Sandon Capital Activist Fund's commentary for the month ended October 31, 2024.
The Fund return for October 2024 was 3.4%, bringing total returns (net of all fees and expenses) since inception to the equivalent of 10.2% per annum. Cash levels ended the month at approximately 4%.
The largest positive contributors were Fleetwood Ltd (ASX:FWD) (+1.5%), Coventry Group Ltd (ASX:CYG) (+0.9%), Nuix Ltd (ASX:NXL) (+0.7%), BCI Minerals Ltd (ASX:BCI) (+0.6%), IDT Australia Ltd (ASX:IDT) (+0.5%) and Magellan Financial Group Ltd (ASX:MFG) (+0.5%). These were partially offset by Karoon Energy Ltd (ASX:KAR) (-0.5%) and Midway Ltd (ASX:MWY) (-0.5%).
FWD announced that it had secured additional occupancy for two years at its Searipple accommodation village in Karratha with the Saipem Clough Joint Venture (SCJV). SCJV is the prime contractor for the construction of the Perdaman Industries fertiliser plant on the Burrup Peninsula. The take-or-pay contract is expected to generate a minimum of $13.5 million in revenue for FWD, with the SCJV having options to take additional rooms. As a result of this contract, occupancy at Searipple is locked in at 72% for FY25 and we expect occupancy to trend at these high levels into FY26 and beyond. This helps to underpin strong earnings and cashflow at FWD for at least the next two years.
At its Annual General Meeting (AGM) in late October, CYG provided a trading update that was weaker than expected with September quarter revenue flat with the prior corresponding period and EBITDA up 0.7%, impacted by difficult economic conditions in New Zealand and on the east coast of Australia. In a strategy update, the company highlighted that the primary driver of longer-term growth will be an aggressive rollout of greenfield sites, believing it can more than double the footprint of its Konnect & Artia Australia (KAA) business in the next five years. Should this target be achieved, earnings and cash flow later this decade at CYG will be significantly higher than today.
The construction of BCI’s Mardi salt project continued to move ahead with a total of $788 million invested as of 30 September 2024 and construction 50% complete. In early October, the company completed financial close on its $981 million syndicated debt facility, with the first drawdown from the facility expected in the March quarter of 2025. BCI remains on track for the first shipment of salt in the December quarter of 2026 and should become a significant supplier of high-quality industrial salt to global markets for many decades to come.
Unaudited revenue of $5.2 million at IDT reached a two year high in the September quarter, increasing by 70% over the prior corresponding period. The strongest growth was seen in the Advanced Therapies division, supported by the recently announced Sanofi Australia contracts and growing demand for Antibody Drug Conjugates (ADC) and messenger RNA (mRNA) technologies. Importantly, the company is generating a significant amount of repeat work from returning customers, thereby establishing more predictable revenue streams. The outlook remains robust with $6.8 million of contracts secured in the September quarter and 37 proposals submitted with a value of $24.7 million, with ~60% of these to existing customers.
In its September quarter production report, KAR downgraded its full year production guidance to the bottom end of the previous range. As the relatively fixed cost base is spread over fewer barrels of production, unit costs were raised to the upper end of the previous range. On a more positive note, the company announced another US$25m buyback, a significant increase to the contingent resource at Who Dat East and the discovery of hydrocarbons at the Who Dat South exploration well. If Who Dat East and Who Dat South prove to be economical, they could unlock attractive, low capex growth options for KAR.
Global Data Centre Investment Fund (ASX:GDC) confirmed that it will be suspended from the close of trading on ASX on 20 November 2024 as a result of disposing of its main undertaking (Etix Everywhere). The trust also confirmed that the available proceeds from the sale of Etix and Malaga are forecast to be $2 per unit and expected to be distributed to unitholders by the end of November 2024. Between these proceeds, and the proceeds from the Wellard Ltd capital return, we expect significant cash to be returned to the Fund. There are a number of opportunities into which we expect to redeploy this cash and we look forward to reporting on these in the future.
