Wattle Watch

In any given month, Wattle Partners meets with many different professionals offering a new investment product, idea or scheme. Most are a pass from us, but now and again some pique our interest. 

This month, we met with Foresight, a UK-based renewable energy specialist investor focused on the providing debt to a diverse range of assets.

Foresight is one of the world’s leading renewable energy investors with 34 years of experience and $7.1bn in assets under management across Europe and Australia. They are owners, operators and financiers of key strategic energy projects.

Why Foresight?

Foresight offers a unique opportunity to gain an exposure to the renewable energy sector from the position as a debtholder, rather than an equity investor. The majority of renewable energy investments are focused on equity investment, meaning you are exposed to some operational, production and legislative risks. This Fund sits at the opposite end of the capital structure and offers investors a consistent income stream secured by both the operational businesses and physical assets. Importantly, management demand strong financial covenants and have the expertise to foreclose and operate any assets as required. Foresight has an extensive track record in Europe, where it is the second largest owner and manager of solar assets and the largest owner of grid connected batteries. Their experience including managing the construction, operation and exit phases of any asset sets the business apart from many domestic competitors.

Why Income Bucket? 

The fund meets the requirements of the Income Bucket as it is targets an annual return of 4.0 to 4.5% over the RBA Cash Rate during the five year term of investment. As a debt holder, this income will be paid quarterly from establishment, representing the payment of interest and repayment of capital and has limited reliance on the success of the underlying assets into which it will invest. The fund will originate 10 to 20 senior secured loans each year to smaller scale renewable energy projects in Australia, all of which will be amortised over the life of the loan. The fund will benefit not only from loan repayments but also arrangement and commitment fees paid by the individual projects for the establishment of each loan.

Performance & Top Holdings: Foresight is the first of its kind in Australia and will be extending loans following its first close, hence performance and transparency into the underlying assets is limited. That being said, since 2009 Foresight has deployed $3bn of capital into 192 infrastructure assets, 32 construction and 160 operational, delivering an IRR of 10%. The fund already has several assets under management, including Oakey 1 (30MW) & 2 (70MW) in Queensland and Bannerton (110MW) in Adelaide. The fund will be diversified across various renewable energy sources including solar, wind, bio energy, energy efficiency and storage, and currently has a pipeline of over $450m in potential loans ready for deployment.

Reasoning: Private infrastructure debt investments are generally restricted to institutional and sovereign wealth investors but offer some of the most consistent, risk-adjusted returns in an increasingly volatile market. Whilst debt investing into renewable energy projects is common overseas, as with most similar strategies, it has yet to become established in Australia outside of the pension fund industry. The fund offers a unique opportunity to access this lower risk sector which Moody’s estimate exhibits substantially lower default rates than non-financial corporate issuers. An investment allows you to benefit from both the illiquidity premium of these smaller solar assets, in the form of higher yields, and the complexity premium associated with undertaking due diligence on said assets; which Foresight has a proven track record of delivering on. Importantly, the private debt sector has shown little correlation with equity markets (0.3), negative correlation with government bonds (-0.1) and no correlation with corporate bonds, meaning it offers excellent diversification opportunities. The fund will have a five year term, with the option for a further two years, and will consider opportunities to exit via the sale of the loan book to larger pension funds, a securitisation or IPO. The target size of the fund is $150m, with a management fee of 0.85% and a performance fee upon exit of 17.5% of outperformance over an IRR of 6%.

Nanuk New World Fund + Lunch

What’s the fund?

This month we are taking a closer look at the Nanuk New World Fund. Nanuk is one of the only Australian fund managers dedicated solely to identifying investment opportunities and risk associated with environmental sustainability and resource use.

