TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH AUSBIL DEXIA LIMITED (S&P/ASX 300) PORTFOLIO MANANGER, MICRO CAPS, TONY WATERS
Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me from Fund Manager Ausbil Dexia to look at the mid to small cap segment of the market, is Tony Waters. Tony welcome back, you manage the Ausbil Micro Cap Fund. When we last spoke your fund was up 20% since inception in February this year versus 1% for your benchmark, how have you fared since?
Tony Waters: Yeah we’ve benefitted from a strong market and we’ve managed to outperform during that period. As at the end of October, the fund performance is 49% since we started in February and that compares to our benchmark which is up around 21% over the same period.
Clive Tompkins: So where have you made money?
Tony Waters: It’s been broad based actually. We’ve made money in industrials as well as mining related services even though the strength in the market has been in that particular area. Things such as Thorn Group for example which is a retail rental model, has performed very well for us, in the advertising segment things like Mitchell Communications and STW Communications with the corporate spent in advertising coming back strongly, we’re doing well out of. And you know, certainly in the mining related services, it’s been a very strong part of the market and that’s been a good performer for us. And some of the small construction activity in the west such as Forge Group, Decmil Group as an example, and a company that’s been a strong waiting for us and performed very well in the engineering energy space, which is Matrix Composites in engineering which has been a very good performer over the period. So quite broad based in nature.
Clive Tompkins: Okay so what are your top three holdings now?
Tony Waters: Top three holdings are Bathurst Resources, STW Communications and Thorn Group. Bathurst Resources is a more recent entry. It is a New Zealand coking coal play. It’s important to note that with that play, it’s open cut mining, so it doesn’t have some of the risks that have occurred unfortunately with underground mining in New Zealand, and it is premium quality coking coal. So that’s a development play, they’ll be producing within the next twelve months and the market’s starting to take notice of the asset that they have over there. STW Communications - corporate advertising coming into Christmas this year has been very strong. These guys’ business model has improved markedly in terms of their cash flow and certainly they appear to be getting their fair share of the increased corporate spend in the market in the next six months. And we’re very optimistic over the next one to two reporting seasons as to what earnings they’re likely to produce, and we think they could surprise on the upside. And Thorn Group is a stock that we’ve had since the inception of the portfolio and it’s a stock that when we bought it, it was trading on a PE of 8. It’s now even still on a PE of 10 and 11 despite three reporting periods of in excess of 30% plus profit growth. And the outlook for that business is still quite strong we believe.
Clive Tompkins: And Tony last question. What does next year hold for mid to small caps?
Tony Waters: Well the outlook for small caps is not a lot different to what we saw six months ago. Mining services is well represented in the small cap area and the outlook for that is extremely strong, particularly in the west of the country. In Australia it’s still you know, early to mid stage of, in recovery, through the business cycle and that augurs well for the small cap end of the market which despite the run, is still trading in many sectors at a significant discount to its large cap peers. So you know, we still hold quite an optimistic outlook for the small end of the market.
Clive Tompkins: Tony congratulations on your results so far.
Tony Waters: Thanks Clive.
