Our portfolio has experienced some volatility during August, with many of our holdings (with a few exceptions) pulling back into bases and spending some time moving sideways. This outcome is not unexpected. Even the most active stocks will find it challenging to advance during periods of market weakness, such as has occurred during this month. So far, we’ve not experienced an increase in turnover, and most of our holdings are still at levels at which we remain comfortable owning them.
This week we’ve made two sales, and since the overall market remains in an uptrend, we’ve reallocated this capital into new positions.
We continue to own a total of 18 stocks in our portfolios.
- Ausdrill Limited (ASL)
- Breville Group (BRG)
Ausdrill Limited (ASL)
Nothing has changed in the narrative for this company. The story remains the same. However, the share price has stalled at current levels and is therefore no longer passing our minimum momentum requirement. Consequently, we have sold the stock and reallocated our capital to stocks looking more ready to advance.
Breville Group (BRG)
Breville released results this week that on the surface looked good. Full-year profit rose 15.2% to $67.4 million, resulting from strong sales in North America and expansion in Europe. The company’s revenue for the 12 months to June 30 was up 17.5% to $760 million.
North American sales accounted for 58% of revenue and were up 12.8%, driven by strong demand for Breville’s beverage and juice products in the United States. In the UK, Breville said it had built an extra 20 weeks of inventory worth $11 million as a buffer against disruption from a possible “hard” Brexit.
Our sale of Breville is not a reflection of the quality or prospects of the underlying business. However, we only want to hold stocks that are in a continued uptrend. We exit positions when we think that the price trend might be over or the timing might not be correct. We have clear guidelines that dictate whether a stock remains in an uptrend. If a share no longer meets these guidelines, we sell. No questions asked.
- Credit Corp (CCP)
- Codan Limited (CDA)
Credit Corp (CCP)
The stock appears to have broken out of a 20-month trading range and is now showing strong upward momentum.
The company is well-positioned in each of its three business segments – Aus/NZ debt buying, Aus/NZ lending and US debt buying. The core Aus/NZ debt buying business is back on a growth footing, and the US opportunity is substantial and attractive.
The Aus/NZ lending business is growing actively with total settlements up by 17% for FY 2019. Lending is becoming a more substantial part of CCPs overall business. Credit is an attractive adjacent opportunity for CCP as it allows them to leverage further their consumer knowledge developed in their debt-buying operation.
Codan Limited (CDA)
Codans business is showing strong momentum along with its stock price. The company recently announced a profit upgrade on the back of increased demand for gold detectors and large project wins in their communications division.
Codan is at pains to explain that their base business has revenues in the range of $180 million to $200 million per annum. At this level of sales, they’re expected to generate a net profit after tax of around $25 million to $30 million. However, they can sometimes surprise on the upside. FY 2019 will be another one of those years with net profit expected to be in the range of $42 million to $45 million.
Codan has also announced a new contract in their communications division in the order of $15 million, which presumably also does not comprise a part of their base business. This contract highlights the potential of Codan’s communications business given this contract alone represents ~20% of the base communications business.