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Optimum Australian Equities Value FundIntroduction and Launch
5th January Prepared by Heinrich Jacobs
Managing Director & Chief Investment Officer
Disclaimer
Op#mum Capital Management Pty Ltd ABN 60 154 164 020 (also referred to in this presenta#on as “Op#mum Capital Management”, “the Trustee”, “the Manager”, “us”, “we” and “our”) is the Trustee and Investment Manager of the Op#mum Australian Equi#es Value Fund (“the Fund”) ABN 38 923 100 447. The Trustee is a corporate authorised representa#ve (No. 467287) of Lanterne Strategic Investors Pty Ltd (ABN 49 098 472 587, AFSL 238198).
This presenta#on is not a recommenda#on to invest in the Fund and may not include all of the informa#on that a prospec#ve investor needs to make an investment decision. Op#mum Capital Management does not take into account the individual circumstances of any prospec#ve investor, nor does it give any advice whatsoever but to the extent that it does, it cons#tutes only general advice and not personal advice. Accordingly, prospec#ve investors should make their own independent enquiries and obtain professional legal, financial, tax and accoun#ng advice before making an investment decision.
ContentsWho We Are
What We Do
How We Are Different
Overview of the Fund
Our Investment Philosophy
Our Investment Strategy
Our Investment Process
Why ROE & Good Capital Management are cri#cal
Example of a model poraolio (compounding businesses)
Example of a poor business with bad economics
Conclusion
How to Invest
Who we are• Op#mum Capital Management is independent and privately owned investment management firm located in Melbourne, Australia
• A highly experienced team (and growing) with five decades of banking, markets, and diversified industry experience
• Specialist exper#se in Risk Management, Financial Analysis, Business Valua#ons, Corporate Strategy Development, Corporate Governance
The Team• Combined 12 years financial advisory, investments, business management and leadership experience
• Banking & Finance, Technology, and Diversified Industries
• Previous management posi#ons at ANZ Bank, Suncorp Bank, Tennis Australia & Metcash
• Established and managed a number of businesses at ANZ with FUM $100m – $1.5b
• Acquired advanced technical and fundamental skills and exper#se with focus on equi#es, investment lending, liquidity, risk management, property, transac#onal banking, and balance sheet analysis
• Educa#on: Master of Business Administra#on (MBA) & Post Graduate Cer#ficate in Management (Dis#nc#on)
• 25 years of financial markets experience
• Currently the Principal/Director of Lanterne Asset Management and the Chief Opera#ng Officer for Avenir Capital
• Prior, Director at Credit Suisse First Boston Australian Equi#es & Bain & Company in London
• Peter’s primary role is focused on providing risk management, governance, and compliance oversight for our Australian Equi#es Value Fund
Heinrich Jacobs Managing Director &
Chief Investment Officer
Peter Cozens Non-Executive Director
The Team
• Experienced CEO, Lawyer, and former Director of companies including Coles Myer Group, GE Capital, Pacific Diamond, Retail Franchise Solu#ons, Midas Asia Pacific, and the DBYD Group
• Exper#se covers business management, finance, corporate structuring, strategic planning, due diligence, and business acquisi#ons and divestures across the building, finance, franchise, wholesale, retail, automo#ve, mining, and u#li#es sector
• Currently the CEO of the Australian Associa#on of Dial Before You Dig Services
• Currently holds several board posi#ons including the Australian Government Solicitor and Torus Group
• Educa#on & Memberships: Bachelor of Laws & Bachelor of Commerce (University of Melbourne); Cer#fied Prac#cing Accountant (CPA); MAICD; LIV
Sophie Valkan Non-Executive Director
What We Do
• We act as a financial fiduciary for our clients
• Provide investors with access to one high quality investment product that meets a broad range of needs, including income and capital growth
• We manage money (equity capital) on behalf of trustees and advisers of self-‐managed superannua#on funds, high net worth individuals, companies, and charitable founda#ons
• We seek to iden#fy high quality companies for inclusion in the fund that will offer good long-‐term capital growth opportuni#es, with a stable and reliable income stream with low to moderate risk
• We conduct extensive market research, stock selec#on, and the buying and selling in rela#on to the securi#es in our Investment Fund
• Our absolute focus is to protect our clients capital (and ours) and ensure all investments offer a margin of safety
How Are We Different?
