Quarterly Portfolio Update as at 15.06.19
This is my second post of my current portfolio on Saul’s board. I have found the process of creating this post highly beneficial, and it has helped me make some further adjustments to my portfolio.
Results Summary:
US portfolio gains for CY 2019 (ex. Currency gains): 39.5%
Non-US portfolio gains for CY 2019: 41.3%
The US portfolio has been held back by Stone Co. falls in April as a result of FUD. I expect this will sort itself out by my next instalment.
Introduction
I have a non-US bias in my portfolio, but interestingly, there is little difference in the performance of my US and non-US portfolios over the past three months. Comparing the two portfolios have actually helped me identify areas to improve / refine each set of investments, and the competitive tension I think will lead to better investment decisions. I am now highly motivated to ensure my Non-US portfolio can keep pace with my current US portfolio.
My investments are made via our superannuation trust (retirement fund) and our family trust. I have combined the holdings of these two trusts and have split the portfolio into two. US and non-US holdings. I thought my non-US holdings would be of some interest, and includes names that are not mentioned on this board.
My approach is to take a more cautious approach to buying and selling, so I tend to change positions less frequently than other posters on this board, and the past 3 months has seen a steady transition to US holdings and out of lower growth, lower conviction holdings. I have added some try out positions in businesses that I think have potential to generate great returns, and will wither add to them of sell if the thesis holds or breaks.
I use Sharesight to monitor returns of my portfolios. Sharesight uses a dollar-weighted (also referred to as a ‘money-weighted’) return methodology. A dollar-weighted return measures investment performance taking account of the size and timing of cash flows. I love this platform, and highly recommend it.
So here goes:
Current cash position (4.3%)
I have reduced my cash position, adding to both my Non-US and US portfolios – more on that below. I typically use cash as a hedge in my portfolio. I am looking to increase my cash position, but I do not see too many weeds in the garden at this point in time.
US Portfolio
No. 1 – TTD (10.7% - up from 7.3% previously)
• Market leader and innovator outside walled gardens
• Top US position due to steep valuation discount in December.
• Sector tailwinds, high margins, high growth.
• Keep an eye on: Walled gardens, disrupters, agencies starting up own platforms, Chinese adventure.
I increased my position in TDD, buying more between $176 and $186 over the past 3 months.
No. 2 – TWLO (7.1 % – up from 6.2% previously)
• Market leader and innovator
• Developer tailwinds.
• Sector tailwinds, high margins, high growth.
• Keep an eye on: gross margins, customer acquisition costs, changes in growth trajectory.
I increased my position in TWLO, buying more between $123 and $124 in May.
No.3 – MDB (6.4% – up from 5.3% previously)
• Undisputed market leader.
• Accelerating growth, with Atlas now driving faster growth. Crossing the chasm???
• Major transition to NoSQL database in the early stages.
• Keep an eye on competition from AMZN, and GOOGL. Watch for issues with Atlas (reliability/security/onboarding).
• INCREASE POSITION (TARGET WEIGHTING 6-7%)
I increased my position in MDB, buying more between $144 and $145 in June.
No. 4 – AYX (4.8% - up from 3.9% previously)
• Undisputed market leader.
• Continuing strong growth.
• Keep an eye on competitio. Tableau buyout a positive
• INCREASE POSITION (TARGET WEIGHTING 5-6%)
No. 5 – STNE (4.8% - up from 0% previously)
• Unique and effective customer service model.
• Continuing strong growth.
• Great profit margins.
• Great operational leverage.
• Maintain holding – Q2 results critical to confirm FUD competition event.
No.6 – SQ (3.5% - down from 4.1% previously)
• Market disrupter, optionality galore.
• Software business is growth driver.
• Keep an eye on competition from “local” incumbents (usually banks), lending / financing risk. Watch for declining growth or issues with onboarding merged companies.
No.7 – ESTC (3.1% - 0% previously)
• Leading data search provider.
• Leading innovator in the search space.
• Ever growing optionality.
• Open source model – keep an eye on copycat competitors.
No. 8 – OKTA (1.9% up from 1.3% previously)
• Undisputed market leader in identity / sign-on as a service.
• New product innovations increasing TAM.
• Strong growth.
• Keep an eye on new product adoption, net revenue per customer expansion. Questions regarding size of TAM.
• INCREASE POSITION (TARGET WEIGHTING 4%)
No. 9 – ZS (1.4% up from 1.3% previously)
• Undisputed market leader.
