Discl: Held IRL and Pending in SM

Following the very good SM meeting with the DBI CEO Michael Riches and my notes last night, I opened a 0.65% position on DBI this morning at $4.34. my immediate buy level. Have also opened a position on SM which is pending.

This was another holding where I gained strong conviction as soon as I wrapped up listening to the SM meeting, and decisively pulled the trigger early this morning. The following is my thesis.

CURRENT PORTFOLIO CONTEXT

• 18 companies + 2 ETF’s vs portfolio limit of 20 companies + 2 ETF’s
• Significantly fast growth, technology skewed
• Dividends is not a current explicit focus or investment objective, although 6 of 18 companies plus both ETF’s are active dividend/distribution payers - 40% of the portfolio companies are dividend/distribution. This is not expected to change despite not being too far from entering SMSF pension phase
• Hold no commodity miners, only critical/essential pick and shovel services to the mining industry

DBI INVESTMENT THESIS

1. Very significant and tight investment moat in the Dalrymple Bay Terminal (DBT) as it relates to the Bowen Basin met coal miners - the alternative ports of Gladstone and Port of Abbot Point are much further and add significant cost
2. The miners have direct skin in the game in the running and financials of the DBT, and are locked in as customers for a very long time given mine life spans, further entrenching the moat
3. High revenue and cost certainty - pricing, capacity, cost pass thru’s are all locked in through to 2031, any risk of non-recontracting of capacity is mitigated by the cost being spread to remaining contracted customers - this is ALMOST risk-free, given how the arrangements are contracted
4. High dividend yield certainty and growth - fixed deposit-like as capex requirements are well understood, well managed, cost is hedged, all capex is essentially cost recovered from customers. There is very little to no-risk that there will be sufficient funds to sustain the growing dividends in the foreseeable future. Dividends are likely to grow every 1-2 years given historical trajectory - nothing to suggest this trajectory will remain as the base case, with all the upside of higher dividends as revenue improves
5. Good upside opportunities in the share price from any small incremental improvements that are made to the facilities when they directly impact revenue as any capex improvements come with virtually no cost uplift to DBI given the cost recovery arrangements. The revenue profile will also likely see a step up once the 8x Project is delivered to add further capacity to the Port. This is reflected in the long term up trend of the share price.
6. Good and likely to be strong price downside support as falls in the share price increases the dividend yield, assuming no change in the business fundamentals
7. Risks of global decarbonisation are noted, but this still feels like a long way away - mitigated by the increased demand expected from newer steel making countries India, Vietnam etc.

DBI is thus a truly investment-grade, high certainty holding, that will add significant ballast and good diversification to the current high fast-growth Technology centric portfolio skew.

POSITION SIZE

Expect to build this out to a 2.0 to 2.5% holding over time.

APPROACH TO BUILDING POSITION

Because of the yield implications, the DBI position needs to be built more carefully than previous holdings - over paying will reduce the dividend yield and thus, the attractiveness of the DBI investment.

• Opened a 0.65% in DBI today at $4.34 as the price briefly fell to this level, which locks in a 5.64% yield on FY26 distributions - this is a higher than my usual opening position size
• Next attractive top up levels will be ~$4.21 (5.82% Yield), then $3.99 (6.14% Yield)
• Will need to be decisive in topping up if price falls below $4.34 on no negative change to the business fundamentals