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Spheria Opportunities Fund

ARSN 144 032 431 APIR WHT0025AU

Performance as at 31st October 2021

1 Spheria Opportunities Fund. Returns of the Fund are net of applicable fees, costs and taxes.
2 Benchmark is the S&P/ASX Mid-Small Accumulation Index.
3 Inception date of the current investment strategy is 11th July 2016. The Fund was established in June 2010. Past performance is not a reliable indicator of future performance. All p.a. returns are annualised.

Overall Commentary

The Spheria Opportunities Fund returned 3.0% (after fees) during the month of October, outperforming the ASX Mid-Small Accumulation Index by 2.4%.

Top 5 Holdings

Market Cap Bands

Source: Spheria Asset Management

Active Sector Exposure

Source: Spheria Asset Management


The local small and midcap indices were modestly higher over the month as market participants looked through increasing noise around inflation and the implications for monetary policy. This was despite some rather wild moves in shorter dated debt – the local three-year bond yield rose a staggering 90bps over the month for instance – as markets began pricing in the inevitability of some rate rises by Central Banks given the inflation being seen globally. Unsurprisingly, there was significant dispersion in performance during the month. Gold equities significantly outperformed as market participants finally went bargain hunting in the space following material underperformance in prior months. This more positive sentiment was helped by a US dollar gold price that rose 1.5% over the month despite the back up in bond yields as long-term real interest rates (as measured by 10-year US Treasury inflation protected security yields) went deeper into negative territory. Battery material names again meaningfully outperformed as benchmark lithium, nickel and cobalt prices surged higher.

Amongst the losers during the month were coal stocks as the benchmark Newcastle thermal coal price halved during October following Chinese Government intervention in the market to stem rampant speculation and hoarding. These were joined by a motley crew of stocks that put out disappointing updates or had negative newsflow during the month (e.g., Marley Spoon (MMM.ASX, -44%), Strike Energy (STK.ASX, -36%), EML Payments (EML.ASX, -27%), Starpharma (SPL.ASX, -20%), Codan (CDA.ASX, -20%), PointsBet Holdings (PBH.ASX, -19%) and The Star Entertainment Group (SGR.ASX, -18%). Concerningly there were several companies that cited rising input costs as a reason for forecast margin contraction (e.g., Pact Group (PGH.ASX) and Marley Spoon (MMM.ASX).

M&A activity was once again fairly elevated during the month with HUB24 (HUB.ASX) bidding for Class (CL1.ASX) at a 72% premium to last, Senex (SXY.ASX) receiving an approach from POSCO International of South Korea and Gold Road (GOR.ASX) and Ramelius (RMS.ASX) engaging in a bidding war for gold junior Apollo Consolidated (AOP.ASX).

The Fund outperformed due to an overweight to Class (CL1.ASX) and low multiple media and consumer discretionary names which were re-rated during the month, alongside underweights to several large index constituents that put out disappointing updates during the month.

Major Contributors for the Month

Class (CL1.ASX) was the largest contributor after returning 70% during the month upon entering into an agreed scheme of arrangement which will see it purchased by HUB24 (HUB.ASX) for a combination of cash and scrip. We had been perplexed at the unwillingness of the market to reward Class for re-invigorating the business in recent times and so are not entirely surprised that a corporate has instead recognised the value in the franchise.

HT&E (HT1.ASX) contributed as the stock rose 18% after settling a tax dispute with the ATO that the latter first raised in an assessment in 2018. Whilst the settlement will see a cash payment of $20.3m to the ATO and the ATO keep a $50.7m deposit paid earlier by HT&E, we and evidently most of the market had assumed the company would need to pay the full $195m of the assessment ($102.5m in tax claimed, $49m of penalties and interest of $43m). HT&E also disposed of its holding in Ooh Media (OML.ASX) acquired during the pandemic for $49m, banking a tidy $31m profit. Post period end HT&E entered into an agreement to purchase Grant Broadcasting, the second largest regional radio operator in the country. The deal is materially EPS accretive due to the re-leveraging of the balance sheet, but we think the business only needs to deliver a fraction of its estimated $20m in revenue synergies to also be value accretive.