Large Institutional Funds Optimum Capital Management
CON’S
• The size of asset base can limit the ability to move in and out of the best investments
• Market Capitalisation-weighted strategies suffer from an inherent bias towards “hot” segments of the market, and often feature concentrated economic bets
• Market Cap weighted and tend to focus only on large cap companies, missing valuable opportunities in the mid-small cap space
• Can be expensive relative to size and management have no skin in the game. Poor alignment of interests
• No skin in the game. Very poor alignment of interests between management and investors
• Limited flexibility, bureaucracy, slow decision making
PRO’S• We will have a smaller asset base giving us the ability to
move in and out of the best investment opportunities
• Our only bias is to invest in the very best companies that we can buy at a discount to valuation, regardless of economic trends, fads etc
• We have a Market Cap agnostic strategy. We will invest across the spectrum; large, medium, small, and micro cap
• Good value relative to size. Tight cost controls
• Excellent alignment of interests between management and investors
• Very flexible, nibble, and flat structure
Overview Of The FundInvestment(Strategy(and(Objec3ve( To(provide(investors(with(superior(long<term(absolute(returns(in(
the(form(of(capital(growth(and(income(from(a(por>olio(of(shares(in(excep3onal(Australian(&(New(Zealand(companies(listed(companies(on(the(ASX(that(we(can(buy(at(an(aErac3ve(price(
Por>olio(Structure(&(Weigh3ngs( 15(–(30(Companies(0%(<(100%(Equi3es(0%(<(100%(Cash(No(short(selling(No(financial(leverage((
Benchmark( All(Ordinaries(Accumula3on(Index((XAOAI)(
Investor(Profile( Sophis3cated,(Professional(and(Wholesale(Investors.(A(limited(number(of(retail(investors(via(a(personal(offer(
Risk(Profile( Medium(
Suggested(Investment(Period( Five(years(
Our Investment Philosophy
• We are a disciplined investor seeking out investment opportuni#es in companies that we can purchase at a discount to our assessment of the fundamental value or intrinsic value of the company
• High convic#on fund with a concentrated strategy
• “Margin of safety” and valua#on is at the heart of our investment philosophy and investment selec#on process
• Bonom-‐up, Fundamental Analysis
Our Investment Strategy
• Thorough' understanding' of' bo1om' up'fundamental'analysis'and'value'opportunity'
'
Op8mum'Capital'Management'Core'Competency'
Proven'Track'Record'
Ac8ve'Capital'Alloca8on'
Exper8se'
Disciplined'&'Repeatable'Investment'Process'
Strong'Risk'Management'Culture/Systems'
Focused'on'business'fundamentals'&'valua8on'
Fundamental*Value*Based*Approach*
Focus*on*Catalysts*
Seeking*Compelling*Opportuni;es*
• Seek' companies'with' short' term' imperfec8ons' in'fundamentals'
• Pursue' special' situa8ons' and' transforma8onal'events' such' as' corporate' takeovers' that' drive'shareholder'value'
• Mispriced'assets'with' temporary'flaws' caused'by'general'market'condi8ons,'sen8ment,'strategy,'or'other'company'specific'issue.'
Our Investment Process
Our$ investment$process$ starts$by$selec3ng$of$ the$2,200$$ASX$ Listed$ Companies$ the$ 700$ companies$ that$made$ a$profit$in$the$past$12$months.$ASX Listed
Companies
• $2,200$companies$
Quantitative Screen
• $Financial$Modeling$Phase$• $Ranking$Process$(Financial$Strength$|$Profitability$&$Growth)$$• $Investable$Universe$~$700$issues$
Qualitative Screen
• $Idea$Genera3on$• $Strong$Business$Models$• $Durable$Compe33ve$Advantages$• $Management$Team$• $Investee$Universe$~$90$W$150$companies$
Portfolio Construction
• $15$–$30$companies$selected$for$investment$
From$the$700$companies$we$individually$rank$companies$using$a$ range$of$metrics$ to$ shortWlist$down$ to$90$–$150$companies.$Metrics$include:$
W PEG$
W OCF$&$FCF$yield$
W Cash,$Debt,$and$Growth$rate$levels$
The$final$stage$is$a$qualita3ve$screen$and$“deep$dive”$into$the$quality$of$the$management$team,$and$assess$the$strength$of$the$companies$business$model$and$if$it$has$any$durable$compe33ve$advantages$that$allow$for$sustainable$ growth$ over$ the$ investment$ cycle.$ From$the$ 90$ –$ 150$ companies$ we$ select$ the$ final$ 15$ –$ 30$companies$to$make$up$the$investment$por`olio.$
Why ROE & Good Capital Management Are Critical (example)
!!Year!
