Value Investing

Sandon Capital Activist Fund January 2016 Commentary

Sandon Capital Activist Fund commentary for the month ended January 31, 2016.

The Sandon Capital Activist Fund delivered a return of -1.3%% in January, bringing total returns (net of all fees and expenses) since inception to the equivalent of 13.0% per annum.

Sandon Capital

January provided another rollercoaster for global markets. Australia was not spared, with the S&P/ASX200 Accumulation Index falling 5.5% and the Small Ords Accumulation Index falling 5.1%.

The commentary from the December 2015 report remains largely current, and is repeated here: Volatility in the market continued to provide good opportunities for adding to existing positions as well as providing new opportunities.

Sandon Capital Activist Fund – Portfolio Review

Several investments provided positive returns during the month, including Alchemia Ltd (ACL), BlueScope Steel Ltd (BSL), Centrepoint Alliance Ltd (CAF) and Coventry Group Ltd (CGF). Negative movements for the month were mainly further down the alphabet, including companies such as RNY Property Trust (RNY), Tatts Group Ltd (TTS) and Warrnambool Cheese and Butter Factory Ltd (WCB). Most other price moves were immaterial. There was scant news flow regarding companies in the portfolio, although ACL shareholders approved a 9.3 cents per share return of capital in late January and there were press reports regarding permanent capacity closures in the Chinese steel industry, which positively impacted the BSL share price.

There were continued press reports regarding the possibility of TTS and Tabcorp Ltd (TAH) renewing discussions of a nil-premium merger, something we believe is not in the best interests of TTS shareholders. We have publicly stated a preference for a demerger of the TTS wagering business from its other businesses, including lotteries. We believe this would provide a clearer picture of the true worth of the jewel in the crown, lotteries, whilst still allowing a future merger of the wagering operations with those of TAH (or another party).

During the month Onthehouse Holdings Ltd (OTH) rejected the overtures from the Macquarie/CoreLogic/Dempsey consortium that had delivered a pre-Christmas indicative non-binding merger proposal. We believe the OTH Board were right in rejecting this overture, given the low-ball indicated price. OTH also announced it was in discussions to spin its loss-making consumer online division (COD) into a joint venture with the real estate agent-owned RealestateView business. If this proposal can be consummated, it is expected to staunch the cash drain from the loss-making COD division. We eagerly await further disclosure from the Company on this, and whether the consortium decides to revisit its proposal at a higher price.

Sandon Capital Activist Fund Description

The objective of the Fund is to deliver returns to investors through a combination of capital growth and distributions. The Fund aims to achieve this objective by seeking to invest in opportunities that are considered by Sandon Capital to be trading below their intrinsic value and that offer the potential of being positively influenced by investors taking an active role in proposing changes in the areas of corporate governance, capital management, strategic and operational issues, management arrangements and other related activities. Neither returns nor capital are guaranteed.