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H&G High Conviction (ASX:HCF) - December 2023 Report

Updated: Jan 11


  • 8.0% pre-tax total return for the first six months of FY24

  • Sold stake in Kiland to crystallise a 29% return for investment since HCF’s IPO

  • Invested a further 15% of the portfolio in what continues to be a period of significant opportunity for value in microcaps, highlighted by recent M&A activity

  • 18.9% p.a. pre-tax total return since IPO compared to 7.6% p.a. for the ASX Small Ordinaries Accumulation Index

​Net Tangible Assets (Pre-Tax) Per Share


*Performance data is after all fees and includes the original vehicle, H&G High Conviction Fund, launched in November 2007, until 23 June 2022, and the performance of H&G High Conviction Limited since 23 June 2022. Performance of H&G High Conviction Limited is calculated monthly as profit before taxation divided by opening net assets (adjusted for capital movements and dividends during the month, if any). IPO returns calculated from 31 October 2022, the closest balance date to listing. Past performance is no guarantee of future returns.


The H&G High Conviction Limited (HCF) pre-tax total return was 8.0% after fees for the six months to December 2023, with the ASX Small Ordinaries Accumulation Index up 6.4%. Since IPO, HCF’s pre-tax total return is 18.9% p.a. compared to 7.6% p.a. for the ASX Small Ordinaries Accumulation Index.

During the period, HCF invested 15% of FUM into existing and new holdings, taking advantage of the attractive risk return prospects still available in the microcap segment of the market. Specific stocks are discussed in further detail on the following page.

Portfolio manager of H&G High Conviction

I encourage new, existing and prospective investors to book an appointment to access the portfolio management team should they have any questions about the company's holdings, strategy & policies.

- Joseph Constable, Portfolio Manager & Director


We continue to see opportunities in the technology, financial services and industrials sectors. In addition, with yields beginning to fall, we are increasingly interested in the consumer discretionary and real estate sectors. The recent flurry of M&A activity in the microcap sector underscores the value on offer.

Update on portfolio

The main contributors to HCF’s performance in the quarter were Kinatico (KYP) (24% share price increase), Veem (VEE) (50% increase) and Centrepoint Alliance (CAF) (18% increase). These were offset by a 9% decline in Kiland (KIL).

The largest new portfolio holding by size is Veem (VEE), representing 3.5% of the portfolio at cost. Veem designs and manufactures marine propulsion and stabilisation systems for the luxury motor yacht, fast ferry, commercial workboat, and defence industries. Despite being a global leader, Veem’s valuation is modest at $145m. Our investment has increased by 50% since first purchase, with Veem’s share price rising in the context of improved trading conditions.

Eildon Capital Group (EDC; 11% of HCF) made a 5% total return during the period. The company initiated a buyback and announced an increased dividend for the half-year. The company’s shares continue to trade at a double-digit discount to their net tangible asset value.

Kinatico (KYP; 9% of HCF) shares increased by 24% during the quarter. The company made no material


Po Valley Energy (PVE; 7% of HCF) shares rose by 12%. The company released its first positive cashflow quarterly results as gas production from onshore field Selva ramped up. We remain committed to helping drive returns for PVE shareholders with our board position.

Centrepoint Alliance (CAF; 4% of HCF) shares increased by 18% during the period after fellow financial services group COG Financial (ASX: COG) announced it had acquired a 19.9% stake in CAF at a 32% premium to the last traded price. HCF took advantage of subsequent corporate interest in CAF and sold two-thirds of its holding at an attractive price, realising a significant profit.

Capital management

23% of the portfolio was sold during the quarter, reflecting the profitable realisation of several core holdings at target prices. This includes the sale of Kiland shares (see further detail in the ASX release of 22 December 2023), as well as a partial sell-down in Centrepoint Alliance following increased corporate interest in that company.

These realisations have crystallised tax payable for HCF. This, in addition to a dividend paid during the period, has led to the pre-tax NTA increase of 3.1% over the last six months understating the actual pre-tax total return of 8.0%. The pre-tax NTA calculation adds back deferred tax liabilities only on unrealised gains. Post-realisation, the tax liability moves from deferred to current with a resulting reduction in pre-tax NTA. Tax paid will increase HCF’s franking credit balance, which can be distributed to shareholders through fully franked dividends.

The HCF board notes the recently widened gap between the company’s inherent value and share price, with stock currently trading at a 15c per share (13%) discount to pre-tax NTA. This is unsatisfactory and we will look to address this in the coming period.


Markets remain erratic following considerable swings in sentiment during 2023. While economic troubles unfold in Australia and abroad, HCF’s portfolio remains robust. Most investee companies are debt free with significant cash positions relative to market capitalisation.

image of Mohnish Pabrai

“My two rules of investing:

Rule one – never lose money.

Rule two – never forget rule one.”

Warren Buffet


HCF’s universe of microcap companies continues to remain attractive, with opportunities to invest in sound businesses and/or assets at discounted prices relative to inherent value.

As ever, please don’t hesitate to reach out to us with any questions.



This performance report has been prepared by H&G Investment Management Ltd (ACN: 125 580 305; AFSL: 317155) to provide you with general information only. In preparing this report, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither H&G Investment Management Ltd nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Information Memorandum before making a decision about whether to invest in this product.



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