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Home Phoenix Portfolios
July 16, 2026

Stock in Focus – APAC Resources

Jordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Cromwell Jordan Lipson Portfolio Manager

Gold Exposed Stocks – An Update

In the performance commentary section of the September 2025 quarterly report, we discussed the portfolio’s exposure to gold miners and gold-exposed securities, a theme that had grown into a meaningful part of the portfolio. Given the eventful period that has followed, an update is warranted.

As a reminder, the Fund seeks out securities trading at discounts to readily assessable net asset values (NAVs), or special situations offering strong risk-adjusted returns. Gold miners are unusually well suited to this approach. Unlike most businesses, the value of a gold miner’s primary output can be observed directly, in a deep and liquid spot and futures market, which makes its NAV genuinely assessable. Towards the end of 2024, the share prices of many gold miners were simply not reacting to a rising gold price. A clear gap opened up between the value of the underlying assets and the prices being asked for them, and we saw an opportunity.

Our exposure

We established a meaningful exposure in November 2024, to a basket of particularly attractively priced stocks. As the gold price climbed, we generally topped up. This may seem counterintuitive, buying more as the commodity became more expensive, but it followed directly from the leverage described previously. A higher gold price lifted the NAVs of these miners faster than the metal itself, while their share prices continued to lag. In many cases the discount to NAV widened rather than narrowed, and we added accordingly.

As those discounts eventually began to close, and as the gold price reached levels that we found somewhat uncomfortably high, we started to slowly decrease our exposure to the sector. With the benefit of hindsight, these sales were both too early and not significant enough.

 

Recent performance

Amid a volatile macroeconomic and geopolitical environment, the gold price retreated from its highs over the period. It fell approximately 12% during the quarter and now sits around 25% below its January 2026 peak. After a long period in which the gold price moved rapidly higher, the direction of travel reversed.

In this environment, gold stocks detracted from performance. It is worth keeping this in perspective. Despite the weakness of the period, these securities have been significant contributors to returns over the life of the Fund. Over the quarter, ASA Ltd (NYSE:ASA) was down 16.4%, Oceana Gold (TSX:OGC) fell 20.6% and Alkane Resources (TSX:ALK) was more resilient, off 3.0%. One holding, however, disappointed for reasons that went well beyond simple weakness in the sector.

APAC Resources

APAC Resources (SEHK:1104) is a holding company with major exposure to a variety of mining companies. Its key holdings are based in Australia and have been well known to Phoenix for a long time. We initiated a position at the very start of the Fund’s life, drawn by underlying assets we found attractive and by a very large discount to NAV, with that NAV predominantly made up of listed securities, and therefore readily assessable.

We also formed the view that the market’s perception of APAC, related to its poor governance, was overstated. Over time, we believed the company’s actions validated that view. There were numerous positive changes, including improved disclosures, the initiation of investor presentations, the publication of monthly NAVs, and a corporate restructure that could potentially have allowed more capital to be released from the vehicle. The underlying investments also performed extremely well, including a managed fund of mining securities that produced spectacular performance.

As the NAV grew and the discount closed, we realised much of our position. Those sales more than covered the original cost of the shares, and we still retained a position of around 2%. To that point, the investment had unfolded very much as we had hoped.

APAC then disappointed. During the June 2026 quarter the company announced a rights issue at roughly a 33% discount to the last traded share price and a massive discount of approximately 71% to the prevailing NAV. A deeply discounted rights issue of this kind transfers value from those who cannot, or choose not to, participate. While the rights issue would at least have allowed us to participate and so minimise our own dilution, it was clearly a poor reflection on APAC’s governance.

Subsequently, weakness in markets and in the gold price led the underwriters of the rights issue to terminate their contract, and the rights issue was cancelled. While the dilution will now no longer take place, the reputational damage has been done. APAC dropped around 44% over the quarter and closed the period trading at more than a 66% discount to its NAV. We retain a 1.7% position and will decide what to do with it as more information is disclosed.

“For all the frustration of its recent conduct, it is worth recording that the investment has been extremely successful over its life, delivering an internal rate of return of 37.2% across the five and a half years it has been held in the portfolio. “

Where to from here?

The remaining gold positions continue to look attractive at current gold prices, though the opportunity is no longer as extreme as it once was. Reflecting both our earlier trimming and the moves within the sector, total exposure to gold securities, including APAC, now sits at approximately 9.5% of the portfolio.

This exposure hurt over the period, and the episode with APAC was a genuine disappointment. Taking a step back, however, the theme has been a meaningful contributor to the Fund, both in absolute terms and relative to the benchmark over its life. As ever, we will keep a watchful eye on the sector and let valuation guide our positioning from here.

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Home Phoenix Portfolios
April 28, 2026

Stock in Focus – Bollore SE

Jordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Cromwell Jordan Lipson Portfolio Manager

The Bollore Galaxy – An Update

As many readers may be aware, the portfolio has long held an exposure to entities controlled by the Bollore Family. The portfolio’s largest holding is Compagnie de l’Odet (Odet), a French-listed holding company controlled by the Bollore’s. Past generations of Bollore’s were in the business of thin paper manufacturing for uses such as rolling tobacco. In the 1980’s Vincent Bollore was an investment banker. He saw that the old family business was struggling mightily and decided to acquire the distressed business and recapitalise it. Bollore needed to raise external capital to diversify the company’s business interests but wanted to maintain operational control. Like any good investment banker, Bollore achieved this through complex structuring.

 

The current organisational chart is presented below to demonstrate this complexity, but for the sake of this article there are two key entities, both listed in France. They are:

  • Compagnie de l’Odet (Odet)
  • Bollore SE

These two companies own meaningful stakes in each other, creating an “ownership loop”. This structure can make the group difficult to analyse at first glance and importantly obscures the true value of the underlying assets.

 

org chart

Simplicity hidden by complex structure

Once one picks through the complex structure, understanding the underlying assets owned by both Bollore SE and Odet is relatively simple.

Odet predominantly derives its value from its stake in Bollore SE, while Bollore SE owns:

  • 5.6 billion euros in net cash (mostly raised through the timely sale of its logistics business at the top of the cycle)
  • An 18.4% stake in Amsterdam-listed Universal Music Group (UMG), the world’s largest music publisher
  • Smaller media and other investments (Including Vivendi)

 

Some action towards discount closure

At period end, valuing UMG at its prevailing share price, Odet’s net asset value is more than 280% above its share price (not a typo!). As such, nirvana for Odet’s external investors has always been the prospect of simplification of the corporate structure and perhaps assets being distributed, so that the discount is captured (ignoring any tax complexities). The actions of Vincent Bollore have always been unpredictable. To date, steps towards simplification have been erratic and incremental, however the direction of travel has broadly been positive. Bollore SE and Odet released their annual results during the period. Given the simple nature of the underlying assets, the results held very few surprises. The one major surprise was the announcement that Bollore SE would pay a special dividend of 1.50 euros per share, which represented more than one third of Bollore SE’s share price at the time of announcement. Furthermore, Odet announced that it would pay out two thirds of the dividend it received to its shareholders.

A special dividend is particularly important to holding companies trading at discounts to their NAV. When a holding company trades at a discount, investors are essentially buying $1.00 of underlying assets for a lower price, such as $0.50. A special dividend unlocks this “trapped” value because every dollar distributed is paid out at 100% of its worth, allowing shareholders to realize the full value of the assets regardless of the stock’s discounted market price. Odet’s share price rallied on the dividend news, but after one ascribes full value to thespecial dividend payment, the discount to NAV has actually widened.

In essence, the vast majority of Odet’s value is driven by cash and its indirect holding in UMG.

“At period end, valuing UMG at its prevailing share price, Odet’s net asset value is more than 280% above its share price (not a typo!)”

