Australian Listed Investment Company Report May 2023

This story features PLATINUM ASIA INVESTMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: PAI

Download related file: IIR-Monthly-LMI-Update_2-May-2023

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. Also known as Listed Investment Trusts or Listed Managed Investments.

For comprehensive comparative data tables for LICs please see attached.

LMI Market News

IIR Initiates Coverage on Barrow Hanley Global Share Fund (Managed Fund)

During the month, IIR initiated coverage on the Barrow Hanley Global Share Fund Managed Fund ((GLOB)). GLOB listed in June 2022 and represents the quoted class of the Barrow Hanley Global Share Fund, which previously was only available through unlisted funds.

GLOB is managed by Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow Hanley”). Barrow Hanley is a Dallas-based asset manager that is a global investment specialist with a focus on value investing. Barrow Hanley was appointed as the Manager of the strategy in September 2020 after Perpetual and Barrow Hanley entered into a strategic partnership. Prior to the appointment of Barrow Hanley, the Barrow Hanley Global Share Fund was managed by Perpetual Investment Management Limited (PIML).

The Manager has a bottom-up, fundamental, value based investment approach with the Manager seeking to construct a long-only portfolio of 50 to 70 stocks that participates in up markets and provides protection in down markets. GLOB seeks to be largely invested at all times with a maximum cash allocation of 5% at any given time.

The portfolio construction will be a result of stock selection with the portfolio potentially varying materially on a sector and regional/country allocation compared to the respective weightings of the benchmark index. GLOB has a dual objective: (1) provide long-term capital growth through an investment  in quality global shares; and (2) outperform the MSCI World Net Total Return Index (AUD), before fees and taxes, over rolling three-year periods.

GLOB is designed for investors seeking exposure to an all cap, global, value focused mandate with a medium-to-long term investment horizon. GLOB provides investors exposure to a portfolio that offers a different return profile to the benchmark index which is evidenced by the moderate tracking error of the Barrow Hanley Global Value Equity strategy (“Barrow Hanley GVE strategy”) over the long-term.

Given the global mandate, GLOB will have exposure to foreign exchange risk. The foreign exchange exposure is typically unhedged and therefore movements in the Australian dollar compared to other currencies will impact the performance of the portfolio. GLOB expects to pay distributions on a semi-annual basis. Distributions will reflect the income received and realised capital gains in any given year and as such will be volatile.

IIR has initiated coverage on GLOB with a Recommended rating. A copy of the full report can be found on the IIR website (www.independentresearch.com.au).

PAI Announces Bonus Options Issue

On 13 April 2023, Platinum Asia Investments Limited ((PAI)) announced the issue of pro-rata non-renouncable bonus options with one bonus option issued for every four shares held. The options were issued on 27 April 2023.

The options have an exercise price of $0.90 and can be exercised at any time up until 5pm on 28 March 2024 with one bonus option providing the ability to acquire one ordinary share in PAI. The bonus options are listed on the ASX under the code PAIO.

The exercise price of $0.90 represents a 12.5% discount to the pre-tax NTA per share as at 31 March 2023 and was around the share price PAI was trading on the date prior to the announcement. While we understand the rationale for striking the exercise price at a discount we note that at the current pre-tax net tangible asset value (NTA) the exercise of options will be dilutive.

 The issue of the options is part of the capital management initiatives that was announced to the market late last year. The Board considers the issue of bonus options as the most equitable way to potentially grow the assets of the Company and derive the benefits of an increased portfolio size and larger number of shares on issue.

The options offer shareholders the opportunity to potentially acquire additional shares in PAI at a discount to NTA, however the options may weigh on the share price for the duration of the options. This may present opportunities for new investors to enter the Company at a discount and potentially realise additional capital gains on their investment in the event the discount can be narrowed post the expiry of the options in 2024.

PAI issued 92.5 million bonus options with the potential to raise $83.2 million if all options are exercised. In the event all options are exercised the number of shares on issue will increase by 25%. Any capital raised from the options will be invested in line with the investment strategy.

PMC Announces Bonus Options Issue

On 13 April 2023, Platinum Capital Limited (ASX: PMC) announced the issue of pro-rata non-renouncable bonus options with one bonus option issued for every four shares held. The options were issued on 27 April 2023.

The options will have an exercise price of $1.37 and can be exercised at any time up until 5pm on 28 March 2024 with one bonus option providing the ability to acquire one ordinary share in PMC. The bonus options are listed on the ASX under the code PMCO.

The exercise price of $1.37 represents a 12.5% discount to the pre-tax NTA per share as at 31 March 2023, and was above the PMC share price at the close of business on the day prior to the announcement. While we understand the rationale for striking the exercise price at a discount, we note that at the current pre-tax NTA the exercise of options will be dilutive.

