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  • Writer's pictureMarcus Bogdan


Blended Australian Equities Portfolio

We have recently exited 2 positions in the portfolio, SkyCity Entertainment Group (SKC) and Amcor Plc (AMC). These changes reflect our preferences on the level of regulatory and interest rate-related risks for the Australian Blended Equities Portfolio.

SKC, a dual-listed entity on ASX and NZX, owns and operates hotel and casino based integrated entertainment complexes in Auckland, Hamilton and Queenstown in New Zealand and in Adelaide, Australia. Throughout the past financial year, we have seen a continuation of the heightened regulatory scrutiny that has become a significant feature of the industry and the regions SKC operates in.

In September 2023, the New Zealand Department of Internal Affairs made an application to the Gambling Commission to temporarily suspend SKC’s casino operator’s licence in New Zealand for a period in the range of 10 days. SKC is also subject to existing civil penalty proceedings by AUSTRAC for alleged non-compliance (filed in Dec 2022) with Australian anti-Money Laundering and Counter-Terrorism Financing Act (AML/CFT Act). The resulting regulatory review over the suitability of SkyCity Adelaide to operate a casino is on hold, pending the results of the AUSTRAC proceedings.

We recognise the critical importance of having both the casino licence and social licence to operate for SKC. The recent regulatory development and the upcoming change in management have further added uncertainty to its valuation in the context of the ongoing pressures for the Australian and New Zealand casino markets.

AMC’s recent Q1FY24 result reflects the ongoing channel destocking and soft consumer demand continuing to adversely affect AMC’s earnings and cash flow. Management anticipates the trends will continue in Q2 FY24, with gradual improvements in the second half of FY24. While we expect these conditions to gradually unwind, rising interest expenses, influenced by higher base rates and floating rate exposure, add further challenges. AMC has net debt of $6.6bn as at September 23, with a net debt to EBITDA ratio of 3.3X.

We have directed the proceeds of the divestments to our existing positions in Woodside Energy (WDS), after a ~16% decline in price over the rolling quarter, and WiseTech Global (WTC), a recent new addition to the Blended Portfolio.

WTC is a provider of cloud-based software solutions to the global logistics industry. Its core product, CargoWise is a fully integrated platform that allows global logistics companies to manage, track and trace freight forwarding, customs clearance, compliance and warehousing, providing significant efficiency and productivity benefits compared to traditional, disaggregated software solutions.

WTC has a proven track record since its 2016 IPO of revenue (5-year CAGR 24%) and earnings growth (5-year CAGR 38%). Organic growth has been supplemented by an acquisition strategy focused on new geographies and additional functionality for the core system, while capitalising on the benefits of increasing scale and operating leverage.

For FY23, WTC delivered 21% increase in organic revenue and 28% increase in EBITDA, with organic EBITDA margin expanding 2 percentage points to 53%. Free cash flow of $291.4m, was up 23% on FY22.


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