The UMG conundrum

Music has proven to have universal appeal (excuse the pun) across all ages and regions. UMG is the world’s largest music publishing business, having represented 9 of the top 10 artists globally across each of the past three years, including Taylor Swift and Lady Gaga. For readers of a different generation, UMG also owns timeless assets such as rights over The Beatles back catalogue. UMG can be thought of as a toll booth on music consumption.

Since its separate listing in 2021, UMG has typically traded at a premium valuation, given the high-quality nature of its business. Very recently, concern has grown that artificial intelligence (AI) may threaten the quality of this business, both by enabling solo artists to self-publish and by allowing AI to create the music itself. This threat has caused UMG’s share price to drop from a high of almost 29 EUR per share to lows of approximately 15.50 EUR per share. According to S&P CapitalIQ consensus estimates, UMG trades at a 2026 Price to Earnings ratio less than of 16x, which compares to the S&P 500’s price to earnings ratio of just under 26x.

The quality of the music business has been tested before. Physical sales of music, mostly CDs, peaked in 1999. The proliferation of music piracy meant that it took until 2021 for music sales to reach that absolute level again (see below). Adjusted for inflation, music sales are still below that 1999 level.

music-report

Streaming services, and their global appeal completely changed the game for musicians and publishers. UMG’s more bullish investors would say that these streaming services have pricing power beyond what they currently charge and are also supported by the tailwind of a growing global middle class that can afford these services. If this is true it would likely mean robust earnings growth for the company for many years to come. UMG’s detractors would say AI developments will take power away from music publishers and extreme believers in AI would say it takes relevance away from the skill and creativity of musicians and songwriters.

Should concerns turn out to be overblown and UMG once again trades at its previous highs, Odet’s NAV would expand to a ~370% premium to its current share price! Alternatively, even assigning zero value to UMG leaves Odet’s NAV at a ~65% premium to the prevailing share price, showing the high margin of safety inherent in this investment. While there are legitimate debates about the future of music, we believe the long-term appeal of professionally produced content remains strong. However, an investment in Odet could still be an excellent investment, even if that belief proves to be optimistic.

 

The Longer Game

The ultimate result for investors would be a return to glory for UMG, alongside a return of capital from Odet. In recent times, the number of boxes in the organisational chart above has reduced as some simplification has occurred. The Bollore Family has also tried to remove more entities from that chart, yet faced resistance from minority shareholders. Odet itself has bought more and more Bollore shares. This activity (which effectively amounts to a buyback) has accelerated since the entities released their full year results. Most importantly, the recently announced special dividend shows a willingness to return capital to external shareholders and also moves cash around the different entities within the Bollore Galaxy. This may be tactical and act as a prelude to Vincent Bollore’s next move. Possibilities are the basis of much speculation amongst shareholders, but only the Bollore’s know the true endgame. In the short term the distribution allows shareholders to receive a meaningful portion of the NAV back at 100 cents on the dollar. Not a bad outcome for now.

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Home Phoenix Portfolios
January 22, 2026

Stock in Focus – Young & Co.’s Brewery PLC

Jordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Cromwell Jordan Lipson Portfolio Manager

Old business in a modern world

Young & Co.’s Brewery PLC (Young’s) has been an investment within the Cromwell Phoenix Global Opportunities Fund since its inception six years ago. Its history goes back far longer than that, with connections to its previously owned brewery dating back to at least the 1500s, but likely longer than that. Today Young’s owns and operates 288 predominantly freehold pubs across the United Kingdom. A combination of cyclical and structural factors have led to extreme pessimism in the UK pub sector, however Young’s is well run, financially sound and trades at a meaningful discount to readily assessable value. Furthermore, the portfolio accesses this opportunity at a further discount, given its unique shareholding structure. This makes Young’s an attractive investment, squarely within the portfolio’s investment universe.

Looking back

Records of the Ram Brewery, based in Wandsworth in Southwest London, date back to 1581, when it was run by Humphrey Langridge. After changing hands and being passed down generations, the brewery was sold to Charles Allen Young and Anthony Bainbridge in 1831, who had supplied brewing equipment to the previous owners of the brewery. It was then inherited by Charles Florance Young in the late 1880’s, at which point Young & Co.’s Brewery Ltd was established. Not long after, in 1898, the business was listed on the London Stock Exchange. The company’s history of pub ownership also goes back centuries, with a Young family partnership acquiring 88 pubs alongside the brewery. This was an early form of what is now known as “vertical integration”, with the pub’s major focus being the sale of beer made by the Ram Brewery.

Young’s and the Young family were titans of the UK beer scene. Those who grew up in London in the 1900s would probably have ordered many a pint of Young’s Original, or Young’s Special. Young’s was run by John Young for much of the late 1900s, until he retired as Chairman in 1999. The brewery was known to be a family business, that deeply cared about its staff, with many generations of family members working at the Wandsworth site. Historically, it is fair to say occupational health and safety standards were traded for a positive work environment, with Ram being the last “wet brewery”, with staff able to have a healthy sampling of the product at work until the 1970s. Ram was the longest continually running brewery in the UK until 2006 when it was decided that it would close its doors. The now valuable property was to be sold off for much needed residential housing. Up until it closed, beer was still delivered by horse to pubs serving Young’s within a two mile radius of the brewery. The iconic site hosted an animal paddock and was visited by both the Queen and the Queen’s mother. John Young passed away in 2006 not long after the decision to close the brewery was finalised. The last batch of beer produced at the site was served at his funeral.

“In this tough environment, Young’s grew like-for-like sales by 5.7% in the previous financial year and has grown that figure by more than inflation for over a decade.”

Moving on

At the time the brewery closed, it was likely losing money, or making a minimal return on capital and the core of the business was the ownership of the pubs. The Young family continue to be meaningful shareholders to this day, with Torquil Sligo-Young previously working in the business, and now a member of its board of directors. Whilst now a professional pub operator, this connection has arguably been a key to business success. It has facilitated a focus on high quality operations, investing in the pubs it owns and maintaining a conservative financial structure. This contrasts with some of the large UK pub owners, without controlling shareholders, who have used immense financial leverage to grow their businesses and have hurt non-associated shareholders. This financial strength shone through across the covid-affected period, allowing the company to keep going with only the addition of modest debt, well below its full debt capacity.

That is not to say that Young’s won’t buy pubs. They have actively rotated and grown their portfolio of pubs, achieving solid returns on capital. Most recently, Young’s completed the acquisition of fellow listed pub owner, The City Pub Group, which added 51 pubs to the portfolio, predominantly in London and the South of the UK. This was a win-win transaction, with City Pub’s small size leading it to be undervalued by the market. Young’s as a larger organisation can achieve greater returns from the portfolio with easy wins, such as combining two sets of listing and board costs into one and achieving discounts on product sourcing. As a well-capitalised organisation, Young’s will likely be able to invest more capital into the pubs making them more attractive to patrons. The combination has progressed well, with staff onboarded and profit margins for the pubs beginning to show expansion.

More recently, as sentiment around UK pubs has soured, so too has the price of Young’s shares, particularly the voting A shares. The management team and board have shown capital allocation discipline, undertaking a buyback at discounted prices. This option is only available to the company because of its financial discipline.

State of the market

As previously mentioned, sentiment around UK pubs is poor. Firstly, they had to see off the depths of pandemic closures. Many large pub companies came away from that experience with very stretched balance sheets. Subsequently, pubs have had to face rising cost of goods sold, affected by food inflation, electricity cost hikes, additional taxes on alcohol and this year they will face a meaningful increase in the UK National Insurance rate. These factors have combined with generally lower rates of alcohol consumption in the Western World. The number of pubs in the UK has dwindled from more than 60,000 in the early 2000s to approximately 40,000 today. Much like the Ram Brewery, part of this can be ascribed to higher and better use of the properties. The UK still maintains a higher number of pubs per capita than Australia, but pales in comparison to our Irish friends, who frequent the same number of pubs as Australians, despite having approximately one fifth of the population.

