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

Updated: Oct 16, 2023

Highlights during the quarter

  • Declared fully franked dividend of $0.02 per share

  • Invested 11% of FUM into existing holdings and new microcap companies

  • Two portfolio companies received takeover bids at significant premiums – Cirrus Networks and Ensurance

  • Positive quarterly return of 1.4% after all fees in the context of a falling market

​Net Tangible Assets (Pre-Tax) Per Share

(net of 2 cent fully franked dividend)


Performance of H&G High Conviction

*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). Past performance is no guarantee of future returns.


The H&G High Conviction Limited (HCF) portfolio returned 1.4% after all fees for the September 2023 quarter during challenging market conditions, with the ASX Small Ordinaries Accumulation Index down 0.9%.

The main contributors to HCF’s performance were Cirrus Networks (CNW) (79% return), Centrepoint Alliance (CAF) (24% return) and Anagenics (AN1) (35% return). These were offset by a 42% decline in Po Valley Energy (PVE).

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


During the quarter, HCF invested 11% of FUM into existing and new holdings, taking advantage of the continued sell-off in microcap companies.

HCF continues to look for opportunities to deploy its capital into securities that: (i) offer significant potential return; (ii) have limited downside due to a high margin of safety; and (iii) are run by an aligned board and/or management.

Update on portfolio

During the quarter, two of our holdings received takeover bids: Cirrus Networks (CNW) and Ensurance (ENA).

We first purchased a meaningful stake in CNW in August 2022 and outlined our thesis in our September 2022 quarterly report.

The company received a takeover bid from a competitor in September 2023 at an attractive premium. We have since sold our holding on market, crystallising a total return of 73%.

Additionally, ENA received a takeover bid from a competitor in August 2023 at a 27% premium to our cost base. We acquired ENA shares between July 2021 and June 2023. We have since sold most of our shares.

This validates our thesis that the recent sell off in microcaps has left numerous companies trading at significant discounts to their inherent value. While the market is not reflecting this value, industry players or private equity firms are willing to step in. We believe this trend could continue, especially in the context of a weak Australian dollar, which makes takeover targets more attractive for overseas institutions.

Kiland (KIL; 12% of HCF) shares decreased by 4% during the quarter. KIL continued the redevelopment of its 14,500 hectares of tree plantations into agricultural land in addition to its carbon removal biochar project.

The company’s land was revalued upwards by 29% by independent experts as part of the full year results announced in August.

Performance table of HCF vs the Small Ords

Sector exposures as of 30 Sept

Eildon Capital Group (EDC; 11% of HCF) shares decreased by 2% during the quarter. EDC, whose operations primarily involve lending money to property developers, is a relatively new investment for HCF. The company’s shares trade at a 15% discount to their net tangible asset value.

HCF had the conviction to build its position and become a substantial shareholder following a takeover bid for EDC by Samuel Terry Asset Management (STAM) and their subsequent gaining of control.

We are confident STAM will help bridge the gap between market value and EDC’s net tangible asset value, which comprises 29% cash and 41% short-term issued loans repayable in the coming months.

Kinatico (KYP; 8% of HCF) shares decreased by 3% during the quarter. The company released a solid set of annual results, with EBITDA up 58%, demonstrating the effectiveness of the turnaround begun under the current CEO. On an EV/EBITDA of 6x (based on the current earnings run-rate) the valuation remains low for a market-leading technology company.


With markets erratic and microcaps unloved, attractive investment opportunities abound for HCF. We are building positions and intend to outline these in more detail when we are set.

image of Mohnish Pabrai

Heads, I win; tails, I don’t lose much.

– Mohnish Pabrai, The Dhando Investor: The Low-Risk Value Method to High Returns


In the meantime, please do not hesitate to get in contact 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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