Sandon Capital Activist Fund commentary for the month ended August 31, 2024.
The Fund return for August 2024 was -0.5%, bringing total returns (net of all fees and expenses) since inception to the equivalent of 9.9% per annum. Cash levels ended the month at approximately 2%.
The largest positive contributors were Midway Ltd (ASX:MWY) (+1.2%) and Nuix Ltd (ASX:NXL) (+0.8%). These were offset by COG Financial Services Ltd (ASX:COG) (-1.7%) and IDT Australia Ltd (ASX:IDT) (-0.6%).
From an analytical perspective, August is the most important month of the year with the majority of our portfolio companies releasing their full year financial accounts. These provide us an opportunity to analyse the operational and financial performance of our investments and allows the market to focus on fundamentals rather than speculating on possibilities, which is what typically occurs in between reporting periods. In some instances, companies will provide an update on their capital management plans as well as any changes in strategic direction. An update on early trading in the new fiscal year as well as a short-term outlook is generally also provided, although this is less consequential to our investment process.
Whilst it wasn’t necessarily reflected in share prices, the reporting season just gone saw some very encouraging operational and financial results delivered by our portfolio companies. Those companies that had demonstrated consistent earnings growth over the previous years continued on that trajectory. Encouragingly, those companies that had been dealing with legacy operating issues have put those behind them, and look set to reward us with improved operating and financial performance going forward. Importantly, those companies in the portfolio with excess cash are starting to undertake capital management initiatives, through buybacks and dividends or both. With much of the portfolio trading well below our estimates of intrinsic value, we continue to expect our companies to use their bullet proof balance sheets as a way to create shareholder value.
We will discuss the results of our key holdings in the next monthly report.
Fund Description
The objective of the Fund is to deliver returns to investors through a combination of capital growth and distributions. The Fund aims to achieve this objective by seeking to invest in opportunities that are considered by Sandon Capital to be trading below their intrinsic value and that offer the potential of being positively influenced by investors taking an active role in proposing changes in the areas of corporate governance, capital management, strategic and operational issues, management arrangements and other related activities. Neither returns nor capital are guaranteed.