Nanuk Investment Management was established in 2009 The investment team have extensive experience across global equity markets and is led by Tom King OAM, who is an engineer by trade and spent several years working as an investment adviser to the Packer family. Paul Chadwick, who was most recently head of Global Macro strategies at GMP Australia. Paul is supported by Tim Ryan, who founded Orion Asset Management and has over 36 years’ experience, as well as Eric Siegloff, who was deputy CIO of ING’s European multi-asset investment management division. Nanuk has offices in Sydney, London and New York and offers three wholesale funds to investors seeking sustainable, environmentally focused investment strategies.

Why Nanuk?

Nanuk is one of the only Australian fund managers dedicated solely to identifying investment opportunities and risks associated with environmental sustainability and resource use. The team is dedicated to becoming world leaders in the space and is one of just a few groups globally who have the experience and capability to deliver returns and meet their self-directed mandate. The investment process is focused around remaining active and aware of the changing nature of the environment and the impact that businesses can have on it, with a fundamental value driven approach to identifying investment opportunities. Nanuk believes that resource constraints and environmental challenges like climate change, pollution and water scarcity necessitate significant changes to business practices globally and that these changes will present significant long-term investment opportunities and risks.

Where does it fit in your portfolio?

The fund meets the requirements of the Thematic Bucket as its sole purpose is to invest in listed companies around the world that are associated with the broad theme of environmental sustainability. More specifically, they seek to invest in companies involved with clean energy, energy efficiency, industrial and manufacturing efficiency, waste management, pollution control, food and agriculture, advanced and sustainable materials, water, healthcare and technology. There is growing expectation that businesses in both the developed and developing world will commit to having a more positive impact on the environment and community they work within and Nanuk is a first-mover in this sector.

Why invest?

The New World Fund is one of the only truly global managers in Australian that focus solely on investing into sustainable, environmentally and ethically aware businesses. Recent performance has shown that it is those companies focused on investing sustainably that generate the greatest returns over the long term. Whilst the team is small, they leverage off extensive relationships and broker networks to obtain research and insights into the investment universe. The fund applies both negative and positive screens to the identification of its investment universe which includes around 1,600 ‘sin stocks’ that are involved in oil, gas, coal and similar industries. The fund will invest into around 60-70 stocks at any given time which are selected using a fundamental approach based on a combination of basic valuations with a macro/thematic overlay which considers the growth opportunities in the various sectors. The fund has grown to $200m under management and continues to attract additional capital from both institutions and retail investors as the importance and value of new technologies and energy efficiency seemingly grows by the day. The fund is long-only, it cannot short companies, which means it will be volatile and an investment term of at least five years will be required. The fund offers daily liquidity, charges a management fee of 1.2% and is only available to wholesale investors.

What does it invest in?

 We have provided more detailed information in the section that follows, but summarise the current allocation of the fund as follows:

 

How has it performed?

The short-term performance has been exceptional, with the fund delivering 28.8% for the 9 months to 30 September 2019. This exceeded both the MSCI World Index, 21.3% and the FTSE Environmental Index, +24.8%. Longer term returns are also strong, with the fund averaging a return of 17.6% per annum over the last three years and 14.6% since inception, both ahead of all benchmarks. The strategy has benefitted from the increasing efficiencies available to businesses investing into more sustainable technologies and the increasing direction of capital towards these companies in the face of global climate action.

We were lucky enough to be joined by the Chief Investment Officer, or Portfolio Manager of the Nanuk New World Fund, Mr Tom King, at our latest client round table. Rather than focus on the funds recent performance, which has been exceptional, Tom put forward his views on the outlook for both the global economy and the sustainability revolution that is the core of his investment approach.

The presentation began with Tom drawing attention to the likes of Apple, who had reported overnight, and the fact that the first smart phone was created just 12 years ago. He noted very few, if any people, could predict how important and ubiquitous the smart phone would become in our daily lives. It was this underestimation of the acceptance of new technologies that Nanuk is seeking to identify but in relation to the sustainability of our very way of life.

