By Luke Housego
City Chic and Temple & Webster are top holdings for the fund. Is it time to take profits? How reliant are they on JobKeeper?
City Chic and Temple & Webster were both inaugural investments in the WAM Microcap investment portfolio, and we are actually more positive in our outlook for these stocks today than when we first invested three years ago.
Both companies are benefiting from a structural shift to online shopping that we believe will continue to accelerate as lockdown measures are enacted to combat a second wave of coronavirus in Australia and the rest of the world.
Both companies have strong balance sheets and we see acquisitions as a strong catalyst for each business in FY2021.
While the JobKeeper and JobSeeker payments in Australia have been positive for both companies, we believe that the growth in active customers will increase repeat orders and continue to take share from traditional bricks and mortar retailers as people spend more time at home.
For example, Temple & Webster’s growth in active customers is more than 100 per cent.
Will the latest round of lockdowns in Victoria have a significant impact on investor confidence?
There is no doubt that the lockdowns in Victoria and border shutdowns will impact investor confidence, however now that stage four restrictions have been introduced to the state, we believe that the federal government will continue to stimulate the economy for the near future, which will positively influence markets.
Despite all of the negative commentary, coronavirus cases in NSW have unexpectedly held up well and for these reasons we see opportunities in sectors such as travel, automotive and retail that have been heavily impacted by the virus over the past few months.
Who is doing a good job of positioning for growth through the disruptions?
We hold a number of “coronavirus recovery” companies in the investment portfolio that have strong balance sheets and the fundamentals to emerge from the pandemic in a stronger position.
We see upside in Viva Leisure through its consolidation of the highly fragmented Australian fitness sector. Following its recent capital raising,
Viva has acquired Plus Fitness, a franchise group that operates almost 200 gyms. We believe that this acquisition provides Viva with a pool of acquisitions at attractive multiples that can significantly build on the 98 gyms that Viva owns today.
People Infrastructure (PPE AU), Vista Group (VGL AU) and Citadel Group (CGL AU) are other examples of companies that should emerge from the coronavirus pandemic in a much stronger position.
Any under-appreciated stocks in the portfolio?
Tourism Holdings (THL NZ) is a New Zealand-based company focused on the rental and sale of campervans in Australia, New Zealand and the United States.
Despite the company reducing debt by 40 per cent since March this year through the sale of excess campervans across its fleet at prices above book value, Tourism Holdings is currently trading at a discount to its net tangible per share backing of 1.86.
As a result of the September 11 attacks in 2001, United States campervan manufacturers Winnebago and Thor Industries saw strong demand as tourists preferred driving over airline travel.
We see a similar outlook favouring THL once we emerge from coronavirus and domestic and international tourism resumes.
WAM Microcap announced a cap raise with its results release on Monday. Why?
The major change that we have seen is the emergence of pre-IPO funds and the ability of these funds to make an earlier investment in a company that is looking to an IPO in the foreseeable future.
A large portion of the money raised through the SPP and Placement will be directed towards taking advantage of this opportunity.
The increased fully-franked final and special dividends have driven strong demand in WAM Microcap from existing shareholders.
Any podcasts, reads or shows that have caught your attention recently?
My family recently drove across regional NSW for a holiday, so it was tough to put on a podcast with two kids in the back screaming for the Wiggles. However I did manage to get some time to read The Ride of a Lifetime by the ex-CEO of Disney, Bob Iger, which is an easy read and an excellent book.
Finally, a recommendation for the readers on a good-value quick bite in Sydney?
As a Clovelly local, I can’t go past Out of the Blue, which is on the intersection of Arden Street and Clovelly Road.
Awesome burgers (fish burger is sensational) and chips wrapped up in butcher’s paper, all for $10.