Despite the challenging operating environment, Young’s has performed admirably. Thankfully, there are many listed UK pub companies, with long histories of financial information allowing us to form a clear picture of the industry over time. Listed players have meaningfully outperformed the broader pub market over time, as independent operators have struggled to compete against the scale and professionalism of larger operators. Amongst listed peers, Young’s has maintained either the best or second-best performance depending on the time of measurement. The only other company that compares is JD Weatherspoon, who not surprisingly has a controlling and aligned major shareholder who cares deeply about the company. JD Weatherspoon was a previous successful investment for the portfolio. Today Young’s is however best placed, with London outperforming the rest of the UK and its more upscale pubs better placed for today’s market environment than Weatherspoon’s highly affordable options.1

In this tough environment, Young’s grew like-for-like sales by 5.7% in the previous financial year and has grown that figure by more than inflation for over a decade. This has been aided by premiumisation, with sales of cocktails far outpacing the growth in sales of beer and wine. Young’s business model is also somewhat decentralised, with a lot of the key decisions about pubs handled at the pub manager level and support provided from central management. Supporting this, 85% of Young’s general managers have been internally developed, with many in upper management beginning their careers pulling pints.

 

 

 

The value

Given the quality of management and the pubs owned, one may expect Young’s to trade at a premium valuation. That is not the case today. Young’s values its property at market value on its balance sheet, allowing for a simple calculation of its net asset value (NAV). As at the end of December 2025, the company’s Voting A shares traded at more than a 40% discount to this value. The assumptions used in these valuations are also likely to be conservative and significantly undervalue the freehold estate when compared to similar Australian properties, which can trade at capitalisation rates below 5.0%.

But wait there’s more! In 2005, Young’s simplified its capital structure to maintain two classes of shares (down from three) and moved to the Alternative Investment Market (AIM) from the main listing segment of the London Stock Exchange. Young’s lists both its voting A shares and its non-voting shares (under code AIM:YNGN). Its non-voting shares have traded at a meaningful discount to the voting shares for a long time. Over the past 8 years the discount has averaged 33% and was as wide as 50% in 2021. This discount has somewhat closed, and ended the period just over 20%, aided by the fact the aforementioned share buyback is taking place solely amongst the non-voting shares. The portfolio has only ever invested in the non-voting shares, which has cushioned some of the pain of Young’s weaker share price performance, as the discount has closed.2 We are more than happy to relinquish this voting power as management, the board and the Young family have done a very good job in charge of the business for a long time. We would only ever vote with management and see no need in telling some of the best operators in the sector how to do their job. The discount we receive for giving up these voting rights is also extremely attractive. At period end the non-voting shares traded at a 54% discount to the readily assessable NAV of Young’s. At that valuation we are happy to keep a watchful eye on the cyclical factors affecting the industry and hopefully enjoy the returns created by a best in class management team with a well-positioned portfolio.

 

Footnotes

  1. A “small breakfast” of a fried egg, bacon, sausage, beans and a hash brown can cost as little as £2.99 at Weatherspoons!
  2. The Young’s non-voting shares ended the period at a small discount to the portfolio’s cost base.

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Home Phoenix Portfolios
November 27, 2025

Stock in Focus – Alkane Resources

Cromwell Jordan Lipson Portfolio ManagerJordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Sitting on a Gold Mine

The Cromwell Phoenix Global Opportunity Fund’s mandate is simple but wide: to seek out attractive opportunities across the small-cap universe where securities trade at discounts to readily assessable net asset values (NAVs), or where special situations create strong risk-adjusted return potential. This allows us to go wherever opportunities may present. Towards the end of 2024 an opportunity presented to invest in gold miners. A fast-rising gold price and a muted response from gold miners led to a compelling investment opportunity. These purchases, along with a timely addition in May this year, meaningfully contributed to returns over the period.

Gold vs Gold Miners

When the price of gold goes up, gold miners benefit more than you may inherently think. This is because a mine is leveraged to the price of gold in a way simply owning gold bars isn’t. Despite the immense challenge of running a mining operation, the underlying economics are relatively simple. Costs include the energy, people, infrastructure and equipment it takes to get gold ore out of the ground (and often process it) and revenue is the amount purchasers pay for the gold. For the most part, the cost of extracting the gold does not change when the gold price does, while revenue is directly linked to the gold price. A simple example highlights just how much leverage a gold miner might have to the price of the shiny metal. Let’s say it costs $1,500 to extract an ounce of gold, and the price of gold is $2,000 per ounce. The miner will clearly make $500 for every ounce of gold it mines and sells. Now let’s say the price of gold increases by 50% to $3,000 per ounce. It still costs $1,500 per ounce to get the gold out of the ground1 but now my pretax profit has increased by 3 times to $1,500 per ounce ($3,000 – $1,500) despite the gold price only increasing 50% (Figure 1).

This example is dramatically oversimplified and misses much nuance, but what naturally follows, is that when the gold price increases, the price of a gold miner should go up even more (all else equal). In the example in Figure 1, a 50% increase in the gold price has led to the mine becoming 200% more profitable. Figure 2 shows what actually happened in 2023 and 2024. Rebasing values to 100 as at the start of 2023, it shows returns for junior gold miners compared with returns of the gold price.

Figure 1

 

Figure 2

“Across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%.”

As can be seen above, across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%. This is the opposite of what would be expected to happen. Some of this relates to a more challenged cost environment, but that alone can’t explain this outcome. What happened next is shown in Figure 3. It expands on from Figure 2, beginning in 2023 and continuing until the end of the September 2025 quarter.

As can be seen, the environment for gold has been extremely conducive since the end of 2024. The gold price continued to rise, and gold miners have finally seen the upside leverage to the gold price reflected in their own share prices.

Figure 3

What happened?

Analysing exactly why gold miners underperformed the rally in the gold price initially is an imprecise activity, however observations can be made. It is worth noting that brokers provide widely available net asset values (NAVs) for gold miners. Often, they provide two; one using their own assumed gold price, and another assuming the current (or spot) gold price remains stable. At the end of 2024, NAVs using spot prices showed many gold miners trading at a price to NAV of less than 0.5. Official published NAVs, using broker predictions of future gold price, were much lower. This was a result of “expectations” of a lower future gold price. In reality, brokers are hesitant to quickly move assumptions when information changes. This would require constant republishing and changes of opinion, none of which is practical or in their interest. This is not a criticism, as their job is to provide analysis, information and generate trades, not necessarily to be a hands on investor. In the case of gold however, there is a liquid spot and futures market2, which allows investors to observe the value of gold today and of the price at which it can be hedged in the future. This gold price can simply be utilised in a model to derive a valuation. The benefit of using a market-based gold price, relative to a single market participant’s expectation, is the “skin in the game”. The World Gold Council reports that over US$200 billion of gold is traded per day, and each buyer and seller is incentivised to maximise their own profit.

At the end of 2024, spot and futures prices were meaningfully higher than many broker estimates. To be fair, they were probably higher than many of the estimates in other investors’ financial models, however these models are not publicly available. With the gold price sustained at higher levels, the outcome was predictable. Brokers (and probably other investors) moved their gold price assumptions higher thereby increasing valuations. As the gold price continued to increase, this cycle continued, with assumptions and valuations consistently stuck in the past. The recent rally in gold miners reflects a catch up in those assumptions.