The issue of the options is part of the capital management initiatives that was announced to the market late last year. The Board considers the issue of bonus options as the most equitable way to potentially grow the assets of the Company and derive the benefits of an increased portfolio size and larger number of shares on issue.

The options offer shareholders the opportunity to potentially acquire additional shares in PMC at a discount to NTA, however the options may weigh on the share price for the duration of the options. In the event the bonus options are exercised and improved liquidity and increased interest in the company assists with narrowing the discount, this may present opportunities for new investors to potentially realise additional capital gains on their investment post the expiry of the options in 2024.

PMC has traded at a sizable discount since 2020 with the discount coinciding with a dividend cut. Dividend volatility since this time combined with performance has seen the Company continue to trade at a discount. We note that there have been significant challenges for value focused managers in recent years, which has weighed on performance.

PMC issued 73.9 million bonus options, with the potential to raise $101.2 million if all options are exercised. In the event all options are exercised the number of shares on issue will increase by 25%. Any capital raised from the options will be invested in line with the investment strategy.

WLE Raises $131 million through Placement & Announces SPP

After cancelling a capital raising in March due to market volatility, WAM Leaders Limited ((WLE)) raised $131 million in April through a Placement to existing wholesale and sophisticated investors. New shares were issued at $1.48 per share. The issue price was accretive to the NTA with the shares being issued at a premium to the estimated pre-tax NTA as at 31 March 2023, however the shares were issued at a discount to the share price, which saw the share price decline on the back of the announcement.

The Company also announced a Share Purchase Plan (SPP) to eligible WLE shareholders. New shares will be issued at the lower of $1.4749 per share or a 2.5% discount to the 5-day volume-weighted average price (VWAP) of the share price at the issue date (12 May 2023). As such, new shares will be issued at most, at a similar price to shares issued under the Placement and potentially at a lower price in the event the share price trades lower coming into the issue date. New shares issued under the SPP will be eligible for the interim dividend of 4.5 cents per share, fully franked.

The SPP opened on 17 April 2023 and is scheduled to close on 8 May 2023 with shares issued under the SPP expected to commence trading on the ASX on 15 May 2023.

CD2 Set to Benefit from Dominion’s Settlement with Fox

During the month, CD Private Equity Fund II ((CD2)) announced that one of the investments of the fund is in Staple Street Capital II, L.P. Staple Street Capital II, L.P. has an investment in Dominion Voting Systems. Fox Corp has agreed to settle a defamation lawsuit brought by Dominion for US$787.5 million. This is a positive result for the investment in Dominion, however the RE has been advised that the impact of the settlement on the Fund’s investment will be materially lower than the headline due to costs, taxes and fees, and other items associated with the proceedings.

BTI Invests in Rosterfy

During the month, Bailador Technology Investments Limited ((BTI)) announced it had made a $9.8 million investment in Rosterfy, a volunteer and workforce management platform. Rosterfy is an Australian company whose platform targets Not-for-Profit organisations, government volunteering bodies and mass-scale events. The SaaS platform allows organisations to recruit, screen, train and schedule their volunteer community, replacing manual processes to better engage the workforce.

In its monthly report, BTI outlaid the rationale for the investment in Rosterfy. The investment team view Rosterfy to have the following attractive qualities:

-Founded by a mission-driven and passionate team that intimately understands the customer problem they are solving having lived their customer’s problem while previously running an event management business;

-Developed a market leading product which is globally relevant and solving a mission-critical pain point for NFP organisations – recruiting and retaining volunteers;

-Addressing a large market that is undergoing a wave of digitisation;

-Exhibits highly compelling unit economics, strong capital efficiency and growing recurring revenue at over 100% per year;

-Has an attractive growth runway across its existing customer base and new international markets.

The investment in Rostersfy represented 4.4% of the net asset value (NAV) of the Company based on the NAV as at 31 March 2023.

EAI Releases Shareholder Booklet for Restructure

On 19 April 2023, Ellerston Asia Investments Limited ((EAI)) released the shareholder booklet with details regarding the restructure of EAI to be considered at the General Meeting and Special Meeting to be held on 18 May 2023. The Company is proposing to convert EAI shares into units in a dual-structure exchange traded managed fund (ETMF), Ellerston Asia Growth Fund (to be renamed Ellerston Asia Growth Fund (Hedge Fund)) (EAGF).

If approved by shareholders, EAI shares will be exchanged for units in EAGF and EAI will delist from the ASX. EAGF will list on the AQUA market and shareholders who receive EAGF units will be able to trade EAGF units on the ASX from the Effective Date, which is scheduled to be 1 June 2023.

The Company is proposing the restructure to address the discount that EAI has traded at through providing a structure that provides improved liquidity. Since the announcement of the Company’s intention to propose the restructure, the discount at which EAI has traded has narrowed with the anticipation of being able to exit at NAV, something which investors have not been able to do throughout the history of EAI.

