The markets at war

The Fund fell 4.1% in February as Russia’s invasion of Ukraine battered markets. There was however some good news in our portfolio and we used the weakness to add to some of our holdings.

Top Holdings (alphabetically)

Ardent Leisure Group Ltd

Australia

Consumer Discretionary

F45 Training Holdings Inc

United States

Consumer Discretionary

Lamb Weston Holdings Inc

United States

Consumer Staples

NEC Electronics

Japan

Information Technology

Telix Pharmaceuticals Ltd

Australia

Health Care

US-listed fitness franchise company F45 continued its strong performance rising 19%. As we wrote last month, the company has strong visibility over the next 12 months as it has presold 1400 new franchises on top of its 1600 existing franchises, many of which will open this year. Long term the company sees a global potential of 23,000 gyms which makes 13x 2023 PE look attractive in our view.

Australian listed but the mostly US operated entertainment facility operator Ardent Leisure rose 18% after reporting strong results at its US Main Event chain with attendance running approximately 20% above pre-Covid levels. Dreamland in Australia is also performing well. We continue to see strong pent-up demand for leisure-related activities following the Covid pandemic reopening.

Norwegian listed bladder cancer diagnostic producer Photocure reported strong quarterly results as patients return to cancer screening post-Covid. The shares rose 5%.

US-listed advertising technology company Magnite reported strong quarterly results driven by consumers switching from traditional linear TV channels to so-called Connected TV (CTV) where consumers watch TV via apps such NineNow. TV operators can demand premium pricing for advertising, which is more targeted to viewers. Magnite’s technology allows advertisements to be served on CTV programs.

On the negative side of the ledger, many of the portfolio holdings fell due to the Russian invasion of Ukraine, in some cases despite reporting quite positive news.

Australian radiotherapy company Telix fell 27% despite reporting an upbeat outlook for the launch of its recently approved prostate cancer diagnostic called Illucix. We are extremely encouraged to see US-listed competitor Lantheus report very rapid revenue growth for its prostate cancer diagnostic Plarify, which was approved in May 2021 and bodes well for a similar uptake of Illucix. Lantheus forecasts 2022 Plarify revenue of USD300-325mln, which equates to AUD415-465mln. If Telix, which is currently valued at AUD1.5bn with $200mln of cash, is able to sell half that amount in 2023 the shares should perform extremely well. Illucix, despite being 6 months late to the party, has a significant advantage over Plarify as it can be produced conveniently in so-called “cold kits” onsite at hospitals, which can also earn revenue from the product, compared to Plarify which is made in large, often distant, off-site cyclotron facilities, which is problematic for radioactive products with short half-lives. We used the weakness to buy back shares that we had sold at higher levels. ‘

US Covid vaccine producer Novavax gave guidance for the first time of USD4-5bn for 2022 revenue, which was considered positive, however, it still fell 13%. The company has a market value of USD6bn and USD1bn of net cash, which we think is attractive given the current year’s revenue forecast and the long-term market for Covid and flu booster shots.