Hyperion High Conviction Large Cap Report

June 2020

Global equity market indices rose for a third consecutive month as countries around the world continued to ease their lockdown and social distancing restrictions. The International Monetary Fund (IMF) provided an update on its world economic outlook, now projecting that the global economy will contract sharply by 4.9% in 2020, 1.9% below its April forecast. The IMF notes that the extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects, raising the possibility that financial conditions may tighten more than assumed. In the U.S., the S&P 500 Index returned +2.0% despite data revealing an improved but elevated unemployment rate of 13.3% with the most severe job losses sustained by those with low-wage jobs. Meanwhile, Fed Chair Jerome Powell noted that the Federal Reserve will continue to purchase bonds, indicating purchases of $80b a month in Treasury Bonds and $40b a month in mortgage-backed securities. In Europe, the Euro STOXX 50, German DAX and FTSE 100 indices returned +6.5%, +6.2% and +1.7%, respectively. During the month, the Eurozone’s composite PMI index improved to 48.5 although the region continues to show subdued levels of manufacturing output and services sector activity as private sector companies continued to cut staffing levels during June. Furthermore, the European Central Bank increased its quantitative easing program from €600b to €1.35t which represents more than 11% of the region’s GDP. In Australia, the S&P/ASX 300 Index returned +2.4%. Economic data revealed that the unemployment rate increased to 7.1% and Q1 GDP growth was negative at -0.3%, driven by the impact of COVID-19 and the bushfires experienced earlier in the year. Consumer discretionary (+5.1%), consumer staples (+4.8%) and financials (+4.3%) were the best performing S&P/ASX 300 Index sectors. Energy (-2.1%), industrials (-1.6%) and REITs (-1.2%) were the worst performers. Bulk commodity prices performed strongly during the month. The U.S. dollar was broadly down against most G10 currencies during June, except against the Pound Sterling and Japanese Yen.

Performance

Portfolio
(%)
Benchmark*
(%)
Excess
Performance (%)
  1 month 5.3 2.4 2.9
  3 month 19.0 16.8 2.2
  1 year 17.8 -7.6 25.5
  3 years p.a. 13.6 5.2 8.4
  5 years p.a 12.5 6.0 6.5
  7  years p.a. 13.0 7.5 5.5
  10 years p.a. 12.1 7.7 4.4
Past performance is not a reliable indicator of future performance and may not be achieved in the future.
* Benchmark is the S&P/ASX 300 Accumulation Index.
Performance is gross of fees and expenses.
Returns are based on the theoretical performance of the Model Portfolio based on simplifying assumptions and stock weightings. Actual individual returns of a client’s portfolio will differ depending on factors such as date of initial investment, timing of transactions, contributions and withdrawals, fees and any customisations.

Carsales.Com Limited (CAR-AU) released a business update and FY20 result estimates. In Australia, overall lead and traffic volumes improved due to the easing of social distancing measures, whilst total inventory decreased due to an increase in the demand for cars. Demand was partially driven by first-time car buyers and people adding an additional car to their household to avoid public transport. Internationally, Encar in Korea continues to perform well across all its key operating metrics whilst Brazil’s Webmotors is experiencing operating difficulties due to the escalation of COVID-19 cases in the country. As a result, management expects FY20 revenue growth to range between 0% to 1%, adjusted EBITDA margins to improve by 2% to 3% and adjusted NPAT to increase by 3% to 6%.

Fisher & Paykel Healthcare (FPH-AU) released its results for the full year ended 31 March 2020, reporting revenue growth of 18% to NZ$1.3b, NPAT growth of 37% to $287m and DPS growth of 18% to NZ$0.275 per share. Divisionally, the Hospital segment achieved strong revenue growth of 25% to NZ$801m driven by a 29% increase in new applications consumables revenue which includes products used for nasal high flow therapy, a treatment that has gained traction in hospitals on COVID-19 patients. In the Homecare segment revenue grew 9% to NZ$457m following the introduction of the company’s F&P Vitera OSA full face mask into the U.S. market, and from the launch of the new F&P Evora compact nasal mask into the Australasian, European and Canadian market in February 2020. During the year, the company has continued to improve its manufacturing capacity by completing a fourth manufacturing building in N.Z. and since January 2020 it has added 548 and 518 direct manufacturing staff in N.Z. and Mexico, respectively. In the announcement, management provided FY21 guidance of operating revenue of approximately NZ$1.48b and NPAT of between NZ$325m and NZ$340m.

James Hardie Industries plc (JHX-AU) released a Q1 FY21 guidance update, highlighting an improvement in trading conditions in the U.S. market. North American volume growth is expected to range between 0% to 2% with adjusted EBIT margins expected to improve by 200 bps to range between 27% to 29%. A better than expected housing market during Q1 FY21 combined with a continued focus on customer engagement to drive market share gains has contributed to the upgrade in guidance. Management also announced that the company’s liquidity guidance has improved from +USD$600m to +USD$640m and the leverage ratio has decreased from less than 2.0x to less than 1.8x as of 30 June 2020.

OBJECTIVE: MEDIUM TO LONG-TERM CAPITAL GROWTH AND INCOME BY INVESTING IN HIGH CALIBRE AUSTRALIAN COMPANIES PRIMARILY LISTED WITHIN THE S&P/ASX 300, AT THE TIME OF INVESTMENT.

The information in this document was prepared by Hyperion Asset Management Limited (‘Hyperion’), ABN 80 080 135 897 AFSL 238 380, for wholesale investors. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. This document does not take account of any person’s objectives, financial situation or needs and before acting, an investor should consider the appropriateness of the investment having regard to their objectives, financial situation and needs. Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. This document is provided to the recipient only and must not be copied or passed on to any other person without the consent of Hyperion Asset Management Limited. Past performance is not an indicator or guarantee of future performance. Investment performance is presented gross of investment management fees and other expenses, including custody. Hyperion Asset Management Limited believes the information contained in this communication is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. To the extent permitted by law, Hyperion disclaims all liability to any person relying on the information in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information contained in this communication. Figures provided as at 30 June 2020 unless otherwise stated.
Morningstar Awards 2016 (c). Morningstar, Inc. All Rights Reserved. Awarded to Hyperion Asset Management for Fund Manager of the Year, Domestic Equities – Large Caps Category Winner and Domestic Equities – Small Caps Category Winner, Australia. Morningstar Awards 2020©. Morningstar, Inc. All Rights Reserved. Awarded to Hyperion Australian Growth Companies Fund for Winner, Domestic Equities Large Cap, Australia. Morningstar Awards 2020©. Morningstar, Inc. All Rights Reserved. Hyperion Small Growth Companies Fund nominated for Finalist, Domestic Equities Small Cap, Australia. Morningstar Awards 2020©. Morningstar, Inc. All Rights Reserved. Hyperion Asset Management nominated for Finalist, Fund Manager of the Year, Australia. Due to rounding, numbers presented throughout this report may not sum precisely to the total indicated and performance percentages may not precisely reflect the absolute returns.
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