Writing in its September 2018 update, the MHOR Australian Small Cap Fund said performance for the month was driven by exposures to mining services and resources, specifically energy.
The fund exited the month with 48 investments, and 16 per cent cash. Portfolio managers James Spenceley and Gary Rollo are modestly bullish and expect the share market to continue its grind higher.
In September, the fund increased its resource related exposure to a modest overweight, swapping some mining services names for resources.
The fund’s largest underweight remains the discretionary consumer sectors as the managers continue to see headwinds from house price declines and credit tightening impacting domestic consumption.
These three ASX shares were big winners for the fund in September.
The Alliance Aviation Services Ltd (ASX:AQZ) share price gained 11 per cent in September, and is now up more than 350 per cent since the fund first started buying AQZ shares.
The fund said the next catalyst for the stock is the upcoming Alliance Aviation Services AGM where the portfolio managers anticipate a material capital management / dividend event reflecting the quality of the earnings and asset position the business is now in.
In August, Alliance reported full year profits increased 33 per cent and announced a record full year fully franked dividend of 8.8 cents, up 193 per cent on the prior year.
Alliance Aviation is provides essential fly in fly out services to mining, energy, tourism and government sectors.
With Alliance Aviation Services shares currently at $2.40, they trade on a price to earnings ratio (P/E) of around 16 times earnings and a fully franked dividend yield of 3.67 per cent.
The Ausdrill Limited (ASX:ASL) share price rose 10 per cent in September. In August, the mining services company raised $250 million at a share price of $1.47 to fund the acquisition of Barminco, one of Australia’s leading underground hard-rock mining contractors.
The MHOR Australian Small Cap Fund said Barminco’s Australian domestic underground mining assets offer a lower capital intensity, higher returns and lower earnings volatility than Ausdrill’s existing businesses.
“We think these are quality factors the market will appreciate over time, in the meantime buying ASL on sub 4x EBITDA, a material discount (35+ per cent) to peer like exposures,
made sense to us,” said the portfolio managers.
The Sundance Energy Australia Ltd (ASX:SEA) share price rose 16 per cent in September on higher oil prices and what the fund thinks are expectations rising ahead of what it sees as very important production results in SEA’s September Operational report.
Sundance acquired proven acreage in a large re-capitalisation like transaction in March 2018. The fund said the first (5) wells associated with that acreage – Live Oak – were drilled in mid-August, meaning that we should get the important initial production stats for these wells.
“This data will give us some early insights on expected future returns SEA might get as it deploys the latest drilling and completion technology across the acquired acreage,” said the portfolio managers.