Net Tangible Asset Backing - 31 December 2021
Clime Capital Limited Clime Capital Limited Level 1 2 , 20 Hunter Street Sydney, NSW 2000, Australia | PO Box H90, Australia Square, NSW 1215 ABN 99 106 282 777 P 02 8917 2100 W www.clime.com.au T @climeinvest 1 4 January 202 2 Company Announcements Australian Securities Exchang e Net Tangible Asset Backing Please find attached Net Tangible Asset s report of Clime Capital Limited (ASX: CAM) as at the close of business on 3 1 Dec em ber 2021 . For further information contact: John Abernethy Chairman Clime Capital Limited (02) 8917 2107 Clime Capital Limited | December 2021 About Clime Capital Limited Risk Management Although a diversi?ed portfolio, investing in CAM is considered high risk. The risks associated with investing in a LIC that should be considered include liquidity risks, regulatory and tax risk, and manager risk. Risk management and capital preservation has long been a cornerstone of the Clime Asset Management Pty Ltd (Clime) investment philosophy. The Clime investment team applies a rigorous valuation methodology, coupled with sound portfolio construction principles, to identify upside whilst mitigating downside risk. Facts Clime Capital Limited (ASX: CAM) is an actively managed, Listed Investment Company (LIC) providing exposure to high quality large caps, small caps and income securities. CAM’s core objective is to provide investors with a dividend yield and franking rate that is consistently higher than that achieved by the S&P/ ASX 200 Index. CAM has paid a quarterly fully franked dividend to shareholders every quarter since 2009. Investor Suitability CAM is designed for investors who are seeking: • Long-term capital preservation when measured against in?ation • Access to quarterly income with the added bene?t of franking credits • The expertise of a professional Investment Manager, focused on quality and value • Have a minimum of 5 years to invest Benefits CAM o?ers a number of key advantages to investors: • Quarterly fully franked dividends • A disciplined investment process with a bespoke focus on quality and value • Daily liquidity provided by the Listed Investment Company (LIC) structure • Professional portfolio management services from a dedicated investment team NTA before tax (CUM Dividend) NTA after tax (CUM Dividend) Gross Portfolio Value Rolling 12 Month Dividend Historical 12 Month Dividend Yield Historical 12 Month Dividend Yield including Franking credits $0.945 as at 31 Dec 2021 $0.935 as at 31 Dec 2021 $169.2 m 5.25 cents per share 5.9% 8.4% Gross Asset Allocation AUSTRALIAN EQUITIES SMALL CAP 30.7% AUD CASH & EQUIVALENTS 7.5% AUSTRALIAN EQUITIES LARGE CAP 52.8% Assets $M Australian Equities 141.2 Australian Income Securities 15.3 AUD Cash & Equivalents 12.7 Gross Portfolio Valuation 169.2 Convertible Notes (CAMG) * -36.5 Net Tangible Assets Before Tax 132.7 Portfolio Asset Allocation Company Adairs ADH Australia & New Zealand Banking Group ANZ APA Group APA BHP Group BHP Coles Group COL Hansen Technologies HSN Insurance Australia Group IAG Integral Diagnostics IDX Jumbo Interactive JIN Mach7 Technologies M7T Mineral Resources MIN Macquarie Group MQG National Australia Bank NAB Navigator Global Investments NGI Oz Minerals OZL Resmed RMD RPM Global RUL Sonic Healthcare SHL Seven Group SVW Westpac Banking Corporation WBC Top 20 Holdings (in alphabetical order) ASX Code Ronni Chalmers Portfolio Manager All Cap Australian Equities Vincent Cook Portfolio Manager Large Caps Jonathan Wilson Portfolio Manager Small Caps Share price as at 13 January 2022: $0.895 *CAMG are unsecured, convertible notes in CAM which, if redeemed, would need to be paid out at face value. AUSTRALIAN INCOME SECURITIES 9.0% Will Riggall Chief Investment O?cer Clime Capital Limited | December 2021 Market Commentary Share markets were volatile during December but rallied towards month end with solid gains. The ASX 200 Accumulation Index rose by 2.8% to ?nish the calendar year with a gain of 17.2%, as investors pondered whether 2022 would continue to deliver positive returns. In the US, calendar year gains across the major indices were exceptionally strong: the S&P 500 was up 28.7%, the Nasdaq rose by 22.2%, and the Dow Jones lifted by 21.0%. Leading contributors to the S&P 500’s performance were Microsoft and Apple, the world’s two largest companies by market capitalisation. European and Japanese market returns were likewise robust over the last 12 months, whereas Chinese stocks performed poorly. Over the course of 2021, bond yields rose, energy prices and