Richard Ivers is portfolio manager of the Prime Value Emerging Opportunities Fund

How have you beat the Small Ords without investing in resources stocks?

Not investing in small resource stocks has been a headwind over the last six months. When resources stocks run, they tend to run hard, like we are currently seeing.
But we have a clear mandate to prioritise capital preservation over the long term, which means resources and speculative stocks are not our focus, even if that means we leave some short-term returns on the table.

Ultimately, we prefer companies which are price makers, rather than price takers – resource company earnings are driven by commodity prices which are unpredictable and influenced by macro factors, which are very difficult to forecast.

The recent market volatility is presenting some great opportunities, Richard Ivers says. Louis Trerise

We’re not traders – we are high conviction investors and prefer companies with a high certainty of future earnings and cash flows. This makes future value more certain.

What’s a stock you like that most people (probably) haven’t heard of? Why do you like it?

A new position we established in January was Kelsian at $6.50. Kelsian is an anagram of its old name Sealink, which some may recognise. We like Kelsian as it’s a relatively defensive business with exposure to borders reopening.
The bus division has long-term contracts that are highly predictable, while the marine and tourism division will benefit from increased tourism as borders reopen. The stock fell heavily in late 2021 when they missed some new bus contracts and fell further with the market in January.

There are additional contract opportunities this year and we think the upside potential is not being priced into the stock – so it’s fundamentally attractive with optionality. Further, management are large shareholders and highly motivated to drive the business forward in future years.

Which stock in the fund are you most bullish on?

We are bullish on all our holdings long-term. Our benchmark is 8 per cent per annum absolute, which is quite unusual as most other funds have an index. An absolute benchmark focuses the mind on generating a positive return over time rather than just beating an index.

Markets are currently being driven by macro themes such as inflation, supply chains, and input prices, which means the short-term performance of stocks is more difficult to call. But longer term, fundamentals win out.

If I had to pick some we are most bullish on, I would include Equity Trustees, which is benefitting from a structural shift to independent trustees, and has acquisition opportunities ahead.

News Corp is another, due to the underlying value of very high quality assets with clear catalysts for the realisation of that value. And NIB Health for its solid top line growth and attractive multiple using normalised earnings/margins.

What’s a stock you’d like to own but can’t for some reason?

We look at international markets and stocks for insights on local stocks and global trends. Universal Music Group, the world’s largest music label, looks interesting. Universal Music Group was recently de-merged from Vivendi, and is benefiting from the structural shift to streaming through the likes of Spotify and Apple Music.
Universal currently trades on a 22 times calendar 2023 P/E. However, this view is from a distance. We haven’t done the same level of due diligence on Universal as we would on a local stock we review for the fund.

What positional changes have you recently made in the fund amid the market volatility?

Recent volatility has enabled us to add to existing holdings of high quality businesses we know well which became cheaper, such as insurance broker AUB Group, and fashion retailer City Chic.

As mentioned earlier, we added Kelsian to the portfolio in January. We have been watching Kelsian for years and the sell-off finally gave us the opportunity to buy at an attractive price – that’s the great thing about volatility. Many people hate it, we like it!

Any IPOs you’ve participated in recently, or like the look of?

The Prime Value Emerging Opportunities Fund only invested in one IPO last year – Pexa, which we recently exited on valuation grounds. It wasn’t a great year for IPOs, hopefully there are better opportunities ahead.

Any good TV shows, or podcasts you’ve enjoyed?

I think the UK version of Would I Lie to You, on ABC, is the funniest show on TV. Matt Kidman’s podcast Success & More Interesting Stuff is great – his engaging style balances information and entertainment and it’s local so relevant to our market.

Alex Gluyas is a markets reporter based in our Melbourne newsroom. Connect with Alex on Twitter. Email Alex at alex.gluyas@afr.com.au
Source: Australian Financial Review

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