 

 

 

Alkane Resources

Alkane Resources has long been listed on the Australian Stock Exchange and has been a holding of the domestically focused Cromwell Phoenix Opportunities Fund for many years. In April 2025, Alkane announced a transformational merger of equals proposal with Canadian-listed Mandalay Resources. The transaction was structured to have Alkane acquire Mandalay Resources and for shareholders of Alkane to end up owning 45% of the combined business with Mandalay shareholders owning the remaining 55%. This provided an opportunity for this portfolio to purchase a position in Mandalay, which was trading at a small discount to the merger price implied by Alkane’s Australian share price, and more importantly a meaningful discount to the merged company’s NAV and our assessment of valuation. The merger was highly likely to close as the transaction was recommended by both sets of board members and supported by major shareholders.

The merger represented an attractive proposition for both sets of shareholders. Mandalay had struggled for market relevance, as a closely held stock, listed in Canada, with assets in Australia and Sweden. For Alkane, the merger transforms the business from a single-mine producer into a multi-mine company, reducing asset-specific risk and improving production and earnings resilience. Furthermore, Alkane’s operating results have been burdened by legacy hedging contracts, whereas Mandalay is unhedged, providing the combined group with more direct exposure to movements in the gold price. The increased scale of the combined company has facilitated greater investor interest and attracted meaningful passive investment inflows. Alkane was added to the ASX 300 Index in late September and also received an upweighting in the US$8 billion VanEck Junior Gold Miners ETF (GDXJ), reflecting its enhanced market capitalisation and improved free float. Furthermore, the combined company is being run by long-time Alkane CEO Nic Earner, for whom we have a great deal of respect.

The merger was approved and successfully closed in early August. The portfolio’s holding in Mandalay until August marginally detracted value relative to indices, however since August, the holding (in what is now the merged Alkane Resources) has returned almost 66% in CAD. The position has been trimmed as it has risen, however remains 3.0% of portfolio assets at period end.

 

Current positioning

With the recent rally in the price of gold miners, it is reasonable to wonder if they still represent an attractive investment opportunity. The answer in our view is broadly yes. The same biases that led to undervaluation in the past are still prevalent today as the gold price climbs higher. The portfolio has however been a net seller of these stocks for risk management reasons, as we do not wish to have too large an exposure to this one specific theme. The price to (spot) NAV of many gold stocks remains near 0.5, despite the strong performance. If current gold pricing holds, gold miners should produce strong profitability, cash flow and returns in the future.

As at period end, direct exposure to gold miners represents approximately 9.5% of the portfolio.

 

 

Footnotes

  1. In reality, a strong gold market would lead to tighter labour market conditions and other factors that would increase the cost of mining, but this is small in comparison to the increase in profitability. There may also be a royalty associated the gold mined, which is a variable cost based on the gold price.
  2. This is merely a market where a participant agrees to buy or sell a commodity at an agreed price at a point in the future. It can be used to speculate (or hedge) on the future price of the commodity. All things equal, a futures price should be the spot price adjusted for the time value of money and storage costs.

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Home Phoenix Portfolios
August 8, 2025

Stock in Focus – BWP Trust

No More Bunnings Snags!!!

Phoenix Portfolios Managing Director, Stuart Cartledge

Phoenix has long discussed the importance of assessing governance in its investment process. The much-repeated Charlie Munger quote “show me the incentives and I will show you the outcome,” rings as true today as when he first said it. As such, we have maintained a preference for internally managed vehicles over those managed externally by fund managers focused on growing their funds under management. In June, BWP Trust (BWP) announced a major transaction, comprising the internalisation of management, along with a lease reset for many of the Bunnings tenanted properties owned by the trust. These interlinked transactions removed two of the key “snags” that were holding back our investment in the stock.

Snapshot

Key update
In June, BWP Trust announced two major changes:
  1. Internalisation of management – Ending its external management by Wesfarmers, BWP paid $142.6 million (10.6x FY26 EBIT) to take control.
  2. Lease reset – Extended lease terms on 62 Bunnings properties, increasing the WALE from 4.6 to 9.5 years, boosting property value by an estimated $50 million.
Why it matters
  • Better alignment: Internal management means decisions now serve unitholders directly, as opposed to serving the dual interests of unitholders and the external manager.
  • Cost savings: Expected to save over $5 million annually, with 2% dividend accretion in FY26.
  • Improved asset quality: Longer leases make properties more attractive and saleable.
  • Capital investment: $86 million committed to property upgrades, with $56 million rentalised and $30 million co-funded with Bunnings.
Valuation and outlook
  • BWP now trades at $3.52/unit, a 7% discount to its pro-forma NTA of $3.79/unit.
  • Historically traded at a premium due to strong tenant (Bunnings) and reliable dividends.
  • Due to the above changes, Phoenix has started buying BWP units again.

A brief history

BWP conducted an initial public offering (IPO) in 1998, initially comprising 16 hardware retail properties tenanted by Bunnings Warehouse and 4 properties under development, to be tenanted by Bunnings. These properties were vended into the trust by Wesfarmers, the owner of the Bunnings Warehouse business. 99 million units were to be issued to public shareholders, with 33 million units subscribed to by Wesfarmers, all at an offer price of $1.00 per unit. Of the 20 initial properties, 15 are still owned by BWP. Their valuation has increased from $133.1 million to $644 million today, representing growth of 6% per annum. The IPO portfolio was vended to BWP at an initial yield of ~9.0%, whilst the most recent valuation showed a capitalisation rate of 5.4%. Despite this, much of the value appreciation has been driven by rent growth, with increases in rental payments growing 4.3% per annum for the properties held since IPO. Returns to shareholders have also been solid, with BWP producing a total return of 11.8% per annum since IPO.

It is not only per share metrics that have grown. The units on issue have grown to 713.5 million, increasing more than 4x when compared to 1998. Much of this equity issuance did occur in capital raises above, or near net tangible asset backing. This growth may well have served BWP unitholders well, diversifying the portfolio and creating a more relevant entity, but it is worth acknowledging that on a per share basis, unitholders would have done perfectly well merely holding onto the initial portfolio. It is not questionable that the external manager of BWP, Wesfarmers, has very clearly benefited from this growth, as the recent transaction proves.

These interlinked transactions removed two of the key “snags” that were holding back our investment in the stock.

Coming to today

How much has Wesfarmers benefitted from BWP’s growth? In June, BWP announced it would internalise management of the company, paying Wesfarmers $142.6 million, representing 10.6x the management company’s estimated 2026 Financial Year (FY26) earnings before interest and tax (EBIT). In FY26 this will produce cost savings to BWP of more than $5 million, however this likely understates the true savings, as this includes transaction costs (associated with this deal) and does not include benefits of additional scale. The deal is also 2% accretive to the FY26 dividend. As fees are charged as a percentage of assets under management, growth under the old structure would naturally lead to an increase in management costs. Adding an additional Bunnings property to an internally managed vehicle, however, should barely make a difference to administration costs. This creates a better alignment of interests, meaning any decision to grow is more likely to be solely in the interests of unitholders, as opposed to serving the dual interests of unitholders and the external manager.

Connected to this deal is the announcement of an extension and reset of the lease terms of 62 Bunnings leases. This increases the weighted average lease expiry (WALE) of Bunnings tenanted properties owned by BWP from 4.6 years to 9.5 years. An independent expert has assessed that this is likely to increase the value of the properties owned by BWP by ~$50 million. This may understate the true value uplift as it does not directly consider the optionality inherent in the leases. Bunnings tend to have options embedded in their leases to extend the lease. The options have a cap and collar of 10%, meaning the rent can only increase or decrease as much as 10% upon option exercise. As Bunnings controls the option, they will likely exercise it on any strongly performing stores and likely won’t on any underperforming stores, which are more likely to be in inferior locations. With the WALE having decreased to 4.6 years this was a key concern. The lease extension does not extinguish this concern, however, it does push it out 5 years. Additionally, Bunnings properties with longer WALEs are meaningfully more saleable, with recent transactions very supportive of independent valuations.