The presentation opened with a fairly straightforward summary of those areas where the sustainability revolution was likely to impact the economy the most:

  • The transition to clean energy;
  • Improving industrial efficiency;
  • The production of food;
  • Healthcare technology and treatment;
  • Energy efficiency;
  • The use of scarce water resources;
  • Recycling of waste and pollution control; and
  • Advanced and more sustainable materials.

Without going into extensive detail, rather we direct you to the slides available https://sponge-capybera-dlkm.squarespace.com/s/SEMINAR-Second-Wave-Oct-2019.pdf, we highlight a number of particularly pertinent points that were made during the presentation.

  • At a time when many are suggesting the oil sector is heading for a renaissance and that the adoption of electric vehicles (EV) was overstated, Tom explained Daimler’s recent decision to stop development of all internal combustion engines. Tom suggested that by the mid 2020’s there will be more EV than internal combustion cars on the roads around the world.
  • Whilst explaining the evolving cost curve of energy production in Australia and around the world, he highlighted that under nearly all conditions, nuclear power is and will remain too expensive to power our economy. In fact, most renewable energies were actually cheaper than running existing coal and gas fired stations, as shown in the table below. This included the cost of the associated battery storage required to support renewable sources.

The questions naturally moved towards the value of pumped hydro power, like Snowy 2.0, however, it was clear from the discussion that firstly, it is an expensive way to produce power with large amounts of loss, and secondly, there were very few unused sites available to build similar projects.

The discussion moved towards the importance of action being taken on CO2 emissions, with some interesting facts including that the global herd of cattle emits as much greenhouse gas pollution each year than the US as a country. More importantly though, he estimated that the time taken from the point of adoption of pollution targets to the point of no return for technology, has been around 10-20 years in history.

A table discussion began around why Australia had not been successful in establishing our own manufacturing facilities for the production of batteries at a global scale, with many believing we should be getting started now. Tom put it down to the lack of an integrated vertical supply chain compared to the likes of China and the comparatively expensive cost of labor and energy which are the two key inputs.

Tom provided some analysis around the history of technology improvements and highlighted that the forecasts of the production cost reduction of most technology, including renewables, was excessively conservative. For instance, forecast cost reductions for lithium batteries in 2030 were actually hit in 2017, 13 years ahead of schedule. Solar was subjective to a similarly conservative expectation of adoption:

In moving towards his darker outlook for the future, he outlined the key contributors to greenhouse gas emissions from the UN, which were as follows:

Tom noted that these technologies generally formed part of the first wave of sustainability and were the so-called low hanging fruit, like solar energy and electric vehicle adoption. He outlined his 8 themes of the second wave as follows:

  • Electricity – transition to renewables and storage;
  • Electrification of transport
  • Fossil fuel to electricity by hydrogen capture and feedstock changes
  • Production changes in agricultural, diet changes and waste reduction
  • Improving the energy efficiency of buildings
  • Improving waste reduction and recycling
  • Many small changes to water efficiency.

 

  • The likely winners of these many transitions were:
  • Solar, wind and energy storage
  • Smart energy grid technologies based around demand response
  • Electrification of heat
  • Hydrogen (power to gas)
  • Sustainable materials
  • Recycling
  • Controlled environmental agriculture
  • Plant based protein
  • Waste management and processing
  • Electric vehicles including buses
  • Rail transport
  • Big data and AI
  • Advanced manufacturing

 

  • And the likely losers:
  • Fossil fuels including oil, coal and natural gas
  • Centralized electricity grids
  • Petrochemicals and plastics
  • Traditional ‘Portland’ cement
  • Blast furnace steel production
  • Air transport
  • Crop based biofuels
  • Agricultural chemicals
  • Beef/lamb

Tom brought the discussion back towards his conclusion, that the sustainability revolution was inevitable. He noted that the election result in Australia was not based on climate policy, but various other matters and highlighted that some 85% of Labor voters wanted action on climate change but just 16% of Coalition voters. Looking more closely, the trend is being driven by millennials and young people, meaning every election will see more voting for action. Tom suggested that the approach taken by the French Government in recent trade negotiations, effectively forcing their trade partners to undertake similar action on the climate if they wish to benefit from the French economy.

