Disclaimer Contango Asset Management Limited (ABN 52 085 487 421) - - PowerPoint PPT Presentation

Disclaimer

Contango Asset Management Limited (ABN 52 085 487 421) holds an Australian Financial Services Licence (AFSL #237119) restricting it to providing financial products and services to wholesale clients only. This presentation has been prepared for the consideration and use of ‘wholesale’ investors, as defined by the Corporations Act (Cwlth 2001), and may contain information that assumes a level of knowledge and expertise particular to such investors. If you do not meet the criteria of a wholesale investor, you should disregard this information and seek advice from a licensed financial advisor. Forecasts in this presentation are predictive in character, based on numerous assumptions including the forecast outlook for key variables and may be affected by various factors including inaccurate assumptions, risks and unforeseen events. Accordingly, actual results may differ materially from those forecasted. Contango Asset Management Limited (“CAML”), its officers, employees and agents believe that the information in this document is correct at the time of compilation but do not warrant the accuracy of that information. Performance information is historical. Performance returns may vary. Past performance is not indicative of future performance. Performance has been calculated based on cumulative daily returns excluding any allowance for fees, expenses and taxes. Save for statutory liability which cannot be excluded, CAML disclaims all responsibility for any loss or damage which any person may suffer from reliance on this information or any opinion, forecast, conclusion or recommendation in this document whether the loss or damage is caused by any fault

• r negligence on the part of CAML or otherwise.

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Contents

1. Overview of Contango Asset Management 2. Macro outlook – challenges persist 3. Are current market valuations attractive? 4. What are the implications for your portfolio?

• Large Cap (GARP) Portfolio
• Mid Cap (ex30) Income Portfolio
• Mic Cap Portfolio

5. Summary

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• 1. Overview of Contango Asset Management

• Established in 1998 and is a wholly owned

subsidiary of Contango MicroCap Limited (CTN)

• Experienced and successful wholesale fund

manager with a large investment team

• Also manage two Listed Investment

Companies on the ASX

• Proven track record in managing funds

across all segments of the Australian market

• Well known and rated by both wholesale

and retail consultants

Contango Asset Management Limited is a boutique Australian fund manager

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Contango Asset Management has a streamlined ownership structure Contango MicroCap Ltd (CTN)

Contango Asset Management Limited

100%

Contango Income Generator Ltd (CIE)

Economics is key to determining intrinsic value in the equity market

• Intrinsic value is an estimate of ‘fundamental value’ without

reference to current ‘market value’

• Intrinsic and market valuations can diverge

− Market is not always efficient − Different estimation theories, assumptions and data sources − Cyclical vs structural changes

• Understanding and forecasting economic conditions is key to

estimating intrinsic value

− Economic growth drives company revenue and earnings growth − Growth, inflation, interest rates, exchange rates all important − Interest rates also determine discount rate for future cash flows

Our investment philosophy is based on three basic principles

1. Economic conditions drive earnings and valuations 2. Stocks and sectors perform differently at each stage of the economic cycle 3. These relationships can be exploited in a systematic way to add value to investment portfolios

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EPS PE

Australian cash rates over the long run. Stable and consistent monetary policy signals helps drive economic growth

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Local equity valuations around long run historical

• benchmark. Earnings outlook revised lower for FY16

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Global equity valuations trading below long run historical benchmark

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Lower cash rates leads to greater demand for dividends

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Demographic outlook is a significant policy challenge

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Equity market attractive vs fixed income

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Lower long bond rates is supportive for equity valuations

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Interest rates to remain low supporting growth and equity markets

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• Global growth modest and uneven with limited price pressure

− Developed Markets improving but Emerging Markets soft

• Underlying US growth improving, employment growth reasonable

− Consistent with FOMC delaying rate rises − Global economy remains fragile combined with rising USD and lack of inflation

• Growth in Europe recovering but tail-risks re-emerge

− ECB’s QE on going

• Growth in China is moderating as economy rebalances

− Government stabilising transition but risk of policy errors increasing − Commodity prices to remain under pressure

• Domestic economy not transitioning as quickly as RBA would like

− Continued low rates and lower AUD

We group stocks by macro relationships to add alpha at the super sector level

1.0 3.2

• 6.8
• 1.4
• 1.3
• 0.5

2.3 3.5

• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 [Cash] [Futures] Global Cyclicals Domestic Cyclicals Interest Rate Sensitives Gold Defensives Market Leverage

Contango Large Cap Fund: SS Active Weight vs ASX300

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Strategy enables us to take high conviction positions at the industry level

Heavily Moderately Slightly Neutral Slightly Moderately Heavily Underweight Underweight Underweight Overweight Overweight Overweight Global Cyclical Materials Oil Coal Gold Iron Ore Copper Nickel Aluminium Steel Speciality (lithium, graphite) Uranium Mineral sands Domestic Cyclicals Capital Goods Non-Res Construction Building materials Retailing Media IT Commercial Services Market leverage Div Fin Defensives Staples Healthcare General Insurance Consumer services Interest Rate Sensitive Banks REITs Utilities Infrastructure Telcos 16