• Accelerating growth, and huge TAM
• Keep an eye on competition. Although competition hindered by legacy products, and fear of market cannibalism.
• INCREASE POSITION (TARGET WEIGHTING 6-7%)
No. 10 – FB (0.1% down from 2.7% previously)
• Leading social media platform.
• Growth slowing, regulatory risks, taxation risks.
• Holding to retain daughter’s interest in investing.
Positions sold since March 19, 2019:
I am quite happy with my portfolio, and I have only sold down to holdings.
• NTNX (100% of holdings)
• FB (95% of holdings)
Positions acquired since March 19, 2019:
Positions I added to include:
• TTD
• TWLO
• MDB
• ESTC – new position
US Portfolio percentage = 43.0%, up from 34.4% previously
US Portfolio Return since January 1, 2019 = 41.9% (includes currency gain 2.42%)
Non- US portfolio
Appen -APX (ASX) – (6.9% down from 7.4% previously)
• AI Data feeder.
• 100% annual profit and revenue growth, but revenue growth slowing.
• Consistently beats guidance.
• Establishing top dog status through strategic acquisitions (competitive threats)
• Recently acquired
• Threats – Watch out for AI disruption to service. Look out for top customers DIYing (akin to UBER and twilio).
• REDUCE POSITION IF GROWTH CONTINUES TO DECELERATE OR ACQUISITION SHOWS SIGNS OF FAILING. Look to reduce holding to 5% over time.
Sold 8% of holdings to reduce exposure.
Xero – XRO (ASX) – (5.9% down from 6.3% previously)
• Leading SAAS accounting platform.
• Pure cloud play (unlike INTUIT).
• Revenue growth = 37% pa ; gross margins = 82.8% !
• Top dog in AUS, NZ, and UK.
• Watch performance in UAS (Intuit fighting back hard), watch to see UK growth and dominance continues.
• REDUCE POSITON. Revenue growth around 35% pa, but may begin to decelerate in 12-24 months as UK matures. Higher growth opportunities available.
Sold 8% of holding to reduce exposure.
Nearmap - NEA (ASX) – (5.9% - NO CHANGE)
• Leading SAAS geospatial service in Australia. Hyper growth in USA.
• First mover.
• 45% revenue growth, and accelerating from low 30s. US growth = 108% pa.
• Watch for disruption from GOOGL, and other competitors.
Sold 25% of holding to reduce exposure. Upon a review of the opportunity, perhaps it was a mistake to trim. 
Altium -ALU (ASX) – (5.3% down from 6.7%)
• Chip design software company.
• Top dog / market leader
• IoT is a huge tailwind for the company.
• Strong cashflow.
• Revenue growth of 24%, but net profit growth of 58% due to operational leverage. EBITDA Margin expansion at about 10-20% pa.
Pushpay – PPH (ASX) – (4.5%, up from 4.2%)
• Leading SAAS provider in the faith donations administration sector.
• Top dog - First mover.
• 35% revenue growth. Reached cashflow breakeven.
• Increasing gross margins.
• Watch for slowing growth as management focus on generating cash, stabilizing costs, watch for poor acquisition execution.
A2 Milk – A2M (ASX) – (4.1%, down from 4.3%)
• A2 the only A2 only protein milk producer.
• Capital light model – A2M outsources production.
• High margin for “premium” milk product.
• High growth in china, US, and UK. Currently 40%+ revenue growth. 50% in China and US.
• Great optionality, with infant formula yet to be released in US and UK markets. Huge growth runway.
• Watch for branding – vulnerable to customer whims, and reputational damage.
• China announced regulatory changes that may impact Daigou channel. Economic risks could greatly impact A2M. Monitor Daigou channel, and sell on signs of channel stuffing.
Wisetech Global – WTC (ASX) – (3.3% up from 1.6%)
• World’s leading SAAS supply chain / logistics platform – CargoWise.
• 68% revenue growth, NPAT up 48% (yes, hyper growth and profitable).
• 38 of the top 50 3rd party logistics providers use Wisetech products.
• 7 of the top 25 freight forwarders use CargoWise. Note: all the top 25 use a Wisetech product. Great expansion opportunity for transitioning all customers to the CargoWise platform.
• Customer attrition <1% pa.
• Existing customer revenue expansion: 127% pa.
• Acquires local logistics businesses to establish geographic foothold, increasing competitive moat.
• Watch for emerging competition, trade disruption.
