Hyperion High Conviction Large Cap Report

Global equity markets declined during August as trade negotiations between the U.S. and China dominated headlines. In the U.S., the S&P 500 Index returned -1.6% after economic data revealed an unchanged unemployment rate, improving consumer confidence but a weaker manufacturing industry during July, highlighting stark differences in activity across its economy. In Europe, the Euro STOXX 50, German DAX and FTSE 100 Indexes returned -1.1%, -2.0% and -4.1%, respectively. During the month, economic data showed that both the German and U.K. economies contracted -0.1% and -0.2% during the second quarter, respectively. In Australia, the S&P/ASX 300 Index returned -2.3%, as CPI rose +0.6% during the quarter and +1.6% for the year, whilst the unemployment rate sits at 5.2%. Health Care (+3.4%), REITs (+1.3%) and Information Technology (+0.7%) were the best performing sectors. Materials (-7.3%), Energy (-5.6%) and Communication Services (-3.2%) were the worst performers. Bulk commodity prices fell during August, with Iron Ore, Thermal and Coking Coal, and Brent Oil prices falling, whilst Gold rose. The U.S. dollar rose against most G10 currencies during the month, the exceptions being the Swiss Franc and Japanese Yen.

Market Outlook

August saw the majority of the domestic portfolio holdings report their full year results, which were generally in line with our expectations. In general, the market struggled to achieve expected top line growth outside of the resources sector. Accordingly, high PE companies that didn’t exceed short term expectations observed aggressive share price reactions. In contrast to the broader market, the portfolios generated double digit revenue, EPS and DPS growth with a theme of continued reinvestment for long term growth. Despite some short term challenges, portfolio fundamentals remain robust and we expect them to continue to achieve above market growth over the longer term.

We remain confident that the companies in the portfolios will achieve attractive rates of revenue, EPS and DPS growth over the next five years, well ahead of the broader market.

 

Portfolio
(%)
    Benchmark*
(%)
Excess
Performance (%)
  1 month -0.19 -2.27 2.08
  3 month 6.38 4.30 2.09
  1 year 3.51 9.14 -5.63
  3 years p.a. 8.53 11.34 -2.81
  5 years p.a 10.08 7.94 2.15
  7  years p.a. 14.52 10.93 3.58
  10 years p.a. 10.91 8.50 2.41
* Benchmark is the S&P/ASX 300 Accumulation Index.
Performance is gross of fees and expenses.
Past performance is not a reliable indicator of future performance

REA Group Limited (REA-AU) released its annual results for the financial year ended 30 June 2019, reporting revenue growth of 8% to $875m, EBITDA growth of 8% to $501m and EPS growth of 6% to 224.3 cents per share. The strong result continued to highlight the resilience of its business model during difficult market conditions. National listing volumes declined 8% over the year, with declines of 18% and 11% recorded in Sydney and Melbourne, respectively. Categorically, revenue growth was driven by a 16% increase in Australian Media, Data & Other (13% of revenue) to $110m, +10% in Asia (6% of revenue) to $49m, +8% in Australian Residential Depth & Subs (72% of revenue) to $630m, +2% in Australian Commercial & Developer Depth & Subs (7% of revenue) to $59m, whilst Australian Financial Services revenue declined 8% (3% of revenue) to $27m. REA-AU continued to extend its engagement lead in Australia, with 2.98x the amount of site visits, 19% growth in monthly website searches to 94m, 21% growth in monthly app launches to 29.4m and 4.7x more time spent on its app compared to its nearest competitor, Domain (DHG-AU). In Asia, REA-US’s websites were rated the number one property sites in Malaysia and Indonesia, achieving site visits growth of 56% in Malaysia and 10% in Indonesia.

WiseTech Global Limited (WTC-AU) reported its full year results for the financial year ended 30 June 2019, reporting revenue growth of 57% to $348m, operating profit growth of 37% to $80m and EPS growth of 27% to 17.7 cents per share. During the year, the power and strength of WTC-AU’s CargoWise One platform was supported by its 99% recurring revenue as the company maintained an impressive annual customer attrition rate of less than 1% across its CargoWise One platform for a 7th consecutive year. Furthermore, WTC-AU continued to improve its value proposition to customers, adding over 830 internally developed product enhancements and features to its flagship CargoWise One technology platform, with 47% of its workforce contributing towards product development. The company also acquired 15 strategic assets in new geographies and adjacent technologies to accelerate future growth. WTC-AU’s product is now present in approximately 150 countries with all top 25 global freight forwarders now customers, 7 of which now exclusively use CargoWise. Management has guided FY20 revenue growth of between 26% to 32% and EBITDA growth of between 34% to 42%.

CSL Limited (CSL-AU) reported its full year results for the financial year ended 30 June 2019, reporting group revenue growth of 8% to $8.5b, gross profit margin expansion of 56bps to 56% and EPS growth of 11% to $4.24 per share. Divisionally, CSL Behring’s revenue was up 8% to $7.3b, with Immunoglobulin (IG) Product revenue up 16% to $3.5b due to an increase in the usage of IG products for chronic therapies. Albumin Product revenue was up 15% to $1.0b due to strong demand from China which is expected to continue as the company benefits from its transition to its own Good Supply Practice License in China, enabling CSL-AU to own and sell products in the domestic Chinese market. Furthermore, CSL-AU’s Seqirus revenue increased 10% to $1.2b, driven by Influenza vaccine product sales growth of 19% to $799m. Management noted that they plan to open 40 new plasma collection centers and expect FY20 net profit after tax to be approximately $2.05b to $2.11b.

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.

 

 

 

Hyperion named AUSTRALIAN FUND MANAGER OF THE YEAR in the Morningstar 2016 Awards, Australia. 

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 31st August 2019. 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.
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