The final element of the transaction is a commitment to capital expenditure by BWP. $56million of this is to be rentalised at a fair rate, whilst an additional $30million will be equally and jointly funded by BWP and Bunnings to improve some older properties. This amount won’t be rentalised, however should support asset values and prove a commitment by Bunnings to stay in that space.

What to do about it?

For much of its history, BWP has traded at a premium to its net tangible asset backing. A strong, prominent covenant and steadily growing dividends attracted a large retail shareholder base to the stock, supporting valuation over time. Given elevated share prices, along with an awareness of negative optionality and an external management structure with poor incentives, Phoenix has very rarely held any position in BWP1. As at the end of June, BWP traded at $3.52 per unit, approximately a 7% discount to the pro-forma net tangible asset backing of $3.79 per unit. The capitalisation rate used to deduce this value compares favourably to recent transactions. All told, this transaction removes two “snags” with investing in BWP. Namely, a relatively short WALE, creating a large degree of uncertainty in the short to medium term and perhaps more importantly, aligns incentives between BWP’s management and those of independent unitholders2. Phoenix has also been impressed with the quality of BWP management and board members and the transactions they have undertaken.

Given this and the stock’s reasonable valuation, the portfolio has begun purchasing BWP units for the first time in a long time. Owning a rock solid portfolio of properties leased to one of the strongest tenants in Australia, with a strong, efficient and aligned management team, at a discount to somewhat conservative independent valuations, seems like a worthy investment.

1 Phoenix has briefly held positions in BWP in times of temporary weakness, but quickly reduced the position as it returned to fair value.

2 The proposed remuneration framework laid out in the meeting booklet is top quartile for property companies under coverage, with remuneration outcomes closely linked to shareholder returns.

About Cromwell Phoenix Property Securities Fund

Read more about Cromwell Phoenix Property Securities Fund, including where to locate the product disclosure statement (PDS) and target market determination (TMD). Investors should consider the PDS and TMD in deciding whether to acquire, or to continue to hold units in the Fund.

Find out more

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Home Phoenix Portfolios
August 8, 2025

Stock in Focus – Hammond Manufacturing

Jordan Lipson, Fund Manager, Cromwell Phoenix Global Opportunities Fund

More than 100 years ago, Oliver Hammond was on the way to supporting a nine-person family in a small house behind train tracks in Guelph, Ontario, Canada. Seeking to improve the family’s life, Oliver set up a pedal-powered lathe in a backyard shed. Oliver and his two sons worked in the business until Oliver’s early death, at which point his wife, Lillian, continued the business with her sons and daughters. Foot power soon gave way to electricity, and the company, then known as O.S. Hammond and Son began producing radio sets, battery chargers and related devices.

Snapshot

Background

Founded over 100 years ago in Guelph, Ontario, Hammond Manufacturing (HMM) started as a family-run business making radio sets and battery chargers. Today, it focuses on electrical enclosures, racks, and cabinets. In 2001, the company split into two:

  • HMM (enclosures) with Robert Hammond as Chair and CEO and controlling shareholder of HMM
  • Hammond Power Solutions (HPS) (transformers) with William Hammond as Chair and controlling shareholder of HPS

Both are listed on the Toronto Stock Exchange and serve similar markets, but their valuations differ significantly.

Valuation gap: HMM vs. HPS
  • HPS: Market cap over $1.5 billion1, trades at 17x earnings, with strong investor relations and analyst coverage.
  • HMM: Market cap just over $100M, trades at 6x earnings, with minimal investor outreach and limited public float (40% owned by CEO Robert Hammond).

Despite HMM’s solid growth (10% revenue and 25% EBIT CAGR over 7 years), it remains undervalued.

Strengths of HMM
  • Conservative, long-term focus: CEO Robert Hammond emphasizes security and stakeholder value.
  • Customer-first approach: High inventory levels and custom solutions ensure fast delivery and strong relationships.
  • Property ownership: Owns over 500,000 sq ft of facilities, held at depreciated cost—adding hidden value.
  • Clean financials: Transparent reporting and disciplined capital allocation.
Valuation potential
  • Comparable company: Nvent (owner of Hoffman, HMM’s main competitor) trades at 18x EBITDA.
  • Recent deal: Nvent bought Trachte (similar business) for 12x EBITDA.
  • If HMM were valued similarly, its share price could be 4x higher.
Outlook
  • HMM trades at a deep discount to both earnings and book value.
  • While a takeover is unlikely (due to Robert Hammond’s conservative approach), the business is well-positioned for long-term value creation.
  • Investors may need patience, but the current price offers a compelling opportunity.

1 All currency in this commentary refers to Canadian Dollars unless otherwise noted.

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In the 1930s, Hammond created its first electrical racks and cabinets, the products that make up the core of Hammond Manufacturing’s business today. With the exploding demand for electrification in the 1950’s and 1960’s, Hammond became a meaningful supplier of electrical transformers, alongside its enclosures, racks and cabinets. In 2001, the business was split, with the transformer division spun into a new company, Hammond Power Solutions (HPS), and the enclosures business remaining with Hammond Manufacturing (HMM). Robert Hammond is Chair and CEO and controlling shareholder of HMM, while William Hammond is Chair and controlling shareholder of HPS. Both businesses are listed on the Toronto Stock Exchange, serve similar end markets and have similar growth drivers, yet their valuations could not be more different.

A tale of two Hammonds

HPS has unequivocally delivered great results in recent times, with growth driven by demand from data centres as well as other industrial applications. HPS also has a highly professional investor relations function, with detailed quarterly results presentations, slick ESG reporting and analyst coverage by major Canadian investment banks. HPS has been rewarded with a fair valuation. It has a market cap above $1.5 billion1 and trades on a price to earnings ratio above 17x. While HMM’s business hasn’t quite kept pace with HPS’s eye watering growth, over the past seven years it has grown revenues at approximately 10%
per annum and earnings before interest and tax (EBIT) at a rate of approximately 25% per annum. For all this good work, HMM has been “rewarded” with a price to earnings ratio of approximately 6x. HMM’s market capitalisation is just above $100 million, and shares are almost 40% owned by Robert Hammond leaving limited free float, partly explaining the cheap valuation. Furthermore, HMM’s investor relations function is almost non-existent, with a website out of the early 2000s and major updates from the Chairman limited to concise yearly letters in a mostly black and white annual report. As an example,
the entirety of the most recent letter can be seen here.

The lack of shiny presentations is not of concern. The financial statements are remarkably clean and understandable, and capital allocation priorities are clear, reasonable and focused on long term stakeholder outcomes. This is preferable to well marketed presentations, with highly adjusted earnings figures, which do not resemble the earnings power of the business. Despite this, it may in part explain some of HMM’s cheap valuation.

A safe and secure business

Despite the fast pace of growth, Robert Hammond values running a secure, conservative business. He ends each yearly letter stating, “we continue to build long term security and success for all our associates”. Still retaining family business values, there is a focus on promoting within and allowing “associates” to build a career at HMM. As Robert Hammond describes, “Grandma Lillian” taught the importance of customer service excellence and making your word your bond. This can be clearly seen in the strategy of HMM. It maintains significantly higher inventory levels than competitors so customers can receive their mission critical products in quick time. This held the company in relatively good stead during the COVID-affected period when supply chains came under pressure and demand meaningfully accelerated. The customer focus can be seen in the hands-on customisation options provided to customers and deep relationships with distributors, with sales staff even going on some distributor’s podcasts to spruik their wares.

