September 2021 - Luke's Fund Performance Update
The ASX 200 Accumulated Index was up -1.8% for the month of September, and Luke's Fund achieved a return of 10.5% over the same period, bringing the Fund’s current returns for FY2022 to 12.4%, compared to the ASX 200 Accumulated Index return for year to date of 1.8%.
The breakdown of our holding’s contribution to performance over the past month is outlined below:
The top contributor over the month were:
Novonix Limited, which continued to rally from August on no further news.
Camplify Holdings, which reported on no news, however, a number of fund managers and investors disclosed long positions in the company.
The top detractors over the month were:
Calidus Resources, on the back of weak gold prices.
Advance Nanotek, on the back of a 13% fall on September 30, on no news.
We made the following portfolio changes over September:
We sold out of Selfwealth over September, to re-deploy the capital to better ideas.
We sold out of our position in AVA Risk group, following the sale of the Services business, and delays in the conversion of Aura IQ sales.
We continued trimming Novonix, due to valuation, and portfolio position size concerns, following the continued share price appreciation over September.
We added to our Damstra Holdings position over September.
We trimmed our Camplify Holdings position, following strong share price appreciation over the month. Upon a review of the company valuation, we may well rue this decision, although we do retain a reasonable position size in the business.
We added IntelliHR Ltd to our portfolio, via the capital raise, and then added to the position on market, re-deploying capital from the sale of Selfwealth. As a new shareholder in IHR, I am rather disappointed with how existing shareholders were treated, and I think it is fair to say, this capital raise was poorly executed. We expect the board to learn from this, and we intend writing to the chair, as we do not consider the approach taken to be in the best interests of shareholders.
We held 2.7% cash at the end of September.
COMPANY NEWS & REPORTS
Advance Nanotek Ltd
On September 25, the US FDA released two orders clarifying requirements regarding active ingredients. The significant order, the “proposed order”, which will eventually replace the deemed final order, identified health concerns for sunscreen chemicals like oxybenzene and suggests GRASE status for sunscreens containing zinc oxide and titanium dioxide but not for sunscreens containing para-aminobenzoic acid (PABA) and trolamine salicylate, cinoxate, dioxybenzone, ensulizole, homosalate, meradimate, octinoxate, octisalate, octocrylene, padimate O, sulisobenzone, oxybenzone, and avobenzone.
Should the proposed order be implemented, Advance Nanotek’s addressable market will expand considerably. In all likelihood, manufacturers are likely to front run this amendment in order to minimise the regulatory risk the proposed order entails.
A summary of the proposed changes can be seen here.
Calidus Resources reported mine construction is proceeding on budget and program, and is 60% complete.
Calidus reported the mining contract with Macmahon is finalised and the Bluespec DFS drilling campaign has commenced.
On September 30, 2021, Damstra Holdings announced it will acquire workplace safety software business TIKS Solutions Pty Ltd. The acquisitions is valued at 4.4 times FY2021 revenue, and TIKS Solutions is operating cashflow positive.
On September 1, 2021, Talga Group announced Niska mining applications were submitted for stage 2 of the project, intended to increase anode production from 19 000 Tonnes per annum to approximately 100 000 Tonnes per annum. As part of the announcement, the potential demand and extent of qualification trials was outlined, noting:
Talga’s engaged customers, including expressions of interest and targeted 2025 anode supply now exceeds 273 000 Tonnes per annum.
Targeted 2030 anode supply now exceeds 585 000 Tonnes per annum.
There are 62 active qualification programs across 48 customer engagements, including 11 automotive companies, and the majority of the announced battery manufacturers in Europe.
On September 13, 2021, Talga Group announced it expanded its agreement with ABB. Under this agreement, ABB will work with Talga Group on front-end engineering and design on its anode production facilities, and this work is due to be completed in June 2022. ABB will also work with Talga Group on applying ABB’s Ability eMine solutions with a view to electrifying Talga Group’s underground mining operations (Stage 2).
On September 23, 2021, Talga Group announced mining had commenced at the trial mine site at Niska South site, with high grade graphite zones at shallower depth than expected. The graphite extracted at the mine site will supply the Pilot EVA plant currently under construction and due to commence operation in 2022.
KEY LEARNINGS FROM THIS MONTH
This month demonstrated how the vast majority of returns are usually generated by a few positions in the portfolio. Because of this, it is pointless holding a position in a business that has little chance in being one of those few positions that can generate outsized returns. So, fail fast, and move on. You only need one or two big winners in a portfolio to generate outperformance, and you improve your chances of this if you cut your losers fast.
If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.