Release Date: September 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cadence Capital Ltd (ASX:CDM) reported a full-year profit of $21.6 million, with the fund up 10.4%, indicating strong financial performance.
• The company declared a final dividend of $0.03, bringing the annual dividend to $0.06 per share, equating to an annualized yield of 8.6% and a grossed-up yield of 12.2%.
• Successful investments in Meta Platforms, Netflix, and the Karora/Westgold merger contributed significantly to the fund's positive returns.
• The portfolio is highly liquid and diversified, with 87% of the portfolio capable of being liquidated within a week.
• Meta Platforms and Netflix showed strong EPS growth expectations for 2024, with Meta's shares up over 75% and Netflix's shares up more than 50% over the last financial year.

Negative Points

• Investments in Sierra Rutile, Zillow, and Syrah Resources were detractors from the fund's performance.
• The performance of resource companies was mixed, with poor results from lithium investments and a decline in coking coal prices affecting Whitehaven Coal's share price.
• Earnings growth for companies has been declining over the past two years, with PEs for stocks increasing, presenting a challenging investment environment.
• The slowdown in China's economy has negatively impacted industrial commodities, affecting Australia's largest exports like coal and iron ore.
• Interest rates are expected to remain volatile, with potential implications for investment strategies and economic stability.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Sign with ASX:CDM.

Q: Can you provide an overview of Cadence Capital's financial performance for the year? A: Karl Siegling, Executive Chairman and Managing Director, reported that Cadence Capital Ltd achieved a 10.4% increase in fund performance, resulting in a profit of $21.6 million. The company declared a final dividend of $0.03 per share, bringing the annual dividend to $0.06 per share, equating to an annualized yield of 8.6% and a grossed-up yield of 12.2%.

Q: What were the key contributors and detractors to the fund's performance? A: Karl Siegling highlighted that successful investments included Meta Platforms, Alumina, Netflix, the Karora/Westgold merger, Whitehaven Coal, Capstone Copper, and Austin Engineering. Detractors were Sierra Rutile, Zillow, and Syrah Resources. The fund benefited from investing in turnaround situations like Meta and Netflix.

Q: How has the performance of resource companies impacted the fund? A: Karl Siegling noted mixed results in resource investments. Companies like Capstone Copper, Alumina, and Westgold Resources performed well, while investments in lithium mining underperformed. Whitehaven Coal's performance was strong post-acquisition of BHP assets, but recent declines in coking coal prices have affected its share price.

Q: What is the current strategy regarding the portfolio's liquidity and diversification? A: Karl Siegling explained that the portfolio is highly liquid and diversified, with around 40 positions. Approximately 79% of the fund's gross exposure is in companies with a market capitalization greater than $1 billion. The portfolio can be largely liquidated within a week or a month if needed.

Q: How is Cadence Capital responding to the current market conditions and economic outlook? A: Karl Siegling expressed concerns over high P/E ratios and low earnings growth in the market. The company is cautious about investing in high P/E stocks with single-digit growth rates. The slowdown in Chinese growth and its impact on commodities like iron ore and coal is being closely monitored. The company is also observing interest rate trends and the potential impact on investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.