If the transaction is approved, EAI shareholders will receive:

-For all shareholders – a Special Dividend, franked to the maximum extent possible; and

-For exiting shareholders – a Capital Reduction Distribution (in consideration for which the shares held by the exiting shareholder will be cancelled).

A few key items for EAI shareholders:

-Following the delisting of EAI, the Manager intends to terminate the management agreement between the Company and the Manager. The Manager is entitled to a termination payment of $1.22 million assuming termination of the agreement on 31 May 2023.

While we understand that this is a contractual clause in the management agreement, given the restructured fund will be managed by the same Manager we view it would be in the best interests of shareholders to forego the termination payment.

-EAGF will have a lower management and performance fee than EAI. EAGF will have a management fee of 0.75%p.a. and a performance fee of 10% of the returns in excess of the MSCI Asia Ex Japan Index. The RE is waiving the management fee for the first year following the quotation of EAGF.

-Under the ETMF structure, EAGF will not have independent oversight. EAGF will be managed by the Responsible Entity who is also the Manager. While EAGF is required to have a compliance committee comprising a majority of independent members with appropriate expertise, the compliance committee’s main focus is to monitor the fund’s adherence with its compliance plan.

-EAGF will be a trust structure and therefore will be a pass through vehicle for unitholders. Under a trust structure, income and realised capital gains in any given year will be distributed. As such, distributions will likely be volatile and will likely have limited amounts of franking given the mandate.

-The EAGF investment strategy will largely resemble that of EAI.

FOR Increases Stake in WSP

During the month, Forager Australian Shares Fund ((FOR)) continued to increase its position in Whispr Limited ((WSP)) with FOR’s interest in WSP increasing to 9.35% of the ordinary shares on issue. FOR initially purchased shares in WSP in FY22 when the share price had already declined substantially from previous highs. FOR obviously believes in the story and has increased its interest as the share price continues to fall with WSP currently trading near all-time lows.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

INDEPENDENCE OF RESEARCH ANALYSTS

Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.

Supervision and reporting lines: Analysts who publish research reports are supervised by, and report to, Research Management. Research analysts do not report to, and are not supervised by, any sales personnel nor do they have dealings with Sales personnel

Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients.

INDEPENDENCE – ACTIVITIES OF ANALYSTS

IIR restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research.

Pitches: Research analysts are not permitted to participate in sales pitches for corporate mandates on behalf of a Broker and are not permitted to prepare or review materials for those pitches. Pitch materials by investor clients may not contain the promise of research coverage by IIR.

No promotion of issuers’ transactions: Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer. For this reason, analysts are not permitted to attend “road show” presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transaction from that our clients may undertake from time to time. Analysts may, however, observe road shows remotely, without asking questions, by video link or telephone in order to help ensure that they have access to the same information as their investor clients.

Widely-attended conferences: Analysts are permitted to attend and speak at widely-attended conferences at which our firm has been invited to present our views. These widely-attended conferences may include investor presentations by corporate clients of the Firm.

Other permitted activities: Analysts may be consulted by Firm sales personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers that may be prospective research clients of ours.

INDUCEMENTS AND INAPPROPRIATE INFLUENCES

IIR prohibits research analysts from soliciting or receiving any inducement in respect of their publication of research and restricts certain communications between research analysts and personnel from other business areas within the Firm including management, which might be perceived to result in inappropriate influence on analysts’ views.

Remuneration and other benefits: IIR procedures prohibit analysts from accepting any remuneration or other benefit from an issuer or any other party in respect of the publication of research and from offering or accepting any inducement (including the selective disclosure by an issuer of material information not generally available) for the publication of favourable research. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm’s general policies on entertainment, gifts and corporate hospitality.

DISCLAIMER

This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

IIR, its officers, employees and its related bodies corporate have not and will not receive, whether directly or indirectly, any commission, fee, benefit or advantage, whether pecuniary or otherwise in connection with making any statements and/or recommendation (if any), contained in this Report. IIR discloses that from time to time it or its officers, employees and related bodies corporate may have an interest in the securities, directly or indirectly, which are the subject of these statements and/or recommendations (if any) and may buy or sell securities in the companies mentioned in this publication; may affect transactions which may not be consistent with the statements and/or recommendations (if any) in this publication; may have directorships in the companies mentioned in this publication; and/or may perform paid services for the companies that are the subject of such statements and/or recommendations (if any). However, under no circumstances has IIR been influenced, either directly or indirectly, in making any statements and/or recommendations (if any) contained in this Report. The information contained in this publication must be read in conjunction with the Legal Notice that can be located at http://www.independentresearch.com.au/Public/Disclaimer.aspx.

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