July 2020 - Luke's Fund Update
Updated: Aug 31, 2020
We are pleased to report Luke's Fund achieved a return of 19% over the month of July. The top three contributors to the performance over the month were:
Pointerra, which contributed 48% of the returns this month. Pointerra made a share placement to renowned tech investor, Bevan Slattery, which was the catalyst of a significant rally in the share price, which was reinforced by Pointerra achieving its maiden cash flow break even quarter,
AVA Risk Group, which contributed 9% of the returns this month. AVA Risk provided an update on the business performance of the month, reporting strong growth in both its service and technology divisions, with both reporting maiden profits for the full year. Importantly, AVA Risk reported significant licencing fees are expected to be earned in FY 2021, which will underpin improved profitability. One negative announcement was the resignation of CEO , Scott Basham, who has been so successful in turning AVA Risk's fortunes around in FY2020, and management's ability to continue the great work of Scott will be something we will be watching closely.
Selfwealth, which contributed 9% of the returns this month. Selfwealth's share price continued to rally on an exceptional 4th quarter result, which exceeded our expectations, and confirms the secular tailwinds driving the business market expansion continue, with active trader sign ups continuing at a rate in excess of 1000 per week into Q1 2021, which should drive revenue above $20 million for FY2021. Renegotiated terms with Openmarkets should see gross margins improve further in calendar year 2021.
The top three detractors for the month were:
Pushpay - which contributed -5% of the returns this month
Advance Nanotech - which contributed -3% of the returns this month
Paygroup - which contributed -1% of the returns this month
Notable changes to the portfolio included:
We exited Altium, on valuation grounds, and revenue headwinds. Given the high profit margins Altium enjoys, we saw limited operational leverage upside, and decelerating revenue growth. Summing up, we think Altium is a great business, but has hit middle age. There is a risk ALU's EV/S ratio can fall due to slowing revenue growth and margin contraction. The downside risk was too high for us.
We exited Readcloud, which was a small position, based on valuation, which was well above our calculated intrinsic value. Gross margins have moved little, and it is clear publishers hold the whip hand in negotiations, making it difficult for Readcloud to generate any operating leverage.
We excited Bubs Australia, following the 4th Quarter report, which was well below expectations, with the Daigou channel drying up (as opposed to A2M), and indicated prior quarter results were more a result of channel stiffing than anything else. A review of local retail outlets confirmed stock was not moving off the shelf, and the company has a rather confusing array of brands and products.
We exited Vortiv, on valuation grounds. Vortiv was a special case investment, as it was on the verge of an inflection point, was undervalued by the market, and benefiting from secular, cyber security trends. However, we did not have a great deal of confidence in Vortiv's ability to build and maintain a competitive advantage. Vortiv may continue to thrive, but we did not have the conviction to hold, which may turn out to be an error on our part.
We added to our gold miners and developers over the month, and completed the build out of our 7% gold hedge - perhaps more on that in a separate article. Calidus Resources, Genesis Minerals, Yandal Resources, and Regis Resources were added to the portfolio during the month.
If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.