Acorn Capital Investment Fund (ASX:ACQ) Presentation, FNN Online Investor Event, October 2020

Company Presentations

Acorn Capital Investment Fund (ASX:ACQ) Portfolio Manager Robert Bruce give an update on the company and its unique opportunity, not otherwise available to investors, to invest in Acorn's emerging growth strategy.

Robert Bruce: Good afternoon. Thanks for the opportunity to speak to you. We'd like to provide you with an update on ACQ, it is a listed investment company, providing investors with a unique opportunity to invest in Acorns emerging growth strategy that's not otherwise available to them.

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This structure, as an LIC, we think is suitable to provide access to innovative listed, and also unlisted companies, in a single portfolio. The strategy is designed to deliver dividend income, capital growth, and we manage risk by diversification, both across industries, but also different stages of development.

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The pre-tax NTA at the end of September has risen to $1.47 per share, and the post-tax $1.40 per share. The portfolio is spread across 81 different investments, including 22 unlisted investments, which account to 32% of the portfolio. Over the last year, ACQ has delivered a total return after fees of 16.4%, which exceeds the small ordinaries benchmark, which has declined by 3.3%. So, significant 19.7% out performance there, with strong contributions from healthcare, IT and industrial sectors. Acorns sustainable repeatable process we think is demonstrated with a 14.2% gross return since inception, compared to a benchmark of only 6.9%. In the last 12 months, ACQ is paid 7.5 cents per share, fully franked ordinary dividends, equating to a yield at 6.1% of the closing price on the 30th September.

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Just focusing on the dividends here, you can see over the journey since listing, Acorns paid out almost 26 cents per share, in fully franked dividends, with the current 7 and a half cents in the last year. We think the policy of sustainable dividends has been put in place by the board, with adopting a policy of paying out at least 5% of post-tax NTA in annual dividends. The reliability of the dividend is also supported by having $23 million in dividend reserves, equivalent to 34 cents per share on the expanded share base.

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Some of the highlights that are a 25% net performance return for the September quarter, we're seeing healthcare industrials X capital goods and IT all generating at least 50% returns. The portfolio return of 16.4% for the last 12 months is well above the benchmark. The consistent performance we can see with alpha generated over one to five years and also since inception, and that we have a fully franked final dividend of 3.75 cents per share being declared and it's payable in November. On the 14th of September, ACQ announced a one for four entitlement offer, and also during the quarter Aroa Biosurgery successfully listed on the ASX. And just recently, last Friday, ACQ's largest single investment, Clean Space also listed. Both of these did sell at a significant premium to the IPO price.

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Just on the entitlement offer, in September, we announced one for four offer for shareholders at $1.10 per share. These shares under the entitlement offer were entitled to receive the final dividend of 3.75 cents per share, and that's payable on the 27th of November. Shareholders strongly supported the offer and we had over 900 shareholders participating, which is more than 60% by number, with applications for $24.3 million for a raise for just under $15 million. The new shares commenced trading on the 14th of October, and we note that the share price last Friday closed at $1.38 per share. So, well above the $1.10 issue price. Acorn Capital will maintain its strategy to deploy this additional capital into ongoing attractive market opportunities, in both the listed and unlisted space.

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Obviously, it's a turbulent time. Some of the changes that have occurred, we've seen the growth in the domestic tourism now, which is a hundred billion dollar industry, offset by international outbound trips virtually ceasing. Now it's a $64 billion industry that has been redirected into domestic markets and spending domestically. Similarly, the entertainment and restaurant industry has fallen by 26% in the last six months since March, that's an annualised $12 billion fall. Whilst a significant amount of this will rebound, consumers continue to spend at home and online. These structural changes in the way we live, consume and work have been coming through into it to the way we're investing and accelerating massively with the onset of COVID. Some of the changes that were already evident in the economy. The ACQ portfolio is well positioned, we think, to benefit from both this disruption from COVID and also the acceleration of underlying industry trends, such as online retailing and e-commerce.

In Australia, online sales have grown 80% over the last six months. We're well positioned at Acorn. We have a position in Red Bubble, which is the leading global, not just Australian but global, online market place, providing unique product to consumers. It's growing at 116% in the first quarter, with high operating leverage translating to profitability. Management, we believe now, has elevated the delivery of shareholder returns to a higher priority. Fortifying the home and working from home has also been in strong demand. We see the companies like Adairs, Dusk and Beacon Lighting well positioned here to benefit from that. They're both omni-channel retailers benefiting from the shift to the online market, as well. In learning Acorn Capital has a position in Cluey Learning, which is providing online tutoring to a fragmented industry. Also, Kip McGrath is doing well in that space and has pivoted to the online market.