Business!!Beginning!Equity!($)!
!!Return!on!Equity!(%)!
!!Earnings!($)!
!!Payout!Ra7o!%!
!!Dividends!($)!
!!Ending!Equity!($)!
Market!!P/E!Ra7o!
!!Share!Price!($)!
0" 10" 2.50"
1" 1.00" 25" 0.25" 0" 0" 1.25" 10" 3.10"
2" 1.25" 25" 0.31" 0" 0" 1.56" 10" 3.90"
3" 1.56" 25" 0.39" 0" 0" 1.95" 10" 4.80"
4" 1.95" 25" 0.48" 0" 0" 2.43" 10" 6.00"
5" 2.43" 25" 0.60" 0" 0" 3.03" 10" 7.50"
Annual!Rate!of!Return!
!25%!
If you buy and sell shares in a company on the same P/E ratio, and assuming the company does not pay a dividend and it is able to generate a high rate of return on equity, then all things being equal the earnings and the share price will grow at the same rate as the ROE which in this case is 25%
Consider this
Example of a Model Portfolio (Compounders)Company( ASX(
Code(ROE((%)(
Forecast(Dividend(Yield((%)(
Ini?al(Rate(of(Return(
(%)(
Total(Returns((10(year(Avg(%)(
Market(Cap((m)(
Compe??ve(Advantage(
ANZ$Bank$ ANZ$ 16$ 8.5$ 8.10$ 10.5$ 88,847$ Oligopoly$
Ainsworth$Game$Technology$
AGI$ 26$ 5$ 7.80$ 10$ 780$ Knowledge/Experience$
CSL$ CSL$ 41$ 1.5$ 3.5$ 26$ 41,464$ Patents/reputaPon$
Seek$ SEK$ 19$ 2.5$ 3$ 25$ 6,000$ Network$effect$
Breville$Group$ BRG$ 23$ 5.5$ 5.5$ 17$ 870$ Brand/ReputaPon/Design$
Woolworths$ WOW$ 24$ 7$ 6.5$ 11.5$ 38,690$ Low$cost/brand/logisPcs/geographic$monopoly$
Carsales$ CRZ$ 51$ 5.2$ 3.7$ 22$ 2,524$ Network$effect$
Iproperty$ IPP$ 6$ X$ 1.1$ 90$ 352$ Network$effect$
Resmed$ RMD$ 20$ 1.7$ 3.8$ 16$ 9,685$ Patent/reputaPon$
Flight$Centre$ FLT$ 24$ 7$ 8.20$ 11.5$ 3,300$ Footprint/reputaPon$
McMillian$Shakespeare$
MMS$ 25$ 7.5$ 7$ 26$ 826$ Switching$costs$
TOTAL(AVERAGE(
25%(( 4.7%( 5.3( 24%(
A Business With Poor Economics (example)
2000##$2.9b&&&&&&&&&&Equity&
2010##$5.8b&&&&######Equity&
$3.1b&&&&&&&&&&Debt& $5.6b&&&&&&&&&&Debt&
$517m&&&&&&&&Profit& $116m&&&&&&&&Profit&
ROE&&&&&&&&&&&&&18%& ROE&&&&&&&&&&&&&2%&
Note the addi#onal $2.9b in equity you have contributed and the addi#onal $2.5b in debt to keep this business going.
Return on Equity less than what you can get in a term deposit.
Conclusion
• Alignment of interests between investors and members of the investment team
• Focus on a single fund, one product, one set of fees
• Investment focus on companies that provide a reliable and increasing income stream with tax awareness benefits (franked dividends)
• Experienced management team and board of directors with “diversified” experience
• Repeatable and reliable investment process
• Flexible investment mandate (market capitalisa#on agnos#c; can be fully invested or hold cash depending on market risk and valua#ons)
• Tight cost controls
• We invest our own capital alongside investors
• Our size gives us a compe##ve advantage. We can move quickly and are not subject to internal bureaucracy and slow decisions making
How To Invest• The next step is to read the Informa#on Memorandum (IM) and then complete the Applica#on Form anached to the IM.
• Applica#on forms and monies are to be submined to Apex Fund Services and details can be found in the Applica#on Form.
• If you require a copy of the IM please email Heinrich Jacobs (Chief Investment Officer) at info@op#mum-‐capital.com.au
• Visit our website at www.op#mum-‐capital.com.au
Thank you