07-Feb-2024:

Rapid-profitable-growth-delivering-H1-Adj-EBITDA-of-$26.1m.PDF

CTT-H1-FY24-Appendix-4D-and-Financial-Report.PDF

CTT-H1-FY24-Results-Presentation.PDF

Market Like!

Tony Hansen at EGP would be relieved...

As you can see with his market capitalisation bands, over half of Tony's EGP CVF portfolio is invested in microcaps with market value of less than $200m. Of the 8 disclosed positions that made up his top 10 positions as at 31 December, 7 are ASX-listed (Tellus is unlisted), so here (below) are the share price performances of all 7 of those listed companies over the past 3 years:

Smartpay (orange line, +51.06% over 3 years) has come good in the past year, and BWF (Yellow, +16.25%) has a positive return, but Cettire (CTT) is the outstanding performer in the portfolio, having shot the lights out in Oct/Nov 2021, then fallen back to a negative return in the middle of 2022 before shooting up again over the past 12 months.

This only shows share price movement, so does not include dividends, so with dividends added the return on Dicker Data (black line, -3.78%) would become positive over the three year period, and the same is probably also true with Shriro (green line) because they do pay good dividends, but UOS (purple line) would remain a negative return and the PPK return over 3 years would absolutely remain negative, despite the spin-out of PPK Mining Equipment (PPKME) which is worth very little and is also very illiquid. Further Reading: PPK Group's difficult transition to be a technology company - Australian Manufacturing Forum (aumanufacturing.com.au) [31-Aug-2022]

The above graph may help explain why Tony's EGP Concentrated Value Fund (CVF) has underperformed their own benchmark index (the ASX200 Total Return Index):

Source: https://egpcapital.com.au/wp-content/uploads/2024/01/2023_12_1.pdf

Tony likes small companies, but his best performer, Cettire, has a $1.2 Billion market cap, so it's NOT small. Neither is DDR, at over $2 Billion. The second best performer of those 7 has been Smartpay (SMP) which has come back up over the past year, and their m/cap is now $353 million, however PPK, BWF and SHM all have m/caps of less than $90 million.

Life can be tough at the small end, even for a full time professional fund manager.

I don't know if Cettire fits this discription well because I don't follow the company closely, but I personally prefer to have a core of larger companies that are high quality in terms of their management, their business model, their industry position, and their total shareholder returns over 5 and 10 years - or longer when applicable, and then I can add some higher risk smaller companies in around the edges. Smaller companies are much more likely to triple or quadruple in price than larger companies are, but larger companies - as long as they are good quality larger companies - are also generally less likely to lose 80% of their market value over one, two or three years. You can make a living out of investing at the smaller end if you are very, very good at it (like @Wini clearly is!) but for us mere mortals, it can be difficult to do it consistently, year after year.

I like a mix of companies, but the majority of my larger portfolios are larger high quality companies - like CSL, TNE, ARB, NST, WES, FMG, NWH, MND, MIN, MAQ, ALU, AD8, ABB, CDA, JLG, NCK (mid-sized but still very high quality), and so on... and then I'm more comfortable having exposure to smaller companies with higher risk but potentially higher upside potential, like EGL, AVA, DVP, GNX, etc., understanding that they may trade sideways or even head south east for a while before they take off, if they take off, but I can afford to have a few that don't, and sell out of those at a loss at some point when I accept that my investment thesis for that particular company is busted, as I have done with ZNO (sold in early 2022), 5GG (April 2023) and EVS (July 2023). All small positions at the time I bought those three, and even smaller positions when I sold them, but they've dropped further since and even if they rebound I'm not going to be unhappy because I followed my process.

I should point out however that share price movement doesn't determine whether or not my investment thesis is on track or busted, unless it's share price movement over a LONG period of time that alerts me to the fact that I must be missing something important about this company and I need to do some more research to find out what it is. I have never invested in Cettire (CTT), but if I had, say three years ago, I would have been feeling fairly smug about that in October and November 2021, but I would sincerely hope I would NOT have sold out in the first half of 2022 just because the share price was heading the wrong way, unless I was trading the stock, and planned to buy back in when they were back in an uptrend, but as an investor rather than a trader I should have held, as long as the business was going OK. The reality is a little more cloudy however because if memory serves, Cettire did not live up to their own guidance during that period so it appeared they were not scaling as well as had been expected and the rapid topline sales growth wasn't there either, so the hype came out of the stock.

However, this latest report seems to prove that there was a decent business underneath all that and those were just teething problems rather than a house of cards collapsing. But like I say, I don't follow them too closely. Not really my sort of business. I've never really been into the new wave of online only retailers (Kogan, Temple & Webster, etc.) - I prefer Nick Scali (NCK), ARB & Wesfarmers (WES, who own Bunnings, Officeworks, and dozens of other brands) where they can sell online in addition to in-store. But each to their own.

I reckon they'd be some happy Cettire shareholders today. It would be nice if they can go on with it tomorrow like NCK did today (+5.93%) after their +16.57% rise yesterday on the back of their stellar report.