Finally, the presentation was concluded through a discussion of many of the underlying investments but with an important precursor. This was that the Nanuk fund was not established to bet on unknown technologies with shareholder capital but to back proven technologies as they become ubiquitous in our lives. He noted that solar panel shares are on average down 90% over the last 10 years, even as solar panel installation has reached mass levels.

As we have highlighted on several occasions, the Nanuk strategy is an example of how businesses around the world get on with the task of tackling major issues, solely because it is in their best interest.

Strategy updates

A number of unexpected regulatory announcements were made during the year.

Trust Stuffing        

The loop hole that allowed some families to ‘stuff their trusts’ was removed following the Federal Budget. The loop hole was allowing people to transfer additional and personally owned assets into a testamentary trust and benefit from the lower marginal tax rates this provides to minors.

Testamentary trusts, as the name suggests, are created out of the will of a deceased estate, and are able to hold the assets of the will on behalf of the beneficiaries. They provide substantial benefits in that minor children who are beneficiaries are assessed under adult marginal tax rates, rather than punitive child rates. The change in legislation removes the ability for families to transfer their own assets into the trust and benefit from these lower tax rates. Whilst it was available, the strategy was barely used in our experience.

ASIC & SMSFs

The Australian Securities and Investment Commission released a White Paper suggesting investors think twice about starting an SMSF and suggesting a minimum balance of at least $500,000 was required. This was met by substantial blowback from accounting and advice experts alike, with the SMSF Association in particular questioning their calculations. In our experience, the cost of maintaining SMSF’s are only falling with tax return and audit available for as little as $1,500 per year. Thus far the union fund sector remains immune from the impost of higher regulation, at a time when their power and potential conflicts only continue to grow.

Who is Softbank?

The name Softbank has become synonymous with modern day technology companies, but who are they? Softbank was founded in 1981 by Masayoshi Son. In 2019, it sits as the 36th largest listed company in the world, larger than both Intel and Johnson & Johnson. As always, the company has somewhat humble beginnings, retailing computer parts in Japan before becoming a publisher. Eventually, the company became a dominant internet services and communications company after purchasing Vodafone Japan and Yahoo! Japan in the 2000’s.

The success of these acquisitions saw the renowned Masayoshi Son move front strength to strength and specialise in investments in high growth technology companies. Softbank was one of the earliest investors in Jack Ma’s Alibaba and retains a 29% shareholding today. They also have investments in US mobile provider, Sprint, ARM Holdings a British semi-conductor manufacturer and Chinese insurer Ping An. More recently though, Softbank has become a fund manager of sorts, raising two rounds of $100bn for their ‘Vision Fund’.

The Soft Bank Vision Fund 1 and 2, both seek to invest into venture capital investments on behalf of Softbank and external investors. One particularly dominant external investor is Saudi Arabia, as it seeks to diversify its fossil fuel reliant on economy. The fund aims to access venture capital and private equity on behalf of its diverse pool of Government and Investment Bank clients with a particular focus on artificial intelligence, robotics, data, financial technology and communications infrastructure.

Some of the most high profile investments made thus far include all three ride share services, Uber, Didi and Ola, as well as corporate technology Slack and Australian founded real estate ‘tech’ platform Compass. As we know, most of these companies are growing quickly but struggling to move towards profitability in an incredibly competitive market. Whilst the headlines are increasingly negative it is far too early to decide whether Softbank’s foray into being a VC fund manager is a success or failure at the  current time.

What happened to We Work?

In a world where accessing capital is as easy as it has ever been, it is those companies able to harness investors obsession with growth that demand the highest valuations. Increasingly, traditional companies like manufacturers, are seeking to affiliate themselves with technology buzzwords like big data, artificial intelligence and the internet of things. Yet, recent months have shown that astute investors are either tiring of high growth companies or have are more closely questioning their lofty growth predictions. We Work isn’t alone, but it’s a company worth taking a closer look at in light of last month’s events.