Seven West Media (SWM.ASX) contributed as the stock rose 12% during the month. The franchise has materially deleveraged its balance sheet over the last several years and meaningfully cut costs and improved its profitability. This reality was reflected in a new debt facility agreed during the month which will see the margin over BBSY halve versus that paid under the old facility. Despite its deleveraging efforts, SWM.ASX continues to trade on a mid-single digit EBIT multiple. Subsequent to months end the firm announced the agreed acquisition of its regional affiliate Prime on a low single digit EBIT multiple in a deal we believe will prove both highly earnings accretive and more importantly value accretive (a much harder feat to pull off in today’s M&A landscape).

Major Detractors for the Month

Flight Centre (FLT.ASX) was the largest detractor as the stock retraced 7% after a very strong performance over September. We continue to like the business and believe the market is underestimating the potential for the leisure business in particular to return to robust levels of profitability as the world exits the pandemic. Flight Centre has more than halved the fixed cost base of its leisure operations but retained the capacity for handling very large volumes through its online brands and through home based independent contractor travel agents.

Adbri (ABC.ASX) detracted upon retracing 8% over the month on no significant news. We continue to like the producer of cement, lime, concrete, and aggregates as we believe the market is not giving it credit for the likelihood that it replaces lost lime revenue and earnings with new Western Australian mining project clients.

City Chic (CCX.ASX) detracted as it retraced 5% following a very solid run of performance since delivering a strong result in the third week of August. We continue to see the global omni-channel plus sized fashion retailer as well placed to grow at an exceptionally high return on invested capital, albeit acknowledge this is better reflected in the near-term earnings multiple (mid 20x EV/EBIT) now that market participants have warmed to the opportunity.

Outlook & Strategy

The market is at an interesting inflection point with rising costs pressuring business models without real pricing power and the prospect of rising interest rates (at least nominal rates) potentially leading to a market less willing to back cash burning concept stocks. While the COVID-19 pandemic is not over, the continued rollout of vaccines and the development of effective anti-virals makes us more confident that services will trend back towards their historical share of consumption and GDP. We therefore remain constructive towards sectors hurt by the pandemic and wary of capitalising profits that have been boosted above a sustainable baseline by COVID-19 induced behaviours. While we would expect to see higher rates at some time in the not-too-distant future, boards are emboldened, balance sheets are flush with cash and both equity and debt capital remains cheap and readily available. We therefore expect continued elevated M&A activity that has historically buoyed our returns given our preference for cash generative business models that are typically both undervalued and underleveraged. There are pockets of the market (particularly exposed to popular thematics) that appear well and truly overheated, with the battery materials space in particular looking frothy. We will continue to avoid these areas. Pleasingly we continue to be presented with opportunities for rotation into names that tick our boxes on cashflow, balance sheet strength and valuation.

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Spheria Opportunities Fund value
Benchmark S&P/ASX Mid-Small Accumulation Index
Investment Objective Outperform the S&P/ASX Mid-Small Accumulation Index over the medium to long term
Investing Universe Primarily listed companies outside the top ASX 50 listed companies by market capitalisation and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation
Holdings Generally 20-65 stocks
Distributions Half-Yearly
Fees 0.99% p.a. Management fee & 15% performance fee of the Fund’s excess return versus its benchmark, net of management fee.
Cash Up to 20% cash, typically 5% - 10%
Expected Turnover 30% - 40%
Style Long only, risk aware
Minimum Initial Investment $25,000

Fund Ratings

Further Information

For more information, please contact Pinnacle Investment Management Limited
on 1300 010 311 or email


This communication is prepared by Spheria Asset Management Pty Limited (ABN 42 611 081 326, Corporate Authorised Representative No. 1240979) (‘Spheria’) as the investment manager of the Spheria Opportunities Fund (ARSN 144 032 431 (the ‘Fund’). Pinnacle Fund Services Limited ABN 29 082 494 362 AFSL 238371 (‘PFSL’) is the product issuer of the Funds. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) ABN 22 100 325 184. The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund is available at of the Fund is available at Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.
This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance. Unless otherwise specified, all amounts are in Australian Dollars (AUD). ​
Whilst Spheria, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Spheria, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication. ​
Any opinions and forecasts reflect the judgment and assumptions of Spheria and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Spheria. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication. ​
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The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned Spheria Opportunities Fund – February 2021) referred to in this piece is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual, including target markets of financial products, where applicable, and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at Fund Research Regulatory Guidelines.