agricultural commodities maintained high levels, and the Australian dollar fell from US$0.77 to US$0.73. Early in the new year, the pall of COVID-19 still hangs over us. Omicron has proved a less lethal variant than Delta, though it spreads faster. COVID-19 cases have surged around the world amid concerns over how far the new strain could a?ect supply chains, the cost of goods, and economic performance. Volatility underscores how con?dence can be shaken by unexpected pandemic twists. Heading into the new year, we remain cautiously optimistic about the potential for stocks to continue their upwards trajectory even as the pandemic continues. At the same time, tightening monetary policy presents a headwind for the year to come. The in?ationary consequences of the last two years of binge borrowing by governments, and currency printing by central banks (Quantitative Easing - QE), is catching up with us. Net Tangible Assets (NTA) Dec Nov Oct NTA before tax (CUM Dividend) $0.945 $0.920 $0.940 NTA after tax- (CUM Dividend) $0.935 $0.915 $0.930 1 On 22 November 2021, the Board declared a fully franked dividend of 1.28 cents per share in respect of the Company’s ordinary shares for the period 1 October to 31 December 2021, payable on 28 January 2022. NTA before and after tax disclosed above for December 2021 and November 2021 are before the e?ect of this dividend payment. ² On 17 August 2021, the Board declared a fully franked dividend of 1.27 cents per share and a special dividend of 0.25 cents per share in respect of the Company’s ordinary shares for the period 1 July 2021 to 30 September 2021, payable on 28 October 2021. NTA before and after tax disclosed above for October 2021 is after the e?ect of this dividend payment. 1 However, QE has further to go before peaking and tapering begins. Central banks are expected to gently raise interest rates as they shift from earlier predictions that in?ation would prove limited and short lived. QE was designed to push down long-term interest rates, and it did the job. However, it also triggered asset bubbles, including segments of the equity and property markets. Global politics remain a concern. President Biden is struggling with low poll ratings and is ?nding it di?icult to get his spending and tax measures through the Senate. The Democrats are likely to lose their slim majority in the November mid- term elections. The democratic West is having to adjust to the new China, one that is more autocratic and nationalistic, as Xi Jinping asserts himself and expands China’s sphere of in?uence. Energy price rises have in part been brought on by Russia’s manipulation of gas supply for Europe, while supply chains have had problems with goods deliveries from China. Australia will face a federal election before the end of May. Meanwhile, two profound themes continue to attract attention and capital: the digital transformation and the green energy revolution. In Europe, 2022 began with governments struggling to combat the surge in energy prices, which are damaging incomes and output. A further emerging theme is that investors are taking a stronger interest in the environmental, governance, and social issues around their investments. In?ation After earlier dismissing the threat of in?ation, the Fed’s pivot on the issue is part of a general shift. Assurances from major central banks, including the Reserve Bank of Australia (RBA), that in?ation would be transitory and monetary policy would continue to remain in stimulus mode, are now being reversed. Markets will no longer bene?t from massive liquidity injections to power them through choppy economic waters, and investors will have to assess the impact of the in?ation surge. It is our view that the rise in interest rates will produce a signi?cant test for markets over the coming year. However, it is well anticipated, and markets are already adjusting. 2022 Outlook As the new year unfolds, central banks, governments, and markets have a huge stake in in?ation coming down in an orderly way. Much will depend on the course of the pandemic. We expect the global economic recovery will continue but at a slower pace. Amongst the 2 1 2021 major economies, we continue to monitor China. Slower growth in China will impact the prices of Australia’s major commodity exports. There appears limited room for the global economy to surprise on the upside, with the outlook for highly priced growth assets to be tested by moderately higher bond yields. However, solid businesses that bene?t from in?ation and moderate economic growth will continue to do well. The