Moreover, an analysis of We Work wouldn’t be complete without introducing Softbank, one of the key backers of technology companies around the world.

What does We Work do?

We Work has a simple business model. They enter leases for entire buildings or floors in sought after areas of major global cities, refit or renovate these spaces and then seek to less them out to many smaller companies, entrepreneurs and creative types.

Their offering includes private offices and common meeting spaces, but the group generally owns no assets outside of the modern fit outs they deliver. So the business model is simple, rent spaces, create cool offices then sub lease these at a profit. The last part of this model being the hard part, as We Work haemorrhaged $220k per hour in 2018. In fact, the companies losses of $1.9bn exceeding their increasing revenue of $1.8bn, hence the need for constant capital injections.

The company was not unlike any other ‘technology’ company, albeit technology seemed to play only a small role. They were seeking to growth their scale sufficiently enough to eventually eek out strong profits in various ways with accounting and financial services two of these. The company attracts tenants out of home and cafes by offering printing services, free refreshments, coffee, office cleaning and hosting networking events in an effort to bring people together.  This all makes sense in an increasingly casualised employment sector but in our eyes, it is very simply a property leasing company.

The company is not unlike ServCorp who provide serviced offices, with the difference being ServCorp tends to lease existing office buildings, provide secretarial services and charges higher prices to do so. In our view, the We Work model may be fundamentally flawed. As the type of tenants that typically inhabit these spaces work for themselves, or are involved in venture capital companies, the majority of which are likely to fail.

Consider for instance the sector of financial advice. Financial advisers are dealing with sensitive information, both financial and emotional, on a daily basis. They must also securely store confidential client information behind several layers of protection. Whilst the private offices offered by We Work may be suitable for the former requirement, most would find it difficult to meet the secondary option. That is without considering the security of a shared internet connection.

Taking this a step further, the We Work approach typically does not attract the highest quality tenants; they attract those seeking to keep costs low and unwilling to commit to longer term leases. The very nature of these businesses is that if their business is under pressure they can simply walk away, flexibility not afforded to those leasing their own premises or employing staff.

So what went wrong?

Put simply, investors and fund managers saw through the technology haze. Upon receiving the prospectus for We Work, it was obvious to many investors that the company was still some way from profitability and required many things to go right in order for this to be achieve. In our experience, the technology sector is great at one thing, capturing the emotion of investors and employees alike, who see through their issues and only have eyes for the future.

In a time where passive or index management is dominating active decision makers, We Work reiterated their important role in the market. Active managers effectively decide whether companies like We Work and Latitude Financial become listed companies. It is these active managers that provide the capital that allows these new companies to list on stock exchanges and if it isn’t forthcoming, than the listing doesn’t happen. In comparison, a passive investor will buy any investment that enters their relevant index.

The company was seeking to list at a valuation of $48bn, but according to reports had some $49bn in rent payable in the coming months and insufficient cash to fund their operations for the next 12 months. Business Insider reported that We Work’s high profile CEO had actually trademarked the term ‘We’ and sold it to his company for close to $6m; red flags should no doubt have been seen then. Yet the business continued and eventually required a $9.5bn buyout from its majority shareholder Softbank. This saw the value of the company fall from close to $50bn to just $9.5bn in just a few hours.

After agreeing to the deal, Softbank paid some $1bn to the outgoing CEO and announced a ‘right-sizing’ of the business model. In plain English, right sizing means the company and management made poor decisions with shareholders capital that now need to be rectified. In We Work’s case, they appear to have taken on too many new offices and were having trouble leasing these out profitably. If this is the case in what is a generally supportive economic environment, it’s worrying what impact a recession would have on their business model.

As part of this right sizing, the new board axe 4,000 staff or 30% of the global workforce, and offered to buy back shares issued to employees based on an $8bn valuation for the company; most of these shares were issued at substantially higher levels.