Large Cap (GARP*) Fund is a diversified portfolio of large cap growth stocks

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Offers a diversified exposure to the Australian equity market and a higher expected return than investments in cash or fixed income Actively managed portfolio of Australian listed shares on the S&P/ASX 300 Index

• Target return of the S&P/ASX 300 Accumulation Index plus 2%
• Tracking error of 1.5% - 4%
• Broad composition of 25 - 40 stocks

Business cycle process

• Combines a systematic top-down and bottom-up analysis

Fund facts

• Size is $152 million
• Inception is April 1999

Large Cap (GARP) Fund’s performance has been strong since inception

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Consistent alpha generation in different market conditions

September 2015 Large Cap Fund ASX 300 Accumulation Added Value 3 Months

• 6.0%
• 6.5%

0.4% 6 Months

• 13.1%
• 12.5%
• 0.5%

1 Year 1.4%

• 0.7%

2.1% 3 Years pa 10.6% 9.1% 1.5% Since inception (April 1999) pa 8.8% 7.4% 1.4%

Large Cap (GARP) stock positions consistent with defensive strategy view

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*Stock not held. September 2015.

Code Stock Over %

ANZ ANZ Banking Group Limited 3.0 OSH Oil Search Limited 2.4 BOQ Bank of Queensland Limited 2.3 CSL CSL Limited 2.0 GMG Goodman Group 2.0 SUN Suncorp Group Limited 1.8 JHX James Hardie Industries PLC 1.8 BXB Brambles Ltd 1.8 SHL Sonic Healthcare Limited 1.7 CGF Challenger Limited 1.7

Code Stock Under %

BHP BHP Billiton Limited

• 2.2

NAB National Australia Bank Limited

• 1.9

WBC Westpac Banking Corporation

• 1.9

SCG* Scentre Group

• 1.6

RIO* Rio Tinto Limited

• 1.6

WPL* Woodside Petroleum Ltd

• 1.5

WFD* Westfield Corporation

• 1.4

TCL* Transurban Group Ltd.

• 1.4

QBE* QBE Insurance Group Limited

• 1.3

WES Wesfarmers Limited

• 1.3

September 2015

Large Cap (GARP) portfolio employing and actively managing risk

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Large Cap (GARP) active risk positions are consistent with the fund’s objectives

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September 2015 Contango Large Cap ASX 300 Accum Index

Price to Earnings Ratio 13.4 14.1 Dividend Yield (net) 5.1 5.3 Dividend Yield (gross) 6.6 6.9 EPS Growth (%) 8.3 2.4 Return on Equity (%) 16.5 15.1 Beta 1.03 1.00 Tracking Error* 1.93

• Source: Factset (next twelve months)

* Ex ante. Bloomberg.

The Income Generator Fund’s active risk positions are consistent with the fund’s objectives

22 Source: Contango AM, 12 month forward consensus forecast, Factset

September 2015 Contango Income Generator All Ordinaries ASX300 top-30 ASX300 ex-30 Median market cap ($m) 1,438 397 18,312 636 Price to earnings ratio 13.7 14.1 14.0 14.4 Earnings growth 5.4 3.9 0.1 8.9 Dividend yield (net) 6.0 5.1 5.7 4.3 Dividend yield (gross) 7.9 6.7 7.6 5.3 Return on equity 16.0 15.1 15.4 14.4 Beta to ASX300 0.84 0.95 1.04 0.91

The Income Generator Fund’s performance has been less volatile than the market

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Monthly Returns: Contango Income Generator vs All Ordinaries

Source: Contango AM, Iress, gross of fees, September 2015

The Small Cap Fund is a diversified portfolio of small cap stocks

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Offers a diversified exposure to ASX listed small companies and a higher expected return than the Large Cap (GARP) Fund Actively managed portfolio of Australian listed shares outside of the ASX 100

• Target return of the S&P/ASX Small Ords Accumulation Index plus 3%
• Tracking error of 4% - 10%
• Broad composition of 30 - 60 stocks

Business cycle process

• Combines top-down and bottom-up analysis

Fund facts

• Size is $160 million
• Inception is Feb 2005
• Max cash is 25%

The Small Cap Fund’s performance has been strong since inception

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Gross performance

September 2015 Small Cap Fund ASX Small Ords Accumulation Added Value 3 Months

1.0%

• 3.9%

4.9%

6 Months

• 4.2%
• 7.8%

3.6%

1 Year

1.6%

• 4.9%

6.5%

3 Years pa

5.5%

• 1.2%

6.8%

Since inception (Feb 2005) pa

8.6% 1.7% 6.9%

Consistent alpha generation in different market conditions

Small Cap Fund’s September quarter sector attribution

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Sector Weight Added Value Energy

• 2.9%

1.6% Materials

• 2.1%

0.7% Industrials

• 1.5%

2.4% Consumer Discretionary 1.3% 0.1% Consumer Staples

• 3.7%
• 0.4%

Health 0.8% 0.4% Financials 5.7% 0.3% Information Technology 0.0%

• 0.6%

Telcos 0.9% 0.3% Utilities

• 0.7%

0.1% Cash & Futures 1.9% 0.0% Total 4.9%

September 2015. Attribution updated quarterly.

