CBG Capital (ASX:CBC) - local LIC with longer-term investment focus

Funds Management

by Jessica Amir

CBG Capital Limited (ASX:CBC) Chairman, Ronni Chalmers discusses the company's longer-term investment focus, its ability to move more quickly than larger funds, portfolio performance and largest positions.

Jessica Amir: Hi, I'm Jessica Amir for the Finance News Network. Joining me today from CBG Capital (ASX:CBC) is its Chairman, Ronni Chalmers. Hi, Ronni, and welcome to the Network.

Ronni Chalmers: Hello Jessica, good to see you again.

Jessica Amir: Thanks very much for joining us in Melbourne. So, for those who haven't heard of CBG Capital (ASX:CBC), could you just give us a quick introduction?

Ronni Chalmers: CBG Capital has been listed on the stock exchange now for four years. We're listed in December 2014. We are a conservatively run portfolio. We have about 400 investors in the fund. The portfolio is currently worth about $25 million, and we have 26 million shares on issue. There is high representation amongst the board, it has key shareholders, including my family. We would describe our investment style as quality at a reasonable price. We buy high quality companies and aim not to pay excessive prices for those companies, and we have a time horizon of two, three and four years. The investment fund is run in a manner that tends to be underweight the very large cap stocks, buy and large the very large cap stocks over the last three, six and nine years have actually not generated strong returns. For example, AMP (ASX:AMP). For example, Telstra (ASX:TLS). Our fund has never held those stocks.

Jessica Amir: Now, let's go into the fund in a little more detail. Just tell us about the composition.

Ronni Chalmers: Currently we are very underweight, the big four banks. We see very limited profit growth that the big four banks will generate to the shareholders over the next two, three years. However, there are a couple of companies that we own that will benefit from the fall out of the Royal Commission. One company that has done very well over the last year is Hub24 (ASX:HUB). It is a platform provider, it currently only has about 1 per cent market share, but it's getting about 15 per cent inflows of new money going into the fund's management industry retail. Retail advisors are taking a strong likening to it.

I'd also like to flag that the fund has a strong position in BHP (ASX:BHP) and Rio (ASX:RIO). Both companies have delivered robust returns for their shareholders. Rio has just conducted a launch $3 billion buyback, utilising their strong balance sheet. The company has divested assets at reasonable prices over the last couple of years. BHP has also announced a large sale of its North American assets that will go in January, 2019, and BHP will also conduct a buyback, and a large dividend for its current shareholders. A couple of examples that have generated robust returns include, Bravura (ASX:BVS). Bravura is a software specialist company that targets the wealth management industry, not just in Australia, in the U.K., in the Middle East. It has several countries that it earns revenue from.

So, the wealth management industry is a good industry to be in. Wealth management is still growing. So, as the wealth management industry grows, Bravura sells its product to more and more customers. We originally identified that stock at about AUD$1.50 it's currently trading over AUD$3 a share, and it's recently been promoted into the ASX 200. Another stock that I'd like to highlight is Lovisa (ASX:LOV). It was floated at about AUD$2 a share. It's currently trading at AUD$8 a share. We believe that it's now mature enough to be promoted into the ASX 200, probably in the next three or six months.

Jessica Amir: Maybe you can tell us about the overall performance of the fund.

Ronni Chalmers: When the company floated back in December 2014, the market was around 5,500. And as you noted, it's actually around that same level. So, there has not been much capital gain in the ASX 200. We started off on day one with a net tangible asset of AUD$0.97 cents, and today we have a net tangible asset around AUD$0.99 cents. But, you have to take into account that we've paid a consistent dividend history in excess of AUD$0.10 cents of fully franked dividends. So, the board has a policy to pay as high a fully franked dividend as possible. We recently declared a one for 25 bonus issue, so every shareholder got another 4 per cent more shares.

Jessica Amir: Thanks Ronni. So, maybe you can tell us about the outlook for the fund.

Ronni Chalmers: The fund is positioned pretty defensively today. We have an elevated amount of cash being about 12 per cent, that's after the AUD$0.016 cents was paid last week. We're cautious but we're not negative. The market has corrected 10 per cent and we think that it's prudent having an elevated amount of cash going into the reporting season, which as you know, we'll start in February, 2019.

Jessica Amir: I understand CBG Capital is now a part of the Clime Investment Management group (ASX:CIW). What does this mean for investors?

Ronni Chalmers: So, in July 2017, we brought the two groups together and that created a stronger business with funds under management of AUD$700 million dollars. The business has grown since July 2017, now has in excess of AUD$820 million dollars. But also importantly, it's allowed the investment team that was a team of four to grow to be an investment team of 10 people. So, deep experience, a large number of people that have added an extremely successful portfolio returns over the last 12 months.

Jessica Amir: Ronni Chalmers, it's been an absolute pleasure. Thank you so much.

Ronni Chalmers: Alright, thanks Jessica.


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