As union funds and individual investors alike increase their allocation to high risk private equity and venture capital investments like We Work, many are questioning the longevity of this strategy. Most of these business will inevitably fail, it is simply par for course for this sector, so the question must be is now a good time to be increasing allocations?

Around the markets

As highlighted earlier, the Latitude Financial IPO failed to get off the ground for a second time during the month. In a sign that fund managers are becoming more cautious of accepting any investment that comes to market, the company dropped its price twice before cancelling the float completely. The company offers loans through Harvey Norman and JB Hi-Fi as well as the popular 28 Degress Mastercard. Throughout the process brokers suggested the bid, or demand, for shares was oversubscribed yet investors were obviously concerned about the quality of their loan book in a weaker economic environment.

Elon Musk stunned the doubters as Tesla delivered a $143m profit in the third quarter of 2019. This defied consensus expectations of further losses and came as the company continues to cut costs, improve efficiencies and delivery more and more cars. The company lost over $1bn in the first two quarters but has now successfully commission it’s Shanghai factor, and delivered 97,000 cars in the third quarter. Shares were up 20%, seeing Elon’s fortune increase $2bn.

The airline and airport sector appears to be coming under pressure as consumers rein in spending. Sydney Airport announced that domestic traffic was down 1.1% on the previous year, while international traffic was up just 0.5% on prior and 1.4% year to date. Qantas, on the other hand was punished after a weaker than expected third quarter on the back of declining domestic travel. Jetstar earnings fell 2.6% due to issues in Hong Kong, whilst international travel remains strong, up 4.4%, albeit due to capacity constraints and higher charges. Interestingly, Qantas has teamed up with its competitors to push the Federal Government to more closely regulate the Airport charges that form the majority of SYD’s revenue.

Australian technology and broker darling, Wisetech Global, was called out by J Capital Research during the month. The previously unknown research house accusing the company of inflated profits and seeking revenue growth through questionable acquisitions. As usual, the claims were flatly denied by management, but the shares have since fallen around 30%.

October is the Annual General Meeting season where most companies either reiterate their previous forecasts, or announce weaker than expected first quarter results. The trend this quarter was for profit downgrades:

  • Flight Centre CEO Graham Turner announced that underlying profit in the first half of 2020 would be below that of 2021, as both leisure travel slowed and costs increased.
  • Baby Bunting issued a trading update in which comparable store sales of just 3.1% disappointed the market, but were blamed on the launch of a new web platform. The company is struggling to benefit from various competitor store closures and heavy discounting, by reiterated profit of $20m-22m.
  • After being one of the standouts during reporting season Nick Scali Furniture came back to the pack, announcing that store traffic was down 10-15% as the property slowdown began to hit. The result was a substantial profit downgrade, to $17-19m, from $25m in 2019.
  • Cochlear, which makes in-ear inserts, reiterated FY20 guidance at 9-13% growth, but reduced the Earnings per Share growth triggers in the incentive scheme for executives, which shocked the market. The change reflects a weaker than expected growth outlook, without adjusting their own profit guidance.
  • The biggest disappointment by far was the continued deterioration of earnings at Costa Group. The company is a diversified agricultural production business with monopoly like positions in various sectors like raspberries, mushrooms and citrus in Australia. The company announced that their core production and pricing had continued to worsen and announced a capital raising to assist in paying off debt. It’s becoming increasingly evident that agricultural companies are best suited to unlisted markets given the savage reaction o what is a cyclical company.

Model Portfolio Update

 

The major banks experienced a difficult October, resulting in the Financials sector falling 2.8% for the month. The period saw some underwhelming full year earnings results along with unexpected increase in remediation for poor financial and investment advice provided in the past.

