Trading Diary

Trading Diary – 26 June 2019

We exited two stocks, both of which were Consumer Discretionary companies. We have redeployed the cash raised from these positions into companies belonging to the Materials sector and the Information Technology sector. 


  1. Kogan Limited (KGN) – 21.6% loss
  2. Nick Scali Limited (NCK – 15.4% loss

Kogan Limited (KGN)

The technical and fundamental picture looks unclear at this point. The company has been launching into vertical after vertical, and while revenue is still growing, the growth appears to be slowing. 

The market is anticipating a re-acceleration in revenue growth, hence the sharp appreciation of the share price over the last eight months since bottoming in late October last year. 

However, revenue growth for this company is heavily reliant on growing traffic to their website. The market seems to have been spooked this week by a report of slowing web traffic. The company has strongly refuted this claim, without providing any substantial evidence to the contrary. 

The stock is not cheap, with a value ranking of 71, so any hint of the company going ex-growth will inevitably cause investors to re-frame expectations. For now, the stock is in something of a holding pattern. There seems to be much overhead supply at these levels, and as a result, the share might need to spend some time forming a trading range around these levels to work through this supply. 

Yesterday’s share price action was a concern. High volume coupled with a considerable range expansion to the downside, that took the stock through the 100 DMA is not consistent with a leading share in a continued uptrend. Especially since the stock was unable to hold the level of the gap-up that occurred on the 18th of April, which resulted from the release of their last business update to the market. 

Nick Scali Limited (NCK)

We noted the following when we entered this position: 

“Technically the stock looks to have digested the gains of the 2014-2017 period by maintaining a steady trading range, with a shakeout during the third quarter of 2018. Further progress from here will be dependent on the company executing on its current growth plans and potentially outlining a vision beyond these.”

At that point the stock had shown considerable strength, rallying to the top of the trading range for what we hoped would be a breakout above the resistance. Any breakout appears to have failed for the time being, with the stock hit with supply at the resistance level and just as quickly collapsing back to the bottom of the trading range. 


  1. Integrated Research (IRI)
  2. Ausdrill Limited (ASL)

Integrated Research (IRI)

The company hit the wobbles last year, with a profit warning followed by the retirement of the founder and chairman, the resignation of the CEO and the resignation of the head of sales for the Americas. The stock tumbled more than 60% between May 2018 and December 2018. More than half of the falls occurred during the October-December selloff, which was quickly recovered in January this year. 

Having recovered for the October-December selloff, the stock was able to move back into the trading range established following the negative sentiment surrounding the management departures. At the beginning of June, the stock broke again above the trading range and is showing considerable strength in moving higher, indicating the supply may be moderating and the stock is ready to resume its uptrend. 

The fundamentals of the company have not changed. IRI’s results are heavily influenced by several high-value sales that typically occur towards the end of June. The market is doing the exact opposite of what it did last June before the announcement of earnings. Expectations are high that sales and pipeline growth will be strong this year. Time will tell, however, technically the stock looks very strong. 

Ausdrill Limited (ASL)

The acquisition of Barminco announced in August last year transformed the ASL business. The stock price, having sold off massively late in 2018 along with the rest of the market, is now back above the price on the day of the announcement of the Barminco acquisition. 

Barminco generates 63% of revenue from the Gold sector. Recent strength in the gold price can only be positive for the company’s prospects. Also, Barminco recently secured its most significant contract win for several years. 

The stock looks technically and fundamentally sound.

By Danny Sandler

Founder of Ocean Asset Management.