Beyond this, HMM owns most of its manufacturing and corporate property footprint. This property is held at depreciated cost on its balance sheet. These properties have been acquired over a long period of time, including its main facility and corporate head office in Edinburgh Rd, Guelph, which was built in 1953. More recently, a 97,000 square foot facility was built when it became clear the existing production facilities were a constraining factor to the business. The property portfolio totals more than 500,000 square feet. HMM trades at a discount to its unadjusted book value, however applying a (very) conservative Despite the fast pace of growth, Robert Hammond values running a secure, conservative business. He ends each yearly letter stating, “we continue to build long term security and success for all our associates”. Still retaining family business values, there is a focus on promoting within and allowing “associates” to build a career at HMM. As Robert Hammond describes, “Grandma Lillian” taught the importance of customer service excellence and making your word your bond. This can be clearly seen in the strategy of HMM. It maintains significantly higher inventory levels than competitors so customers can receive their mission critical products in quick time. This held the company in relatively good stead during the COVID-affected period when supply chains came under pressure and demand meaningfully accelerated. The customer focus can be seen in the hands-on customisation options provided to customers and deep relationships with distributors, with sales staff even going on some distributor’s podcasts to spruik their wares.

Beyond this, HMM owns most of its manufacturing and corporate property footprint. This property is held at depreciated cost on its balance sheet. These properties have been acquired over a long period of time, including its main facility and corporate head office in Edinburgh Rd, Guelph, which was built in 1953. More recently, a 97,000 square foot facility was built when it became clear the existing production facilities were a constraining factor to the business. The property portfolio totals more than 500,000 square feet. HMM trades at a discount to its unadjusted book value, however applying a (very) conservative valuation to its property portfolio, HMM trades at a more than 40% discount to its book value, despite a strong return on assets and quality reinvestment opportunities. This exercise is somewhat theoretical as it is unlikely HMM will sell its properties, but ownership does allow for the security the business craves and increases the quality of its earnings.

A comparison

The largest competitor to HMM’s electrical enclosure business is Hoffman, which is wholly owned by US-listed business Nvent. The enitre company has a market capitalisation of more than USD$12 billion and owns related businesses such as those that produce cable management and power management products. Nvent recently acquire Trachte, a business that manufactures control buildings, for USD$695 million, or a price of 12x its forecast earnings before interest, tax, depreciation and amortisation (EBITDA). The company was at pains to equate the quality of this business to its enclosures business, with the CEO stating, “these control buildings are essentially larger enclosures.” If HMM were to be valued at Trachte’s acquisition multiple its share price would be four times higher (without adjusting for HMM’s property ownership). Nvent itself is valued at an enterprise value to EBITDA ratio of approximately 18 times. Valuing HMM at this multiple produces silly outcomes for HMM’s potential equity returns. Nvent’s enclosure business does have higher earnings margins and return on assets than HMM, but much of this is attributable to the fact this segment does not include apportioned centralised costs. In addition, Nvent runs with a leaner inventory profile and does not own its property.

Nvent has refined its portfolio acquiring new businesses and selling those it that no longer fit into its “connect and protect” businesses. In Nvent’s most recent earnings call, its CEO stated, “And on the acquisition M&A pipeline question, I would like to say that where we play in this Connect and Protect space, it’s about a $100 billion opportunity. And remember, at $3-plus billion, we’re one of the larger players. So it’s very fragmented. And I think there’s a lot of opportunities.” HMM’s business would fit perfectly for Nvent’s desires, as there would no doubt be an abundance of synergies to extract. It is highly likely that this would be anathema to Robert Hammond, who prefers to run a more secure, but less efficient business focussed on all stakeholders, including customers and employees. However, it is likely that Nvent would pay many multiples of today’s share price to acquire HMM.

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Where to from here?

These valuation exercises are important to do, but an instant realisation event is highly unlikely. HMM does however trade at a price to earnings ratio of approximately 6x and a meaningful discount to any assessment of true book value. These valuation levels imply the business is antagonistic to shareholders or that earnings aren’t sustainable. On the first count, Robert Hammond is a major shareholder and receives below market remuneration. He has also previously discussed that HMM shares are owned by hundreds of employees. On the second, while HMM’s end markets are very much cyclical, the business has produced operating profits each year since 2002 and is the beneficiary of some industries facing an elongated period of secular growth. One such example is the growth in data centre development.

All in all, it is hard to say when and if HMM’s shares will reflect fair value. Its management are long-term oriented and clearly care about all stakeholders. Similarly, precisely assessing HMM’s fair value is challenging and will likely be different to an acquirer, relative to a continuation of the status quo. What can be said is the current share price reflects a very meaningful discount to fair value. We will wait patiently for this value to be reflected while Robert Hammond and the HMM team work to make the business even more valuable in the future.

 

1 All currency in this commentary refers to Canadian Dollars unless otherwise noted

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Home Phoenix Portfolios
May 14, 2025

Stock in Focus – Nam Cheong Limited

Jordan Lipson, Portfolio Manager of the Cromwell Phoenix Global Opportunities Fund

The Cromwell Phoenix Global Opportunities Fund added 2.1% in absolute terms over the March quarter, outperforming global indices large and small. Nam Cheong Limited (NCL) was the biggest contributor, rising meaningfully as investors become more comfortable with its post-bankruptcy future. This article delves into NCL’s journey, its strategic partnerships, and the factors contributing to its compelling risk/reward opportunity.

Almost 70 years ago, a 14-year-old Tan Sri Datuk Tiong Su Kouk (Tan Sri) was given 3.40 Malaysian Ringgit (less than AUD 2) to start a career as a fishmonger. A hard work ethic and a focus on customers ensured early success. In his 20s, Tan Sri saw the benefits of technology from Japan, in particular the newly discovered food freezing technology. Malaysians were initially unwilling to trust that frozen food would be edible, so Tan Sri gave out frozen food for free to convince customers to buy his produce. This innovation led to the creation of CCK Consolidated, a vertically integrated leader in frozen foods in Malaysia, which is still in business, controlled by Tan Sri and listed on the Malaysian Stock Exchange. Staying close to the seas, Tan Sri subsequently partnered with Chinese shipbuilders to start a business known as Nam Cheong Limited (NCL).

NCL today is the owner of 36 offshore support vessels (OSVs) which service the Malaysian offshore energy sector. Running NCL has been anything but smooth sailing. The company built and acquired as many boats as it could during the last offshore drilling boom, heavily relying on debt, much like others in the industry. This business is exceptionally cyclical and NCL was forced to initially restructure its debt in 2018 to meet payments to creditors. Whilst business was hardly thriving, things somewhat steadied, until the COVID-19 pandemic caused oil prices to retreat and cripple the OSV business.

This led to NCL declaring bankruptcy. Share trading was halted, and negotiations began with lender banks. With a recovery on the horizon, after meaningful negotiations, the final restructure agreement was signed and approved on 1 March 2024. Under the terms of the deal, much of the debt would be converted to equity, Tan Sri would provide more capital to the business in return for new equity, and the remaining debt would be converted into “equity friendly” liabilities, to be repaid over an extended period at below market interest rates.

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Phoenix in the Market

Phoenix has followed the OSV market for some time, with the domestic Cromwell Phoenix Opportunities Fund initially investing in MMA Offshore (MRM). This investment was a significant contributor to performance as it eventually received a takeover bid at a robust valuation. This portfolio has also successfully invested in industry leader Tidewater (NYSE:TDW) previously. Both these investments provided relevant background for assessing NCL upon its restructure and eventual relisting on the Singapore Stock Exchange. In particular, valuations could be more precisely assessed using the independent expert’s report associated with MRM’s takeover.

What happened next?

