Portfolio Changes - August 2019
Recent changes to the Blended Australian Equities Portfolio & Australian Equities Income Portfolio
Reduced Cleanaway Waste Management (CWY) With a 32% rise in its share price over the last six months, CWY is now trading at the upper end of our valuation range. On an Enterprise to EBITDA ratio of c.11 times, we contend that its valuation now adequately reflects its impressive earnings performance. CWY has benefited from its 1H19 result that was well ahead of market expectations, and its defensive earnings characteristics have been viewed favourably at a time when the economic environment remains challenging. We retain a core holding in CWY as our medium to long term investment thesis remains intact, which is underpinned by its strong industry position and its ability to generate attractive returns on capital on waste management infrastructure.
Sold Adelaide Brighton (ABC) The premise of ABC being a quality cement, concrete and lime producer with a conservative balance sheet capable of supporting dividends throughout the cycle was undermined by its recent earnings downgrade, the second since May. Not only was the December 2019 earnings guidance reduced by a further 25% but the interim dividend was dropped, citing the need to build balance sheet capacity for potential acquisitions.
The company has a new Chairman and senior management and while they appeared to have a grasp of the company’s market position, its lack of vertical integration in some markets, increased competition in SA and a relatively weak position in infrastructure markets have exposed vulnerabilities which are more than cyclical. With the increased risk of a new management team undertaking an acquisition program to build vertical integration and also win market share in infrastructure markets while a strong infrastructure investment cycle is already well underway, we decided it is prudent to exit.
We allocated the proceeds from the sale of Adelaide Brighton and the reduction in our weighting to Cleanaway Waste Management to further adding to our weighting in Commonwealth Bank, Healius and Macquarie Group. Please refer to the Blackmore Capital website for our most recent rationale.