Small Cap Fund’s stock positions are consistent with Strategy view

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*Stock not held. September 2015.

Code Stock Over %

GUD G.U.D. Holdings Limited 2.8 CHC Charter Hall Group 2.7 PGH Pact Group Holdings Ltd. 2.6 VOC Vocus Communications Limited 2.5 BAP Burson Group Ltd 2.5 SCP Shopping Centres Australasia Property Group RE Ltd. 2.5 MYX Mayne Pharma Group Limited 2.4 VED Veda Group Limited 2.4 MVF Monash IVF Group Ltd 2.3 SGF SG Fleet Group Ltd. 2.3

Code Stock Under %

BKL* Blackmores Limited

• 1.6

MTU* M2 Group Ltd

• 1.5

NST* Northern Star Resources Ltd

• 1.4

BWP* BWP Trust

• 1.3

NUF* Nufarm Limited

• 1.3

PTM* Platinum Asset Management Ltd

• 1.3

NHF* NIB Holdings Ltd

• 1.3

FBU* Fletcher Building Limited

• 1.1

CMW* Cromwell Property Group

• 1.1

SUL* Super Retail Group Limited

• 1.1

Small Cap Fund is employing & actively managing risk

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September 2015

Small Cap Fund’s active risk positions are consistent with the funds objectives

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Source: Factset (next twelve months) * Ex ante. Bloomberg.

September 2015 Contango Small Cap ASX Small Ords Index Price to Earnings Ratio 14.0 13.3 Dividend Yield (net) 4.4 4.5 Dividend Yield (gross) 5.4 5.6 EPS Growth (%) 16.3 9.7 Return on Equity (%) 17.7 14.9 Beta 0.91 1.00 Tracking Error* 4.04

4.4 The Contango AM Micro Cap Fund

The Micro Cap Fund is a diversified portfolio of emerging company micro cap stocks

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Offers a diversified exposure to ASX listed micro cap companies and a higher expected return than the Large Cap (GARP) Fund Actively managed portfolio of Australian listed shares with a market capitalisation of between $30-$350 million

• Target return of the S&P/ASX Small Ords Accumulation Index plus 3%
• Tracking error of 5% - 12%
• Broad composition of 50 - 100 stocks

Business cycle process

• Combines top-down and bottom-up analysis

Fund facts

• Total Micro Cap mandate size $280 million
• Inception March 2004
• Max cash is 25% wholesale / 50% LIC

Micro Cap Fund’s September quarter sector attribution

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Sector Weight Added Value

Energy

• 2.5%

1.5% Materials

• 5.7%

0.5% Industrials

• 3.1%

1.0% Consumer Discretionary

• 0.1%
• 0.6%

Consumer Staples

• 2.1%
• 0.2%

Health

• 2.4%
• 1.0%

Financials

• 2.8%

1.6% Information Technology 11.4%

• 0.3%

Telcos

• 4.2%
• 0.1%

Utilities 0.9% 0.2% Cash & Futures 10.7% 0.1% Total 2.7%

September 2015. Attribution updated quarterly.

High tech company

• Monitoring devices, infrared sensors,

license plate readers, parking meters

Attractive market offering

• Cost savings and higher accuracy in

processing infringements

• Payback period of only 15 weeks

Successful trial in Westminster (UK)

• Potential for 10,000 parking bays

Metrics

• Market cap $36.5m
• Sales growth 40% FY16
• Price target $0.29 (107% TSR)

High tech company

• Global leader in sports analytics technology
• AUS, US and European sports teams
• Every AFL, NRL and Super Rugby Team

Strong business model

• Owns all the data produced and continually

improves analytics

• Large upside via potential use in

broadcasts

Metrics

• Market cap $180.2m
• Sales growth 45% FY16
• Price target $2.00 (38% TSR)

Smart Parking (SPZ)

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Catapult Group (CAT)

Micro Cap Fund’s active risk positions are consistent with the funds objectives

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Source: Factset (next twelve months) * Ex ante. Bloomberg.

September 2015 Contango Micro Cap ASX Small Ords Index Price to Earnings Ratio 11.5 13.3 Dividend Yield (net) 4.7 4.5 Dividend Yield (gross) 5.9 5.6 EPS Growth (%) 18.8 9.7 Return on Equity (%) 46.0 14.9 Beta 0.77 1.00 Tracking Error* 6.3

• 5. Summary

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“Do you know the only things that gives me pleasure? It’s to see my dividends coming in” John D Rockefeller

• Understanding and forecasting economic conditions is relevant for portfolio

construction

• Commodity outlook remains subdued
• Domestically the re rating continues. Corporate Australia adjusting. Recent

reporting season confirms challenges for future earnings

• RBA cash rates and the AUD need to stay low to drive earnings higher
• Demographic structural drivers imply the search for yield will intensify
• Volatility is a part of investing. Always remain alert but never alarmed

Investing is easy but not simple

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Contact details

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George Boubouras Chief Investment Officer Contango Asset Management Limited Tel: +61 (3) 9222 2324 Mobile: +61 (0) 414 614 225 E-mail: gboubouras@contango.com.au