Upon relisting, NCL’s shareholders included the banks who had converted their debt to equity, prior NCL investors who had been diluted and were forced to hold their shares through bankruptcy for 4 years and Tan Sri, who was unlikely to trade his shares. Unsurprisingly, the banks were large scale sellers upon relisting, trying to recoup some of their investment as quickly as possible. Furthermore, any potential buyers would have to assess both complex financial statements and detail provided in the bankruptcy documents to gain an understanding of the current state of the NCL business.

Despite the rocky history, the truth was that business was booming. As a result of the cyclical downturn in the sector, the number of OSVs in operation had shrunk materially and there was no prospect of any new vessels being built, given that day rates were less than half of what was needed for newbuilds to break even. Further aiding NCL is Malaysian law, which preferences Malaysian-flagged vessels for Malaysian offshore activities, which are dominated by state owned enterprise, Petronas, which has increased activity in recent periods. NCLs fleet is also (almost incomparably) young at just over 7 years old. NCL’s current financials are encumbered by existing contracts, which were set at historic day rates. Profitability is likely to improve when these contracts conclude, and pricing is reset at current market rates.

Upon relisting, NCL traded at less than SGD 0.15 per security. Sadly, we missed this initial opportunity, however after assessing the detail of the transaction, we initially purchased a stake in NCL at SGD 0.365 per security. Using somewhat conservative estimates, NCL’s market net asset value (NAV) was assessed to be at least SGD 1.30, making this opportunity appear highly attractive. It is worth noting that NCL is not at all promotional, continues to have (temporarily) complex financials, and does not provide market updates beyond legal requirements.

Tan Sri does however have a history of solid governance and has demonstrated care for stakeholders, so we were happy to partner with him over the medium term as NCL’s value became evident. This has occurred more rapidly than anticipated, with NCL finishing the period at a share price of SGD 0.66. We sold some of our holding in NCL during the quarter as the risk/reward proposition has now become less compelling and to limit position sizing given the volatile nature of the OSV sector.

Cromwell Global Opportunities Fund

Value of $100 invested at inception

 

Past performance is not a reliable indicator of future performance

Conclusion

At period end, NCL remains a top 5 holding as it continues to trade at a substantial discount to NAV. Recent market updates have been mixed, with the global OSV industry somewhat slowing due to the decline in the oil price. However, Malaysian competitor Keyfield Services recently released a strong result and provided an optimistic outlook statement. In particular, Keyfield stated “based on supply and demand analysis of OSVs in Malaysia, there will be a critical shortage of AHTS < 80MT beyond 2030, unless owners acquire new vessels”. These vessels represent the majority of NCL’s NAV. There is no doubt NCL operates in a cyclical industry which has seen countless bankruptcies over time, so an investment is not without risk. However, with a young fleet, market tailwinds, extremely shareholder friendly debt and an aligned controlling shareholder, NCL still represents a compelling risk/reward opportunity.

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February 21, 2025

Why listed property deserves a place in investors’ portfolio – A conversation with Stuart Cartledge

Stuart CartledgeListed property has long been a staple for investors seeking sustainable income and exposure to commercial real estate. Yet, in recent times, some asset consultants and researchers have shifted allocations toward global real estate investment trusts (GREITs), citing concerns about concentration risk in the Australian market. To explore why listed property still deserves a place in a well-diversified portfolio, we sat down with Stuart Cartledge, Managing Director of Phoenix Portfolios, to discuss the opportunities in listed property, diversification strategies, and how Phoenix approaches the market.

 

What opportunities does listed property provide for investors?

According to Stuart, one of the key benefits of listed property is the ability to gain exposure to commercial real estate in a diversified and liquid manner.

“The key issue that most of us have with commercial real estate is that we don’t have enough money to achieve diversification, and we may not have a long enough investment horizon to forfeit the need for liquidity,” he explains.

Unlike direct property ownership, where selling can take months or even years, listed property allows investors to buy and sell easily on the stock market, providing much-needed flexibility.

Beyond liquidity, listed property also offers sustainable, forecastable income streams. Most investments in the sector generate returns through ownership and rental income, with long-term leases often secured by blue-chip or government tenants. This makes the income more predictable compared to other asset classes.

A listed property investment typically derives the majority of its return through the ownership and rental of commercial real estate. Investors gain proportional ownership in a portfolio of commercial property assets, along with professional management to collect rent, maintain buildings, and, most importantly, distribute income to unitholders. Commercial real estate is typically leased on long-term contracts, often to blue-chip or government tenants, making the income stream reasonably forecastable and reliable.

Diversification
Liquidity
Regular income stream
Professional management
Long leases to quality tenants
Small investment through proportional ownership

How do you manage concentration risk and uncover opportunities?

Stuart acknowledges the concentration risk in the local listed property market, particularly in index-heavy names like Goodman Group, which dominates traditional benchmarks. However, Phoenix Portfolios takes a benchmark-unaware approach, expanding its investment universe to include a much broader set of opportunities.

“To assist us in creating the best risk/return trade-off, we have expanded the universe of potential holdings to be around three times the size of the benchmark portfolio,” Stuart explains.

This allows Phoenix Portfolios to uncover hidden opportunities, particularly in smaller property stocks that are often overlooked by large institutional investors. The research process involves fundamental analysis, meeting management teams, and conducting site visits to assess long-term value.

Another key differentiator for Phoenix Portfolios is its focus on after-tax returns, which is particularly relevant for Australian investors.

“We fully value the franking component of any dividend or distribution because we know our investors will,” Stuart notes. This approach enhances after-tax outcomes, making listed property even more attractive for Australian investors.

Webinar: Why your client's portfolio needs a slice of property

Would you like to explore how listed property could fit into your clients’ portfolios? Watch our webinar recording, where Stuart Cartledge, Managing Director of Phoenix Portfolios and the portfolio manager of the Cromwell Phoenix Property Securities Fund, shares key benefits and strategies for investing in the sector.

Speaker
Stuart Cartledge, Managing Director, Phoenix Portfolios

Webinar details

Property can be a powerful addition to a well-balanced portfolio, offering solid asset backing, inflation protection, and diversification benefits that differ from bonds and equities. But how can advisers navigate the complexities of listed property and identify the best opportunities?

Join Stuart as he shares insights on:

  • The role of property in portfolio construction and risk management
  • How securitised property works and the diverse opportunities available
  • The tax considerations that can impact investment outcomes
  • Why active management is key to accessing the best opportunities in domestic listed property

With decades of experience in listed property investments, Stuart brings deep market insights and a proven track record of identifying attractive yet overlooked opportunities.
I am interested in:

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Home Phoenix Portfolios
February 10, 2025

Celebrating five years: Cromwell Phoenix Global Opportunities Fund

The Cromwell Phoenix Global Opportunities Fund marks five years of disciplined management and strategic investments in attractive, yet overlooked, global securities. Over this period, the Fund has consistently delivered strong returns, outperformed benchmarks, and navigated diverse market conditions with agility and expertise. Each milestone reflects the Fund’s commitment to uncovering value in unique opportunities, fostering long-term success for its investors.

Explore the key moments and achievements that have defined its journey below.

 

YEAR 0

 

Created to meet investor demand for global diversification

The Cromwell Phoenix Global Opportunities Fund (Fund) is launched to provide access to overlooked international securities.

YEAR 1-2

 

Focused on building a strong, risk-adjusted track record
(closed fund)

 

15.7%p.a.*    Total returns

Outperforming Vanguard Total World Stock ETF benchmark by 0.3% p.a.

*As at 31 December 2021. Past performance is not indicative of future performance

YEAR 3

 

Opened to retail investors

Ensures strategic advantage by enabling investments in small-cap stocks and diverse listed structures.

