transitions to a new normal under which the industry operates with a sustainable order bank.
Performance Commentary - February 28, 2023 The Fund’s largest overweight positions include Flutter Entertainment Plc, EVT Limited, and Suncorp Group Limited. The Fund’s largest underweight positions include Transurban Group Ltd., Macquarie Group, and Woolworths Group, all of which are not held in the portfolio.
The overweight position in online betting and gaming provider Flutter Entertainment Plc (+9.2%) contributed to relative performance. The stock benefitted during the month after announcing that it will commence shareholder consultation on an optimal share listing structure based on the Board’s view that an additional US listing will yield several long-term strategic and capital market benefits, including; enhancing the group’s profile in the US, better enabling the recruitment and retention of US talent, providing access to deeper capital markets and to new US domestic investors, providing greater overall liquidity, and optionality to pursue a primary US listing (one of the criteria for access to US indices). The overweight position in lotteries and Keno operator Lottery Corporation Limited (+10.4%) contributed to relative performance. The market reacted positively to a stronger-than-expected first-half financial result by the company, reporting an NPAT of $207.3M (vs consensus of $190M) from revenue of $1.92B (vs consensus $1.93B) and an EBITDA of $409.4M (vs consensus of $384.4M). This followed an 8c per share fully franked interim dividend and a fully franked special dividend of 1c per share.
The overweight position in automotive dealership manager Eagers Automotive (+19.9%) contributed to relative performance. The company impressed with an FY underlying operating profit before tax of $405.2M (vs consensus $397.6M), revenue of $8.54B (vs consensus $8.62B), and an underlying NPAT of $283.1M (vs consensus $273.6M). The company noted it had commenced FY2023 with a solid foundation for the year ahead. Demand for new vehicles continues to outstrip supply as the company transitions to a new normal under which the industry operates with a sustainable order bank. The overweight position in Omni Bridgeway (-25.0%) detracted from relative performance. The stock sold off after its CEO and Managing Director Andrew Saker announced his retirement after more than eight years in the role. Mr Saker will step down after the company’s annual general meeting on October 26, with Raymond van Hulst named as his replacement. The company says Mr van Hulst is an experienced executive, “highly regarded within the global legal risk asset management industry”. This came as the company reported an FY2023 first-half NPAT loss of $30.1M (vs year-ago loss of $8.7M) from total revenue of $170.2M (up 34% from last year).
The overweight position in hospitality and leisure company EVT Ltd. (-7.0%) detracted from relative performance. Despite reporting a normalised NPAT of $39.4M (up 103% from a year ago), investors were dissuaded by the company’s market outlook. Management noted that headwinds are anticipated in the second half of FY2023, stemming from the ongoing impact of energy cost increases, general inflationary cost increases − including salaries and wages, food and beverage, cinema rents − and from recent extreme weather events in New Zealand. Not holding insurance provider QBE Insurance Group (+9.8%) detracted from relative performance. The company reported full-year earnings with NPAT significantly ahead of consensus forecast (FY adjusted cash NPAT of $847M vs consensus of $691.4M). Most of the earnings beat was attributed to higher-than-expected investment income, propelled by stronger fixed-income yields from rising cash rates across the globe. Several sell-side institutions expect this trend to continue over the course of FY2023, despite persisting volatility in markets.
Performance Commentary - January 31, 2023 The Australian equities market had a stellar start to the 2023 calendar year, with strong January performance underpinned mainly by traction behind the disinflation narrative, a rise in soft landing expectations, and hopes for a near-term Federal Reserve pause (and pivot later in 2023). Reopening momentum across China following signs that its latest Covid wave had peaked also helped boost investor sentiment throughout the month. All but one sector (Utilities) ended higher, with Consumer Discretionary, Materials, and REITS being the standout performers. Commodity producers also outperformed amid gains in iron ore following the latest policy support headlines out of China.
December quarter inflation came in hotter-than-expected, with data rising to its highest level since 1990 and trimmed mean inflation climbing to its highest point since the ABS first published this data in 2003. The main contributors to the rise were holiday travel, accommodation, and electricity, leading to expectations that the RBA will hike the cash rate by 25 bp to 3.35% in February. China’s reopening momentum also threatened to increase global pricing pressures. While goods inflation showed signs of moderating, services inflation proved stickier with the economy still experiencing a tight labour market. This came as Australian home prices fell 1.0% m/m in January, a slight improvement on December’s 1.1% drop.
Australian consumer confidence continued to recover from its lowest reading since April 2020. Retail sales, however, registered its largest fall in a year during December, breaking a run of 11 consecutive gains, and widely attributed to heightened cost of living pressures. The data led markets to peel back the projected peak cash rate to 3.7% from 3.8%, and while a February rate increase is fully priced in, markets pushed out expectations of a follow-up rate hike from March to May.
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