ANZ Banking Group: ANZ reported a 7% decline in statutory profit for 2019 to $5.95bn, with cash profit flat on 2018 at $6.47bn even as the property market recovered. The primary driver of the weakness was Australian division, which fell 10% to $3.6bn as revenue also fell 6% to $9.6bn for the year. This was specifically impacted by the cost of repaying customers for poor financial advice. In a major shock to investors the company announced a reduction in the franking attached to this dividends to just 70%. Whilst ANZ is somewhat unique in that they still have substantial offshore operations, it was not a positive sign for the sector. Once again, the dividend was maintained at the current level rather than increased, putting further pressure on the payout ratio. Of greatest concern to us, was the unexpected fall in the group’s Net Interest Margin, by 0.08% to just 1.72%, which partially explains why the recent rate cuts were not passed on in full. It’s increasingly evident that the sectors world leading returns will be reduced in the face of neo-bank competition and an increasingly active regulator. ANZ announced that the sale of its Pension and Investment division to IOOF would be going ahead but at a $125m discount to the original $975m price.

National Australia Bank: The bank reported strongly earlier in the year but announced a further provisioning for advice remediation charges. The amount was around $832m taking the total funds put aside for poor financial advice to $1.7bn. We learned during the month that AMP’s CEO has directed the business to pay out any investor who even seeks remediation, so can only assume that both the ANZ and NAB have applied a similar policy. The bank detailed the customer remediation strategy, which included NAB Advice customers who were charged Adviser Service Fees, Consumer Credit Insurance sales, non-compliant financial advice provided to NAB Wealth customers and adviser service fees charged by their own NAB Financial Planning advisers.

Orora Ltd: After forecasting a weaker 2020 during reporting season, ORA surprised the market by announcing the sale of their Fibre unit to Nippon Paper for a price of $1.72bn. The sale represented a multiple of 18x adjusted earnings which was simply too good to refuse by management and was actually higher than the multiple of the company as a whole. The sale removes all of ORA’s core paper and recycling units and increases the defensive of the company by allowing it to focus on the higher margin beverages and glass division in which it is the dominant Australian supplier. Following the transaction the burgeoning US divisions will increase to 40% of earnings, but remain under pressure from weaker manufacturing and business investment. On the positive, the US consumer remains resilient and the funds received will likely put to work in further accretive acquisitions.

Santos Ltd: The company continued its renaissance supported by a strong rally in the oil price. Yet pressures abound throughout the world and its becoming increasingly evident that the long-term trend is down. Management announced the acquisition of Conoco Phillips Northern Australian business unit for $2.2bn which includes the Darwin and Barossa projects. The company delivered 7% growth in third quarter production which resulted in sales increasing similarly to $1.03bn. Looking more closely, the Gladstone LNG project disappointed after a one month shutdown amid concern about poor performance and a lack of available inputs.

CSL Ltd: CSL is seemingly the gift that keeps on giving. The company reached another all-time high during the month on little more than a reiteration of previous forecasts (7-10% growth) by the board at their AGM. It singly handedly supported the ASX 200 as the banking sector struggled. Brokers have used recent results and surveys to increase expectations for sales of Privigen and Hizentra to 12% in FY20 and FY21. More importantly, the influenza division is on track to deliver $200m in earnings in FY20 ahead of time. At this point in time, every investor in CSL is sitting on an unrealised profit.

Platinum International Brands Fund: This value oriented fund continued its recovery, adding 4.4% for October, as investors moved away from high growth companies to profitable, real businesses. Hong Kong based Meituan Dianping, which is an Uber Eats / Grub Hub style mobile application, adding materially to returns and is now the largest holding at 5% of the portfolio. Domestic Chinese liquor producer, Kweichow Moutai, made headlines as it continued its recovery and became the world’s largest liquor maker. Drinkers everywhere are paying hundreds of dollars to get their hands on a bottle. Finally, Alphabet (Google) reached an all-time high despite reporting below consensus third quarter results. The result saw a further 20% increase in revenue to $40.5bn and the announcement of bid to purchase Fitbit for c$20bn as the company seeks to further expand their consumer reach into healthcare.