Update No. 207 – 20/03/15

This blog will be dedicated to the bi-annual ‘Portfolio Metrics’ review.

I will start with the usual table:

Weighted Average Valuations



FCF Yield















Dividend Yield



Market Cap ($M)






Depreciation ($M)







The portfolio in broad terms appears about 7.2% more expensive on P/E metrics as set out in the table above than in the equivalent post 6 months ago. In part, this is because we have again added some higher multiple stocks.

I will diverge from my usual reluctance in disclosing our holdings to declare two of these stocks, they are large enough that my humble blog will have NO effect on their trading over the coming period. In any case, barring extraordinary price falls in the stocks, my buying is done.

I have mentioned previously that we participated in the Medibank (MPL) IPO. Well MPL now comprise about 0.8% of the equity part of our portfolio, which depending on the price movements of our smaller holdings, usually makes it our second or third smallest holding. MPL is not cheap, but with Government guaranteed premium growth, if the ‘cost-out’ story of the privatisation is even modestly successful, low double digit growth is all but assured several years hence. Stocks with pristine balance sheets and such earnings characteristics usually justify a high multiple. Furthermore, the pristine balance sheet gives management options that could potentially enhance the native growth prospects. The growth in our weighted average market capitalisation is also explained in large part by the addition of MPL, for despite its 0.8% size, as a nearly $6.5 billion ‘large-capitalisation’ stock, it adds $52.4m to the weighted average market cap of the EGP portfolio.

The other ‘large-cap’ stock we added in the period was Flight Centre (FLT). I have stalked FLT for a number of years. Over the Christmas of 2012 I was in the UK and I could see how well the stores were clearly performing despite a weak economy. I determined that it was a stock I would pay up for. I was convinced the business model which had brought so much success with its Australian roll-out was able to be exploited internationally and was therefore worth paying up for. At the time the shares were trading at about $27 per share, having risen fairly sharply from $18 or $19 about six-months earlier. $27 represented about 13 or 14x, which for a company with a strong balance sheet and a history of impressive earnings growth is undemanding to say the least. My greatest weakness I suspect as an investor is in always trying to squeeze the last penny out of the buy price. From the time I started really tracking FLT closely in early 2013 as a potential buy candidate, it rose almost uninterrupted from around $27 to nearly $50 over about 9 months and it became ‘one that got away’.

A missed opportunity that I hoped to learn a valuable lesson from.

The share market has a funny way of granting you second chances though. When FLT traded down to the $31 range in early January, I was ready to strike. I bid at $31.65 and watched the market pull away from me again. I eventually overcame my anchoring tendency and secured half of the intended position at $34 and managed to pick up most of the rest at $33. Since those purchases, the market has had a fairly rapid change of heart and the stock now trades around $40. My view is that the market overplaying concerns about a weaker Australian currency crimping the future growth of FLT profits. The Australian market is mature and profits in that area probably will stagnate, but FLT is an international growth story now and all the signs appear to indicate that the business model is portable.

FLT is about a 2.5% position and as a larger stock, also adds around $130m or so to the weighted average market capitalisation of our funds holdings.

There are a number of other purchases we have been making, but we are still working at those, so I will remain tight-lipped until I feel our desires for these stocks are suitably sated.

Bearing in mind the market currently carries a P/E multiple nearer to 17x, I still think our portfolio represents meaningfully better than market value. I fully expect our holdings as a group to grow their earnings at least as much as the wider market over the coming 12 months. That doesn’t guarantee outperformance, but if you have two stocks with similar earnings outlooks and one trades at a 38% lower multiple and has a net cash balance sheet rather than a net-debt (as the broader market does), then it’s probably the better value. At least that’s the theory – Tony Hansen 20/03/2015


Apr 1st 2011

Jul 1st 2014

Current Price

Since July 1st 2014

Since Inception

EGP Fund No. 1












EGP Fund No. 1 Pty Ltd. Up by 6.48%, trailing the benchmark by 8.18% since July 1st 2014. Since inception, EGP Fund No. 1 Pty Ltd is Up by 81.40%, leading the benchmark by 33.41% all-time (April 1st 2011).

*1 after 31May 2013 dividend of 2.333 cents per share plus 1.000 cent per share Franking Credit & 31 May 2014 Dividend of 7.000 cents per share plus 3.000 cent per share Franking Credit

*2 calculated based on dividends reinvested