DMXASF Monthly ReportOctober 2021 – DMX
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An investment company managed by
DMX Asset Management Limited AFSL 459 120 13/111 Elizabeth Street, Sydney, NSW 2000 Trustee & Administrator Fundhost Limited AFSL 233 045 |
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Dear Investor,
DMXASF’s NAV increased 6.11% (after fees and expenses), again ahead of the ASX 200 Total Return Index which was flat for the month, down 0.10%. With little detracting, some meaningful re-rates to a handful of our companies drove a strong result for the month. In a few instances we feel some prices may be getting ahead of themselves in the short term. But in others, clearly positive developments underwrote their price appreciation and we’re as, if not more, enthused than as before the rises. For the most part we are holding, looking through the short-term gyrations, and are very focused on the potential for value creation over the long-term. With a few companies we are taking the opportunity to trim or even exit in order to raise cash to pursue more compelling opportunities.
Indeed, as has been the case now for the past few months, cash is around or under 10% and we continue to find great opportunities for the portfolio. We have seemingly been as focused on finding holdings to sell among our stable of 40 as we are on finding companies to buy among the several hundred on our radar.
Portfolio Commentary
As was the case for DMX Capital Partners (DMXCP), the quarter was driven by a 49% increase in Ansarada, as well as a 54% increase (versus our capital raise entry price) in Aeeris in which we initiated a position through corner-stoning alongside DMXCP a meaningful capital raise during the period.
Among positions held independently of DMXCP, Elmo Software recovered 19% as the company highlighted an acceleration of organic growth for the start of FY22. Michael Hill rose another 12% after strong same store sales in Q1 and with investors eying a near-term reopening retail bonanza. Frontier Digital Ventures rose 14% on the back of quarterly results that included 72% increase in organic revenues with important assets showing operational leverage.
As outlined in the DMXCP report, several key holdings had important updates this month:
The DMXCP report includes commentary that is equally relevant to DMXASF. For your easy reference, we include the write-ups on Raiz and Yellow Brick Road as an Appendix to this report.
In addition to the pleasing developments as outlined above, we held a number of management meetings during the month and in each case were encouraged by what we heard. We highlight Sequoia Financial Group as an example.
Sequoia Financial Group
One of the largest holdings across both portfolios is Sequoia, a financial services company providing various services directly to clients, as well as a range of business support and compliance services to accountants, financial planners and third party AFSL holders. We met with CEO Garry Crole and took the opportunity to drill down on their Wealth and Equity Markets divisions to better understand what was driving the outstanding financial results for FY21.
The Wealth division, which services 400+ wealth advisors, made four acquisitions over the last three years and is enjoying the benefits of scale in an increasingly burdensome regulatory environment since the Royal Commission. With smaller companies struggling to cope with the extra compliance requirements, and banks and insurers exiting the industry, the opportunity to grow by acquisition will continue to be a focus in FY22. Additionally, while advisors are leaving the industry in droves, Sequoia is managing to attract advisors providing organic growth over and above acquisitive activities.
The Equity Markets division is enjoying a strong turnaround with a strong contribution from Morrisons Securities which provide Trading and Clearing services. Unlike listed competitor Selfwealth, which is exposed to the activity of retail investors, Morrisons deals with industry participants with average trade sizes of ~$95k. Remarkably, the business has grown revenues from ~$2m in 2017 to over $24m in 2021 and is now profitable. This has overwhelmingly been driven by new client wins rather than market activity. Peers such as Finclear, Pershing, and OpenMarkets are attracting high valuations in recent transactions making Morrison’s somewhat of a hidden asset for Sequoia.
We consider Sequoia to be a high-quality business with great leadership and strong culture that continues to attract quality people into the fold. It enjoys a combination of annuity and transaction revenues streams that are growing at above-market rates. Despite its strong share price performance over the past couple years, we believe the shares remain attractively priced for long-term oriented investors.
In Summary
With our effectively fully-invested position, we’re working hard to identify compelling opportunities, and manage an appropriately constructed diverse portfolio of these. The process is engaging and as always we continue about our business with enthusiasm and an eye to the long-term potential.
Thank you for your trust and support.
DMXASF’s NAV increased 6.11% (after fees and expenses), again ahead of the ASX 200 Total Return Index which was flat for the month, down 0.10%. With little detracting, some meaningful re-rates to a handful of our companies drove a strong result for the month. In a few instances we feel some prices may be getting ahead of themselves in the short term. But in others, clearly positive developments underwrote their price appreciation and we’re as, if not more, enthused than as before the rises. For the most part we are holding, looking through the short-term gyrations, and are very focused on the potential for value creation over the long-term. With a few companies we are taking the opportunity to trim or even exit in order to raise cash to pursue more compelling opportunities.
