Hear the from Portfolio Manager for the DNR Capital Australian Emerging Companies Fund, Sam Twidale as he provides his insights into the recent reporting season and what that means for the Australian small cap sector.
So reviewing the outlook for small caps and the recent reporting season clearly been a very volatile start to the year, especially after the strong year that we had last year. I think there’s lots of concerns weighing on investors’ mind at the moment. We’ve got concerns around the outlook for the economy, outlook for interest rates, what’s happening with inflation for throwing in all these geopolitical concerns, risks of tariffs. So there’s a lot of weighing on investors’ minds right now. And that sort of carried through reporting season, very, very volatile. Reporting. Season index overall was only up about 1%, but under the surface there was enormous dispersion in returns. Many companies up 10, 20, 30% post a result or down. So quite a difficult period to navigate. If we look at our emerging companies fund a more challenging month for the fund. We had a very, very strong year last year, but quite a few names have pulled back.
And what’s interesting is looking at some of the trends that we saw through reporting season, quite a different backdrop to what we saw last year. Key trend from last year through reporting season was a strong outperformance of quality business models, companies that got rewarded for delivering strong results. This wasn’t the case Through this reporting season, many companies delivered very strong results, record results in many cases, but we didn’t see the follow through in terms of share prices. And I think we’ve obviously seen valuations lift for some stocks. They’ve been very strong coming in. So some of these took a bit of a pause and if we look across the opportunities that in our emerging companies fund, I think financials was definitely one of those. We’ve got some companies like Pinnacle Investment Management, hub, Netwealth, they all delivered very, very strong results. And in the record halves in most cases, pinnacles earnings up 150%, their earnings.
Very strong flows, great pipeline seeing growth across multiple affiliates. The platforms Hub 24, Netwealth, taking very strong market share, really delivering on their strategy. These are really high returning businesses. They’re reinvesting taking that market share. They’ve got a great pipeline of opportunities and they keep on reinvesting in their platforms, but shares were weaker despite delivering strong results. But we still like these companies, they’ve got great long-term outlooks, they’re taking market share and for long-term investors we see there’s great opportunities. Look across the consumer space as well. That was another area that was quite weak. Obviously quite a subdued environment for the consumer right now. And companies like Breville reported their results. Key holding in the fund shares pulled back despite delivering what we thought was a very strong set of results that really benefiting now from a lot of the reinvestment they’ve been doing into their geographic expansion, into their product expansion.
And they’re really in the sweet spot there in that coffee category with multiple products, new products coming through, seeing a lot of structural growth. And if you look at the Breville result, what was the key highlight was double digit top line growth in a pretty challenged consumer environment. But shares were again a bit weaker on the back, but we still like this business long term. Another company, some group of companies in the tech space Tech’s definitely been a bit weaker through last month. It was a challenging period. We’ve been caught up in a bit of that sell off what we’ve seen in the max seven. Some of these tech stocks have been strong performers over the last year. But actually looking at the bottom up performance companies are really continuing to deliver. And one of our key holdings in the fund life 360, they announced a really strong set of results.
And what’s interesting there is that company really continues to sort of cement a very strong position in that industry. Family location sharing built of dominant position, 80 million active users. Now what’s interesting is they’ve got a really strong position in the US but now expanding internationally. And that’s going very, very well, in fact better than management would’ve hoped. And they’re also launching some new adjacencies as well to really expand the ecosystem into pet tracking, elderly tracking, and also the advertising opportunity to monetize that free user base. So we see some great opportunities for that company over the long-term. Shares have pull back a bit, but for long-term investors we think it’s a great opportunity. One company that was definitely weaker than we anticipated and it has been a bit of a drag on our performance over the past year is a more contrarian position. IDP education, definitely going through a very challenging environment at the moment, leading provider student placement services and English languish testing as a leader in that space.
But they’ve been caught up in some pretty tough government crackdowns on migration, tougher than we expected in Australia this year. And that’s been really weighing on the shares and on earnings for that company. But I think, look, that company’s doing everything they can that’s within their control. They’re taking a lot of market share over the past year. So that’s allowing them to outperform a pretty tough industry backdrop. Looking at the result, what was interesting as well is that they benefited from double digit price increases at a tough moment in the cycle. So that was pretty impressive. So we think this company’s doing all that they can, they’re taking out costs and it’s really setting themselves up well for a longer term recovery. But as investors, you’ve got to be patient. Sometimes these derated quality opportunities, you’re buying them out of favour, you can be guilty buying them a bit too early, which is what we’ve done in case of IDP.
But we would remain confident long-term in terms of the opportunity. And you’re now buying that on one of the cheapest valuations in its history. So a very attractive entry point. So overall, I think when we look at the outlook for small caps and we look at the reporting season, been a bit of a tough environment for small caps. We, we’ve certainly seen a number of names pull back, but we’re seeing lots of opportunities emerge through this period. We’re seeing lots of volatility. I think this volatility is likely to continue because we still have some uncertainty to work through these geopolitical risks, the risks of tariffs. So it’s going to take some time to get through this period. But for long-term investors, we’re seeing some great opportunities to buy some quality businesses at some very attractive valuations here. And some key holdings for us continue to be across consumer tech financials. And we’re really focusing on these high returning businesses with dominant industry positions with reinvestment potential to drive that longer term organic growth.
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