Thursday 28th July 2005
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Listed investment company Salvus says that despite a weaker short-term outlook, “the long term fundamentals of the New Zealand smaller company market remain firmly intact.”
It says that the stock market was weak in the past quarter with the Small Companies Index down 0.2%. The Salvus fund though managed to out perform the market with a 1.6% increase in its net asset value.
In the 12-months ending June 30, the benchmark declined 3.6% versus Salvus's NAV rise of 0.2%, resulting in an outperformance of 3.8%. Salvus says that it holds 22 stocks, of which two are NZAX listed and one unlisted.
Its core holdings include Hallenstein Glasson, Provenco, Abano Healthcare, Methven, 42 Below and Mainfreight, but it hasn’t disclosed its other holdings.
Five of the core holdings outperformed the benchmark over the quarter.
Significant positive contributions came from Abano Healthcare and Mainfreight.
“Abano is a typical value style investment which trades at a discount to the sum of its component healthcare companies. The significant out-performance since acquisition has resulted from the divestment of its aged care assets to Macquarie Bank in conjunction with a proposed capital return of $10m to shareholders.
“In addition, Abano has recently announced the acquisition of a 70% stake in Bay Audiology for what appears to be a reasonable price. Bay Audiology has an impressive track record of both organic growth and growth via acquisitions with the company now comprising 12 clinics and 17 satellite clinics throughout the country.”
“Through this latest acquisition, Abano is transforming itself into a profitable and growth-orientated New Zealand healthcare play.”
Mainfreight's outperformance resulted from a positive earnings result on the back of significant improvements in the Australian and US based international businesses and a breakeven result from the Australian domestic business in the fourth quarter. In addition, Mainfreight announced its intention to make a full takeover offer for Owens with the expected benefits to flow through in FY06.
Of Salvus’s core holdings Methven was the only laggard, under-performing the benchmark by 0.5%. Methven's slight underperformance was despite comfortably exceeding its prospectus revenue and profit forecasts.
A new holding in Skellmax was added to the portfolio after weakness in the share price after its removal from the NZSX 50 Index.
“Skellmax has a core sustainable business involving dairy consumables that generate high operating margins and a high return on equity. The company has a strong management team committed to a growth strategy which includes both organic growth and acquisitions that complement existing businesses.
Skellmax is trading on relatively attractive valuation multiples and has an above average dividend yield.”
Significant holdings at June 30:
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