Indeed, as has been the case now for the past few months, cash is around or under 10% and we continue to find great opportunities for the portfolio. We have seemingly been as focused on finding holdings to sell among our stable of 40 as we are on finding companies to buy among the several hundred on our radar.
Portfolio Commentary
As was the case for DMX Capital Partners (DMXCP), the quarter was driven by a 49% increase in Ansarada, as well as a 54% increase (versus our capital raise entry price) in Aeeris in which we initiated a position through corner-stoning alongside DMXCP a meaningful capital raise during the period.
Among positions held independently of DMXCP, Elmo Software recovered 19% as the company highlighted an acceleration of organic growth for the start of FY22. Michael Hill rose another 12% after strong same store sales in Q1 and with investors eying a near-term reopening retail bonanza. Frontier Digital Ventures rose 14% on the back of quarterly results that included 72% increase in organic revenues with important assets showing operational leverage.
As outlined in the DMXCP report, several key holdings had important updates this month:
- Ansarada undertook a small bolt on acquisition, TriLine GRC - a governance, risk and compliance (GRC) SaaS company with customers in Australia, New Zealand, UK and Ireland. This acquisition will strengthen Ansarada’s capability in the fast-growing GRC market. While small, the acquisition looks strategically sensible and wellpriced.
- Swick Mining agreed to a scheme of arrangement with DDH1 Limited, with Swick holders receiving shares in DDH valuing SWK at $0.35 per share. Swick shareholders will also receive Orexplore shares under the proposed Orexplore demerger. While we do not consider this to be a full price for SWK, the offer does allow SWK holders to participate in the synergies expected to be extracted as a result of the merger. We continue to hold our SWK shares.
- Aeeris which provides environmental risk monitoring services to corporate and government clients, raised funds to capitalize on some attractive growth opportunities and to fund additional development of its climate reporting tools. As mentioned in our last update we cornerstoned this raise and became a substantial holder.
The DMXCP report includes commentary that is equally relevant to DMXASF. For your easy reference, we include the write-ups on Raiz and Yellow Brick Road as an Appendix to this report.
In addition to the pleasing developments as outlined above, we held a number of management meetings during the month and in each case were encouraged by what we heard. We highlight Sequoia Financial Group as an example.
Sequoia Financial Group
One of the largest holdings across both portfolios is Sequoia, a financial services company providing various services directly to clients, as well as a range of business support and compliance services to accountants, financial planners and third party AFSL holders. We met with CEO Garry Crole and took the opportunity to drill down on their Wealth and Equity Markets divisions to better understand what was driving the outstanding financial results for FY21.
The Wealth division, which services 400+ wealth advisors, made four acquisitions over the last three years and is enjoying the benefits of scale in an increasingly burdensome regulatory environment since the Royal Commission. With smaller companies struggling to cope with the extra compliance requirements, and banks and insurers exiting the industry, the opportunity to grow by acquisition will continue to be a focus in FY22. Additionally, while advisors are leaving the industry in droves, Sequoia is managing to attract advisors providing organic growth over and above acquisitive activities.
The Equity Markets division is enjoying a strong turnaround with a strong contribution from Morrisons Securities which provide Trading and Clearing services. Unlike listed competitor Selfwealth, which is exposed to the activity of retail investors, Morrisons deals with industry participants with average trade sizes of ~$95k. Remarkably, the business has grown revenues from ~$2m in 2017 to over $24m in 2021 and is now profitable. This has overwhelmingly been driven by new client wins rather than market activity. Peers such as Finclear, Pershing, and OpenMarkets are attracting high valuations in recent transactions making Morrison’s somewhat of a hidden asset for Sequoia.
We consider Sequoia to be a high-quality business with great leadership and strong culture that continues to attract quality people into the fold. It enjoys a combination of annuity and transaction revenues streams that are growing at above-market rates. Despite its strong share price performance over the past couple years, we believe the shares remain attractively priced for long-term oriented investors.
In Summary
With our effectively fully-invested position, we’re working hard to identify compelling opportunities, and manage an appropriately constructed diverse portfolio of these. The process is engaging and as always we continue about our business with enthusiasm and an eye to the long-term potential.
Thank you for your trust and support.
