Good afternoon,

Resources stocks continued to slide over the past week, down 4.22%, which dragged on the ASX200, which on Monday afternoon was down 1.25% for the week. Small & Mid-cap stocks continued to outperform.  Consumer Staples, Discretionary, IT, Industrials and Healthcare sectors all made positive ground against the market.


Zipmoney / Zip Co Update
The company previously known as Zipmoney (old ASX code ZML), now known as Zip Co (with a new ASX code Z1P) announced some very exciting news on Tuesday last week the share price jumping a further 12% to close today at 88c.

Back in September of 2016, the company acquired a personal finance and budgeting application business called “Pocketbook” (you can read about it here.)

On TuesdayZip announced a first-of-its-kind integration with Macquarie Bank (ASX: MQG) that will allow Macquarie customers to automatically and simply add their banking and credit-card accounts to the Pocketbook application.

I expect that in time, via Pocketbook, Zip will be able to offer range of financial services to customers of Macquarie (including, but not limited to consumer finance such as ZipPay/ZipMoney) and I suspect that this may be the first of many bank integration arrangements that will allow Zip to continue to grow their user base, transaction volumes and revenue with very low customer acquisition costs and high retention rates.

Further to this, today Zip announced the appointment of Ms. Dianne Challenor as Non-Executive Director.  Ms. Challenor is the GM of GTS Westpac Institutional Banking and was previously Asia-Pacific Head of Transaction Services for JP Morgan in Hong Kong.

I expect Zip to report the quarterly financials and provide an operational update later this week/early next week for the quarter ending 31 December 2017.  Given merchant wins likeFantastic Furniture, Kogan, Quest Hotels, Spotlight Group (Spotlight & Anaconda)occurred during the quarter, I’m expecting continued growth across all key metrics, 20-30% for the quarter.  Total transaction volume should exceed $115m and profitability should be trending towards quarterly breakeven, which I expect by 30 June 2018.


Quant Portfolio Update
Back on 1 October 2017 we setup a small portfolio of 5 stocks picked purely based on numbers.  I didn’t look at any strategy documents, evaluate management or do any research.  I just bought the 5 stocks that ranked the highest in my search criteria.  Those stocks were BTT, CAR, CHC, REH and GWA.

As you can see from the below chart, since mid-November the portfolio has significantly outperformed, +14% at some stage but always c.+5-6% over the ASX200 on a total return basis.
As CHC, CAR and BTT no longer pass our criteria and given we’ve been able to generate 11.2% returns in c.4 months, I’m going to call it quits on this particular portfolio and generate a new list of companies.  This time, I’ll include a few more stocks and see how it goes.

Aside from trying to make money for clients, I’m trying to demonstrate the benefits of process rather than scatter-gun or “whatever comes across my desk” approach that so many industry participants employ for their clients.

Every December we see articles about “top performing fund managers”,  “top performing brokers” and “top performing stocks” for the year lists and each and every year its different funds, brokers and stocks. Rather than ponder “why didn’t I buy this or that”, I encourage people to consider “why did someone else buy this a year ago and what can I learn from their process?”  Do a bit of investigation into the “Why”, rather than the “What”, I reckon that will improve your outcomes for 2018.


Quarterly Reports
Quarterly reports will be with Private Wealth and Managed Discretionary clients by the end of this month.  I’m sure you’ll be as pleased with the results as we are.  Included is the usual quarterly economic and market commentary as well as a fairly comprehensive review of your particular holdings in the context of your wider investment strategy.  If you’d like to arrange a catch up during February to go through things in person, as always, just drop me an email.

Macro-prudential Regulation & Property Prices
The reason I mention the quarterly is because the below chart is something I’ve included this quarter.  It shows Australia’s interest only home loan approval rates and as you can see, since APRA has changed the rules on bank lending, it’s fallen off a cliff.  This, coupled with rising interest rates is why I think property price growth will be near-zero (in real terms) over the next few years.


Stock Specifics
Bellamy’s (BAL) has gone from $10 to $15 a share since 1 Jan as the company acquired Camperdown Powder and upgraded its revenue and profit guidance substantially.  The shares are now trading at near all time high’s despite falling from $15.06 to $3.65 during late 2016/early 2017.

A2 Milk (A2M) also had a big week, +15%.

Elsewhere, Flight Centre (FLT) added 10% after upgrading earnings guidance.  Kind of baffles me.  I struggle to get much more than $40 for FLT.  Not sure who’s buying it at $50.  Maybe I’m missing something?

Treasury Wine Group (TWE) also has bounced off 28x earnings valuation at $14.50 and is back at $16.00 again after Morgan Stanley put it on a Tactical Buy with an $18 price target.  As I said a few weeks ago, it passes our screens at the moment.

On the wrong side of the ledger this week was anything to do with Lithium and Retail Food Group (RFG) which I’ve talked about recently.  Mayne Pharma (MYX) also now back down to 70c after a recent strong performance as Credit Suisse cut their price target.

I’ve only got the mental capacity for a short note this week as I’m writing quarterly reports and that requires quite a bit of commentary and analysis.  I’ve contacted the 2 competition winners from last week so sorry to those who entered and missed out.  I’ll try and run a few more giveaways throughout the year.  Have a good week, call or email me any questions.


* The information contained in this email is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.