key risks include: • further adverse developments with the pandemic; • a sustained outburst of higher in?ation; or • policy error caused by central bank or government misjudgement. Increased volatility in markets during the year ahead appears to be a likelihood and will be utilised to acquire appropriate investments. The information contained in this document is published by CAM’s Investment Manager, Clime Asset Management Pty Limited ABN 72 098 420 770 AFSL 221146 (Clime). The information contained herein does not take into account the investment objectives, ?nancial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein. Past performance is no guarantee of future performance, and investing involves risk. Information is current as at 31 December 2021, unless otherwise stated. Invest in people, who invest in you. Client Services 1300 788 568 | firstname.lastname@example.org | climecapital.com.au Clime Capital Limited | December 2021 All statistics and information referenced are sourced from the named Company’s ASX announcements, share prices, website, or discussions with Clime unless otherwise stated. WBC returned -15.6% in the quarter, re?ecting a 5% miss relative to consensus earnings expectations at the pre-provision operating pro?t line for the 2021 ?nancial year and further downgrades to forward expectations. The key driver was a rebasing of net interest margins as WBC seeks to return mortgage credit growth back to system. PDL returned -29.7% as positive momentum in in?ows turned to out?ows in the latter part of the year. The majority of out?ows were speci?c to one large institutional client who withdrew mandates from several managers as a result of an internal rebalancing directive. PDL’s investment performance across its fund range remains strong and Clime expects in?ows momentum to improve in coming quarters. EOS declined 31.8% during the quarter on delayed completion of SpaceLink Tranche 1 funding totalling ~$100m, after contracting OHB Systems to manufacture 4 satellites for the initial constellation. OHB has cornerstoned the funding round with a $25m investment. We expect an update to be provided shortly. The market is frustrated with delays; however, we believe these issues will be largely resolved in 1H22. M7T fell 21.9% after the business experienced operating cash out?ows in 1Q22. In November M7T announced AI Visualize, a company with no operations, had brought a patent infringement litigation against Nuance and M7T. Nuance was recently acquired by Microsoft for $19bn. We believe the litigation is likely without merit and that M7T will report a much stronger 2Q22. Portfolio Commentary Key contributors to the portfolio return for the quarter were: • Australian Equity Large Cap contributors: BHP Group (BHP), OZ Minerals (OZL) and Mineral Resources (MIN) detractors : Westpac Banking Corporation (WBC), Pendal Group (PDL). • Australian Equity Small Cap contributors: Jumbo Interactive (JIN), and Nick Scali (NCK) detractors: Electro Optic Systems (EOS), Mach7 Technologies (M7T). BHP returned 10.3% over the quarter, re?ecting strengthening iron ore (+5.5%) and copper (+8.9%) prices. We retain a positive view on the long-term outlook for copper supply/ demand, resulting from the energy transition and constraints on production growth. The iron ore price outlook in the near term has also improved with a more supportive regulatory backdrop for the property market in China. OZL returned 25.4%, re?ecting the strength in the copper price (+8.9%). The copper price increased by 25.7% over the calendar year in USD terms, which was further supported by a 5.6% depreciation of the AUDUSD exchange rate. MIN returned 25.0%, re?ecting the improved iron ore price, and continued strengthening in lithium prices. The spodumene price rose a further 65.2% for the quarter, bringing the full year gain to 486.0% in USD . JIN returned 20.4% on the back of a strong run of large jackpots in the December quarter, with 15 jackpots in 2Q22 versus 7 in 2Q21. Regulatory approval JIN’s acquisition of Canadian lotteries manager provider, Stride, was delayed from 2Q22 to 4Q22. NCK returned 38.1% for the quarter following a positive October Annual General Meeting (AGM), as well as ?nalisation of the Plush acquisition in November. Per AGM commentary, despite COVID disruptions, NCK has experienced ‘buoyant’ trading, while gross margins improved slightly to 63.5%. With a net cash balance sheet, a strong order book and planned doubling of the Plush network, NCK is well positioned.
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