 

8.8%p.a.*    Total returns

Outperforming Vanguard Total World Stock ETF benchmark by 3.6% p.a.

*As at 31 December 2022. Past performance is not indicative of future performance

YEAR 4

 

Outperforming market benchmarks

 

10.3%p.a.*    Total returns

Outperforming Vanguard Total World Stock ETF benchmark by 1.0% p.a.

*As at 31 December 2023. Past performance is not indicative of future performance

YEAR 5

 

Five year milestone

 

13.5%p.a.*  Total returns

Outperforming Vanguard Total World Stock ETF benchmark by 0.7% p.a.

*As at 31 December 2022. Past performance is not indicative of future performance

Need more information?

Book a Q&A session with our Investor Relations team or catch up on the latest insights into the Cromwell Phoenix Global Opportunities Fund via our webinar recording.

Book a session Watch the webinar recording
About Cromwell Phoenix Global Opportunities Fund

Read more about Cromwell Phoenix Global Opportunities Fund, including where to locate the product disclosure statement (PDS) and target market determination (TMD). Investors should consider the PDS and TMD in deciding whether to acquire, or to continue to hold units in the Fund.

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February 10, 2025

DigiCo REIT: The hottest initial public offering for several years

Stuart Cartledge, Manager Director, Phoenix Portfolios

Phoenix was peppered with questions about DigiCo REIT (DGT) in the lead up to the stock’s Initial Public Offering (IPO). This article provides a high-level explanation of the demand and supply characteristics of the data centre market along with some comments on DGT specifically and ultimately why we chose not to invest in the IPO.

 

Industry background

The data centre industry is a critical backbone of the global digital economy, enabling the storage, processing, and dissemination of data across businesses, governments, and individuals. The sector has experienced rapid growth over the past decade, driven by technological advancements, the proliferation of cloud computing, and the increasing importance of data-driven decision-making across industries.

Key demand drivers include:

  • Cloud Computing and SaaS: Cloud computing adoption continues to soar, with enterprises migrating workloads to the cloud for scalability and cost-efficiency. Platforms offering Software-as-a-Service (SaaS), such as Microsoft 365 and Salesforce, rely heavily on data centres.
  • 5G and IoT: The rollout of 5G and the growth of Internet of Things (IoT) devices generate unprecedented data volumes, necessitating scalable and reliable data storage solutions.
  • Artificial Intelligence (AI) and Machine Learning (ML):AI and ML require significant computational power, leading to increased demand for high-performance data centres equipped with GPUs and specialised hardware.
  • Digital Transformation:Businesses across all sectors are investing in digital tools and platforms, further boosting the need for robust data infrastructure.

On a conference call in December 2024 with US based Digital Realty, the company described demand growth “greater than anything we’ve ever seen before” and went on to explain how they’ve moved from addressing the need for “growth in the cloud” to “enterprise digital transformation” to a current situation where Artificial Intelligence is accounting for approximately 50% of new bookings.   

While all forecasts in this space need to be considered carefully, the chart below provides an indication of potential growth.

Supply is being added rapidly, albeit, the physical requirements of land, buildings, IT infrastructure and power can sometimes lag demand. In broad terms, the supply landscape comprises:

  • Hyperscalers: Technology giants such as Amazon (AWS), Microsoft (Azure), and Google (GCP) dominate the hyperscale market. These companies continue to invest heavily in expanding their global network of data centres.
  • Colocation Services: Colocation providers, such as Equinix and Digital Realty, are also experiencing high demand as enterprises seek hybrid solutions that combine on-premises and cloud storage.
  • Enteprise Data Centres: Large organisations such as banks and government, may own and operate their own data centres, specifically tailored to their needs.
  • Edge Centres: For certain uses, it is important that data centres are close to end users, helping latency. Edge centres are closely located to end users, but tend to be smaller in scale.
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What is DigiCo REIT?

DGT is a newly established, ASX-listed Real Estate Investment Trust that seeks to own, operate and develop data centres. Initially focused on Australia and the USA. The trust has a global mandate and an equally broad strategic focus, looking for exposure across stabilised assets, value-add, and development opportunities.

Unlike traditional real estate metrics, where the focus is on gross or net lettable area, with data centres, it’s all about power1, so the metrics turn to megawatts (MW) and gigawatts (GW) as the key attribute of a facility. In that context, DGT’s initial portfolio has installed capacity of 76MW, with the vehicle looking to materially expand this to 238MW via additions and greenfield opportunities already identified.
Externally managed by HMC Capital Limited, DGT benefits from a recently acquired operating platform of staff that brings the IT capability alongside the funds management, accounting, tax and risk management skills of the HMC Capital platform.

DGT is tapping into one of the mega-trends identified by its external manager.

What’s not to like?

Data centre assets are more difficult to value than traditional real estate.  Traditionally, as a real estate investor, we have been a provider of land and buildings with the tenants responsible for power, and everything that sits within the buildings. This type of real estate is reasonably easier to value, particularly where long leases provide certainty of income. Once we move further up the risk spectrum, by providing a powered shell, and potentially towards operating the assets ourselves, we benefit from much higher returns but are also more exposed to the operating business, and the risks around obsolescence of equipment.  As such, valuation metrics become more challenging, as long term forecasts for cash generation are subject to large estimation error.

DGT is new to this space, and while we believe they have done a solid job of assembling a diversified initial portfolio and management team, they lack a solid public track record.  Over time this will dissipate, but in the short term we require an enhanced return expectation to compensate.

The entire portfolio has been recently acquired and a large portion of it is yet to even settle. Given the strong interest in the sector, it would be hard to argue that it is anything other than a sellers’ market which is unlikely to be supportive of cheap acquisitions. Our estimate of the price paid per MW of capacity is around $28m. This includes both the cost and additional capacity of planned projects.

By way of comparison, Goodman Group (GMG), which has been a hugely successful developer, owner and operator of industrial property in Australia and key overseas markets, has also recently pivoted towards the development of data centres.  Data Centres are expected to become more than 50% of GMG’s total development pipeline. GMG has a data centre pipeline of ~5GW, albeit this will take more than a decade to roll out.  GMG is targeting 80MW facilities with an estimated end value of ~$2bn, implying a market value for a brand new facility of ~$25m per MW. Furthermore, this includes a substantial development margin for GMG.  These figures are rough and ready, but do not flatter the DGT valuation.

One of the metrics we use to value property stocks is a “Sum of the Parts”.  For externally managed REITs, this involves estimating a market value for each of the assets held, and then making adjustments for the capital structure (debt) and the management fee structure. For DGT, given all assets have been recently acquired, we have a reasonable starting point for valuation.  At IPO DGT was priced at a ~4% premium to book value and a bigger premium to our assessed “Sum of the Parts” once the management fee stream is accounted for.

And finally, a word on externally managed trusts, which we have made many times before, but remains very important.  There is an inherent conflict between the manager, who is incentivised to grow assets and fees, versus the unitholders of the trust who may be better served with a more stable portfolio. This misalignment is made worse when there are fees attached to acquisitions and dispositions.  Sadly, DGT is encumbered with such fees, albeit the manager does have a substantial co-investment stake offsetting this concern to some extent.

Conclusion

The data centre space is an amazing one.  It represents a substantial opportunity, and we expect DGT to grow strongly as it develops out its current pipeline and makes acquisitions.  However, each opportunity needs to compete for the same dollar of capital. Right now, we see some compelling opportunities in related areas, such as Centuria Industrial REIT (CIP), which trades at a material discount to its book value and also has some growth options.

 

Footnotes:
  1. Interestingly, and somewhat fortunately, renewable energy sources now power approximately 40% of global data centres, with many operators targeting net-zero emissions by the 2030s.

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