Investor Update - February 2025

The ASX 200 fell 3.8% in February as valuation multiples across the broader market de-rated from record high levels. Notably, while the ASX 200 P/E multiple de-rated from ~18.3 times to ~17.5 times, it was the highly valued sectors of Banks, Real Estate and Technology that led the declines.

February heralded in heightened volatility as equity markets digested Australia’s first rate cut in over four years, 1H25 ASX earnings results that were weaker than expected, and incalculable geo-political uncertainty. With this backdrop, risk sentiment cooled considerably. Moreover, based on Goldman Sachs research 20% of stocks moved +/-10% on the day of their earnings announcement, making it the most volatile earnings season on record.

On the whole defensive sectors weathered the volatility better with Utilities (+3.2%), Communications (+2.6%), and Staples (+1.4%) providing a level of market support. In sharp contrast, Technology (-12.3%), Healthcare (-7.6%), and Real Estate (-6.4%), led the declines.

At Blackmore Capital we manage two model portfolios. At a portfolio level the attribution of returns for Blended (Positive contributors): BlueScope, Origin Energy, and Brambles versus (Negative contributors) CSL, NAB, and Macquarie Technology.

For the Income portfolio (Positive contributors): Medibank, BlueScope, and Origin versus (Negative contributors) NAB, Goodman, and Spark NZ.

Across both portfolios (Blended and Income), a common thread in each has been an exposure to Founder-led companies, notably Premier Investments and Washington H Soul Pattinson. The attributes of Founder-led companies have a rich history of long-term wealth creation, epitomized by the genius and focus of Warren Buffett. Undoubtedly, there is much to admire about the qualities of successful Founder-led companies, most notably their enduring nature. However, on occasion the creative genius that built a company can be bedevilled by the Founders’ own actions. Alas, in recent months there have been well documented examples of ASX listed Founder-led companies that have fallen prey to the vulnerabilities of their Founders, namely Mineral Resources (not owned by the portfolio) & WiseTech (owned in Blended).

Portfolio changes (Blended)

The resignation of key board members at WiseTech Global (WTC) in February highlights a broader collapse of confidence and governance at the company. Our investment in WTC has been highly profitable over the past 16 months. We initiated our position in October 2023 at an entry price of $64.3 per share and increased our holding in November 2023 at $63. As the company’s valuation expanded, we took profits in two stages—reducing our position in October 2024 at $131.36 and again in December 2024 at $121.79. These disciplined exits allowed us to lock in substantial gains on most of our positions before the recent market reaction. Given the heightened uncertainties surrounding WTC’s board and management, we have now fully exited our remaining position.

Portfolio changes (Income)

We have reinitiated a position in Telstra (TLS) following its solid 1H25 results and positive outlook. Profitability was supported by accelerated cost reductions, with revenue rising 0.9%, underlying EBIDA up 5.8%, and underlying net profit after tax increasing by 7.1%. The reaffirmed FY25 EBITDA guidance and the earlier-than-expected capital return program, including a 5.6% dividend increase to 9.5 cents per share (yielding 4.6%) and a $750 million on-market buyback, demonstrate management's confidence and commitment to shareholder returns. Proceeds from the sale of Spark NZ (disappointing 1H25 result) has funded our position into Telstra.

A level of heightened uncertainty pervades the global financial markets. Predicting short-term moves in prices and direction of geo-political outcomes is a fool’s errand. As investors we remain resolutely focused on the company fundamentals we invest in. The accompanying tables highlight the portfolios continued focus on ‘Quality’ financial metrics and why we believe investment in higher quality companies is our preferred long-term ballast in a world of uncertain times.

Note: Data as of 28 February 2025.

Portfolio EPS (Earnings Per Share), EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), EBIT (Earnings Before Interest and Taxes), EBITDA margin, EBIT margin, and Return on Capital Employed are calculated as weighted averages of individual holdings and metrics, with data sourced from

Refinitiv. ASX 200 Index consensus FY25 and FY26 EPS growth estimates are sourced from the MST Marquee report, “Themes from the February 2025 reporting

period”. ASX 200 Index EBITDA margin, EBIT margin, and Return on Capital Employed are calculated based on the median of ASX200 profitable companies

excluding Financials, with data sourced from Refinitiv. Volatility since portfolio inception is measured by standard deviation, with data sourced from Refinitiv.