Janison Education also is one that we've followed for some time, and whilst it was initially disrupted by COVID, we believe that demand for online assessments will accelerate and a refresh management team capable of implementing this. Similarly with the home fortification process and home beautification, we're seeing, obviously, some very strong demand there and companies like Harris Technology providing online IT equipment is well-positioned there and has recently been growing at 300% to 400%. In communications also, as people work remotely and in a dispersed manner, Whisper provides critical communications as a software platform, and has achieved more growth in the fourth quarter than it did in the whole of 2019. Other players in that space Over The Wire, which is benefiting from good organic growth in voice and security demands by SMEs working remotely. Rhipe is really accelerating with the digitalisation of business and more demand for Microsoft Cloud software.

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Outside of COVID also, Acorn continues to invest in areas where we see strong, ongoing, structural growth in companies that provide both innovation and a sustainable, competitive advantage. We're strongly positioned there in gold healthcare, including med tech, and disruptions in financial services and battery minerals and clean energy are some of the thematics we're investing in there. In healthcare specifically, we see structural changes in the delivery of medical services. This is personalised health care covering diagnostics and therapeutic approaches, where we think TLX Pharmaceuticals is very well positioned. The digitalisation of healthcare covering the full spectrum from using technology for core efficiency gains, like workflow management, to supporting clinical decision-making and also digital medical devices. In this space we like Obsidian, Max 7, MedAdvisor and LBT.

Finally, the decentralisation of healthcare, where the management of chronic illness, such as diabetes and obesity, is taken away from acute care facilities to the home market. Specialist service centres for management of mental health and aging, and point of care for diagnostic testing versus centralised lab testing, and we've here got an interesting investment in a private company, Lumoss, as well as listed market players in ImpediMed and Somnomed. And finally, in terms of novel therapeutic approaches to disease management, we think that Opthea, Immutep and Kazia are well positioned in this market.

For the next generation of materials, what we saw through 2016 or 2018 was really a boom in electric vehicles. That demand was all about China. But now in 2020, we're seeing the next EV metal boom, and it's globally driven. So, that's a growing public awareness of climate change and the risks, mandatory government policies on emission standards, particularly in Europe. We're seeing at least 30 new EV models scheduled for release in 2020 in Europe and the US alone. And companies like Amazon buying electric fans, highlighting that they must be becoming cost effective. We believe that demand for specialty metals and minerals growth will be driven by these advanced technologies requiring higher purity metals and semiconductors.

Finally, in FinTechs, we're seeing a lot of disruption in financial services. The major banks have been burdened by legacy systems, high costs and increased regulatory scrutiny. There are a number of disruptors building strong and solid businesses in that space. At Acorn Capital, we've got a long-held investment in Moula Money, in the SME lending market, which is really grown strongly.

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I'd just a lot to highlight here, Acorn Capital's strength in unlisted private investments. We've been doing this for 11 years, and ACQ offers an investor an opportunity to access some of these unique investment opportunities, not otherwise available to the broader market, in a way that manages risk through portfolio diversification. We've been doing it for 11 years, so proving our capital management capability. We've had considerable returns that have been driven by the recent listings of a Aroa, Calix, CleanSpace last week, Telix Pharmaceuticals. We also continue to hold significant investments in innovative private companies, which are pretty exciting, like Cluey Learning, Moula Money, Elenium, Flare HR, as examples. ACQ currently holds 22 unlisted investments and we've achieved on liquidity for another 21 investments, an average weighted uplift of 57%.

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I'd just like to highlight Clean Space here. ACQ invested in Clean Space back in 2015. So, we've nurtured this investment for five years. We originally invested at a $15 million valuation and it recently listed at $340 million. We are attracted to the innovative product development and patent Breath Responsive Positive Pressure System technology. It had a strong management team that had come out of ResMed, and is really now benefiting from the strong demand for the protection of frontline healthcare workers on a global basis, really resulting in accelerated global sales. We really see this event as a company making event for Clean Space, which has been pursuing a strong global growth platform for a number of years.

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The top 10 here investments, I think, provide a snapshot of the diversification of the portfolio. It's got five listed and five unlisted companies there, and they are represented by six different industry sectors. I'm happy to talk on it further, if anyone wants to approach me later.

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In summary, we believe that ACQ is an attractive investment option for investors. We've got a proven strategy of delivering out performance since inception. It's an attractive income stream with a sustainable dividend yield. The strategy provides an unique exposure to attractive emerging companies, who are both capital hungry, creating strong potential returns in significant primary market opportunities. Acorn capital will now deploy the additional $15 million selectively into attractive opportunities, in both the listed and unlisted markets, and optimise the portfolio balance now. We think that the additional capital will also broaden the potential investor base with increased size and liquidity. Thank you.

 
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