• RECENT PRFIT UPGRADE. INCREASE POSITION OVER TIME TO 7-8%.
Acquired more Wisetech as part of a capital raise at $20.90.
Afterpay Touch – APT (ASX) – (2.6% up from 0%)
• World’s leading buy now pay later lender.
• Business model is to take 4% of purchase price of item up to say, $1200, with the customer repaying Afterpay over 4 fortnightly installments. Retailers win by raising sales and bringing forward customer spending. Customers win by having a frictionless way of buying goods and services NOW, and not having to save for it (Very millennial).
• Current sales growth over 100% pa.
• Successful establishment in the US, with 7900 new customers signing up PER DAY. Afterpay active US customers have gone for 0 customers to 1.5 million in 12 months! It looks like Afterpay has crossed the chasm in the US, with a long way to run.
• With its runaway success. Australian regulators are auditing Afterpay’s anti-money laundering policies and safeguards. There is regulatory risk now for Afterpay in Australia, and costs will increase to address regulators requirements in the short term.
• UK version launched this month – it’s called Clearpay.
• Capital raising announced to accelerate global expansion.
• INCREASE POSITON OVER TIME TO 5-6%
Acquired Afterpay Touch in April and June at around $23.
Audinate – AD8 (ASX) – (2.2% up from 1.7%)
• World’s leading AV networking protocol, Dante (converts audio / video to digital signal).
• Sells to OEMs – Dante AV use cases – Sports Bars, conference rooms, classrooms, Courtrooms, retail AV, transport hubs.
• Adoption accelerating – Dante now the leading protocol.
• 51% revenue growth, with huge TAM.
• Tailwind with the adoption of zoom, which integrates with Audinate.
• Market penetration – 7=8% of audio, and 0% of video.
• Video product to be being released this year to double TAM.
• Cashflow positive.
• Watch for decline in adoption, slowing revenue growth.
• INCREASE POSITON OVER TIME TO 5-6%
HUB24 – HUB (ASX) – (2.4% down from 2.7%)
• No. 2 SAAS investment platform in Australia.
• FUA growth of 45% pa.
• 35% revenue growth, NPAT growth of 39%.
• Watch for margin compression – it is already happening, and operational leverage is affected.
• LOWER CONVICTION - REDUCING POSTION OVER TIME
Electro Optic Systems – EOS (ASX) – (2.1% up from 0%)
• Defence technology company, being a world leader in remote weapon systems, and satellite tracking/defence systems.
• Founder led, with impressive management team.
• Over $600 m order backlog, with a further pipeline of around $1.5 B in orders. Forecast revenue growth of 50% pa over the medium term.
• Satellite tracking and high power laser system also has non-military uses, such as clearing out space junk to protect commercial satellite assets.
• NPAT growth in line with revenue growth at an PE ratio of 18
• Watch for sovereign risk, and reputational risk with defence orders.
• HOLD at this level and monitor execution.
Acquired EOS at around $3.30 in May.
Readcloud – RCL (ASX) – (1.7% up from 0%)
• No. 1 digital learning / e-book platform in Australia.
• Over 100% revenue growth (off a low base).
• Over 100% revenue growth (off a low base).
• Gross margins only around 35-40%.
• Expansion into tertiary / vocational training is widening the TAM.
• LOWER CONVICTION - REDUCING POSITION WHNE THESIS PLAYS OUT BY FEBRUARY 2020 (SALES TARGETS AND BREAKEVEN ACHIEVED)
Acquired RCL at around $0.24 in MARCH.
Advance Nanotek – ANO (ASX) – (1.4% up from 0%)
• Innovator in cosmetics, with patented technology to produce nano particles of zinc oxide, making them invisible to the eye, yet the most effective sunscreen on the market.
• 100% revenue growth for 2019, ++50% growth expected for 2020.
• ANO struggling to keep supply up with demand.
• Massive tailwind as the demand is driven by desire for reef safe products and US FDA considering banning alternative sunscreen chemicals.
• Cashflow breakeven in 2020.
• Net profit margins good at around 40-45% as the company scales.
• Expansion into tertiary / vocational training is widening the TAM
• Management are either a little naïve or unprofessional with some announcements. Some funny business going on with bonuses and share purchases – red flag perhaps. No ne seems to care with a share price appreciation of 500% over 12 months.
• ACCUMULATE ON EXECUTION. MAXIMUM ALLOCATION: 3.5%
Acquired ANO at around $4.00 in April.
