Dear Investor,

 DMXASF’s NAV increased 0.5% for the month of April, against a mixed broader market with larger companies declining (the ASX 200 Total Return Index down 2.9%) while smaller companies were strong (the ASX Emerging Companies Index up 2.6%).

Commentary

Detractors this month include Careteq and SOCO Corp (which fell 22% and 17%) as ongoing uncertainty surrounding each continues to weigh. EML Payments declined 18%, handing back its prior-month gains, while Pureprofile fell 13% in part on the back of its Chair’s departure. These were offset by our large position in Findi, which rose another 8%, continued modest strength in each of Fiducian and RPMGlobal (up 5% and 8% respectively), and each now top-5 holdings for us. Smaller holdings in NZ-listed General Capital, and Joyce Corporation rose 14% and 19% respectively, and contributed to performance.

Portfolio Activity

With a continual stream of highly prospective opportunities coming across our desk, and limited cash availability, we’re focused on where we can generate cash through trimming or exiting. This task is getting tougher as we’ve allowed a number of our winners to grow in position size, which crowds out others and restricts our ability to add new names or to other existing holdings. We consider this though to be a good problem to have. This month we exited what had become a very small position in AVA Group. The shares had languished, and results have continued to fail to meet our or management’s expectations. A recent capital raise strengthens its balance sheet and does position the business well for the future, but ultimately, the decision to not participate in the capital raise was a prelude to exiting the investment.

XPON completed a small placement during the month. We didn’t participate in this, but as holders of a convertible note, the strengthening of its balance sheet lowers our risk profile. We did participate in two other capital raises, however, introducing two new names to the portfolio, including RPM Automotive. The DMX Capital Partners report included a detailed thesis for RPM Automotive, in addition to an update on commonly-owned Verbrec. A copy of which is included in an Appendix to this report.

General Commentary

As mentioned in previous reports, having experienced a tough couple of years with smaller companies being very much out of favour, we’ve felt something of a sea-change both in the narrative, and with the obvious renewed investor interest in smaller companies. We’re hearing buzzwords like ‘inflection points’ having been reached, and the popular media is cottoning on with many small and micro-cap managers being profiled and out spruiking their best ideas. In terms of market activity, as mentioned in the DMXCP report, the flurry of capital raising activity among micro-caps is an interesting indicator of the shift in sentiment. Further up the scale, the re-rates to names like Fiducian and RPMGlobal, we believe, reflect institutional interest in quality smaller companies with a growth profile and available at still-reasonable prices. Joyce Corporation, up 19% for the month on no news, too, appears to be benefiting from growing investor interest as it grows and perhaps becomes a more investable business for many investors.

As we look across our diverse portfolio of 40+ names, we have a core group of quality businesses that have grown in value and been allowed to grow in significance within the portfolio. Our top five positions are now just on 30% of the portfolio. These are complemented by a range of highly prospective businesses, and a few which have something of a risk profile at the individual stock level but also significant upside potential and can perhaps grow to become more meaningful over time. Businesses like General Capital, Shriro, and Sequoia are of decent quality, and are attractively priced. Others like EML Payments, Field Solutions, and Pureprofile have slightly murkier stories but all have idiosyncratic risk profiles which brought together in a portfolio context add value as we seek to own a group of business with multiple potential ways to win over time.

While cash is back down to 1%, we continue to look at our most marginal investments as a source of liquidity, and we expect some cash inflow from the takeover of Ansarada, slated for early July. Tambla, as previously mentioned, is a potential source of liquidity in the medium term, as that company continues its sale process. And if the recent history of smaller companies being picked over by private equity and strategic acquirers is a guide, there’s potential for more activity across our portfolio of attractively valued businesses.

If you’d like to discuss the portfolio or the potential to invest or add to an existing investment, please contact Michael any time at michael.haddad@dmxam.com.au or 02 80697965.