Tinybeans – TNY (ASX) – (1.0% up from 0%)
• Facebook for Millennial families - secure and private.
• Big advertising wins, with Lego buying advertising on the site.
• 3 revenue streams, advertising, subscription, and printing revenue (for photos / memories)
• 143% revenue growth for Q3 2019.
• Subscriber growth at 29%, and retention rates around 80-85%. Acquires customers through relationships at hospitals, and work of mouth.
• CAC is 9c per customer, and $11.30 for a premium customer, whilst ARPU grew to $2.48 (89% growth pa).
• On track for cashflow breakeven.
• Revenue seasonal, with the peak revenue occurring in December.
• Google US trends indicates Tinybeans has the top dog in this segment.
• Focus has been on improving engagement on the platform, with a new content platform, and AI for advertisers to more effectively target customers. i.e. infant formula to families with babies, lego toys for infants, etc.
• THIS IS A TOUGH ONE TO EVALUATE IT COULD BE WORTH ZERO OR 500% MORE THAN IT IS NOW. SELL IF ARPU or customer growth slows. BUY if the opposite occurs.
Acquired TNY at around $1.12 in April.
Credible Labs – CRD (ASX) – (1.0% up from 0%)
• No. 1 student loan platform in the US.
• Expanding to personal loans and mortgages.
• Founder led – I like him – ex. Banker who saw an opportunity in the US student loan market.
• Highly scalable – lipping the ticket off loans sourced from the platform.
• Over 100% yoy loan growth
• Revenue up about 80% on PCP.
• Healthy cash balance
• ACCUMULATE ON EXECUTION OF PLAN / GROWTH. Max 3-3.5% POSITION.
Acquired CRD at around $1.55 in May.
Knosys – KNO (ASX) – (0.9 % up from 0%)
• Enterprise knowledge platform SAAS.
• Over 100% revenue growth (off a low base).
• Gross margins only around 70-75%.
• Released new offering KIQ cloud, and has partnered up with Microsoft to market product.
• HIGH EXECUTION RISK. WAIT AND SEE.
Acquired KNO at around $0.09 in May.
Raiz Invest – RZI (ASX) – (0.8 % up from 0%)
• Mobile micro investment platform. Targeting millennials.
• Expanding to Indonesia and Malaysia.
• Provides access to ETFs, cash savings plans, at low fees. Revenue through 3 streams. Platform advertising, buy/sell spreads, and account fees.
• Revenue per customer growth: 40%
• Active customer growth: 30% pa.
• Advertising revenue growth: 330% off a low base.
• QUESTION ON RETENTION OF CUSTOMERS (AS THEIR WEALTH GROWS, THEY MOVE ON IT SEEMS). Yet to reach cashflow breakeven, but forecast to occur this calendar year.
Acquired RZI at around $0.5 in May.
Positions sold since March 19, 2019:
I sought to reduce my “de-worsificiation”, and offloaded a number of holdings where the thesis had broken, or their rpsopects did not compare favourably with other opportunities. .
• (BAP) –solid but increasingly stagnant car parts business. Better places for my money.
• Envirosuite (EVS) – growth story evaporated when it turned out SAAS revenue wasn’t so sticky and recurring.
• Nanosonics (NAN) – High valuation fo ra 30% annual revenue growth rate. Better places for my money
• Sold Redbubble (RBL) – rapid deceleration in revenue growth – thesis broken.
• Sold Vista group (VGL) – Revenue and profit growth solid in 25% pa category, but again, better places for my money.
• Trimmed Nearmap, Xero, Appen. Will not trim nearmap again unless thesis breaks.
Positions acquired since March 19, 2019:
• Afterpay Touch
• Readcloud, and added a second time after execution of good acquisition.
• Electro Optic System – hi quality business, well run. Investing in what is increasingly looking like killer robots is giving me second thoughts about the ethics of this investment though.
• Advance Nanotek – My confidence I growing in this one, as there appears to be a very strong tailwind behind it. May need to meet management to see what I am dealing with on key person risk.
• Tinybeans, Credible Labs, and Knosys are highly speculative investments, and it is possible all three may disappear form the portfolio in a short space of time. My intention is to whittle these three down to the one best idea.
• Added to Wisetech.
Non-US Portfolio percentage = 51.8%
Non-US Portfolio Return since January 1, 2019 = 41.3%
If you have any feedback, I would really appreciate it.