DMXASF Monthly Report

June 2023 – DMX

A wholesale unit trust managed by

DMX Asset Management Limited

AFSL 459 120

13/111 Elizabeth Street, Sydney, NSW 2000

Trustee & Administrator

Fundhost Limited AFSL 233 045

Unit price (mid) based on NAV (31 May 2023)


Unit price (mid) based on NAV (30 June 2023)


Number of Stocks


% cash held - month end


1-month return


12-month return


Since inception (1 March 2021) pa


Fund size (gross assets)


Dear Investor,

DMXASF’s NAV increased 0.4% for June, in a mixed but generally strong market environment with the ASX 200
Total Return Index rising 1.8%, and the ASX Emerging Companies Index recovering 2.4% after a big decline in
May. June marks the end of tax selling season, with selling pressure on losers continuing through the month, but
clearly subsiding as we move into July.

As is often the case, June was flat from an NAV perspective on a net basis, but we experienced some decent
sized moves in both directions at the individual stock level. Declines of 10-18% were recorded across names such
as Corum, Findi, Pureprofile, SOCO Corporation, and Yellow Brick Road, and all for no particular reason. On the
other side of the ledger, Cryosite recovered 13%, General Capital & Kip McGrath each rose 13-17% as they
reported positively, and Academies Australia & AF Legal rose 21-23%.

Notable updates during the month included:

DDH1 received a merger proposal from fellow ASX-listed Perenti, with DDH1 shareholders offered $0.1238 cash
plus 0.7111 Perenti shares for each DDH1 share held. Substantial shareholder, Oaktree Capital (of Howard Marks
fame) appears to want an exit, having helped bring the company to the ASX in 2021. The pricing implied a 17.4%
premium at Perenti’s then share price, but a discount to where the company IPO’d in 2021, and a substantial
discount to our valuation.

Despite Oaktree’s enthusiasm for finding an exit here, we and other shareholders are less keen, as implied by
Perenti’s share price decline post-announcement. Alongside Oaktree as a substantial shareholder are key
founder-executives across the group, and we would have hoped a sale process would have been more
competitive. International peer, Major Drilling, by way of example trades at a significant premium to DDH1. The
value discrepancy may yet yield a higher competing offer, but an agreement between Perenti & Oaktree giving
the former an option over Oaktree’s 20% stake serves as something of a blocking stake. To us on the outside, it
seems a little odd, and we’ll need to wait and see how this plays out.

Kip McGrath
Kip McGrath has presented a year-end trading update for FY23, including revenue and net profit forecasts. The
projected revenue for the year is expected to range from $26.9 million to $27.3 million, showing a 10% increase
compared to last year. The net profit for FY23 is anticipated to be down slightly, within an estimated range of
$1.7m to $1.9m. These not great but not too bad results have been well-received by the market with Kip
McGrath’s shares ticking up both by June 30th and further into July.

The commentary also highlighted the company’s continued substantial investments in global growth
opportunities, particularly in the US Tutorfly business, which we understand is investing into its salesforce as the
company sells into US school districts. While group-wide profitability has declined, it is reassuring to note that
this drop is attributable to the expanding US investment, rather than a lack of demand for tutoring services in
its core Australian and UK operations.

As reported on in prior monthlies, Sequoia had reached agreement to sell an 80% stake in its Securities Clearing
business – Morrisons. Uncertainty surrounding deal completion has weighed on its shares with the purchaser,
New Quantum, needing to secure deal finance. The deal’s second key milestone has now been reached, with
over $25m of the $40m purchase price having been received (over $7m of which is non-refundable in the event
of the deal not ultimately completing). Either way, real value has been created with this transaction, and the
cash injection for Sequoia will facilitate increased shareholder distributions (including dividend and buyback), as
well as strengthening its balance sheet to reinvest strategically within its other verticals.

In addition to the above updates, the DMX Capital Partners report includes a brief summary of its Top 10
holdings, all of which are also owned by DMXASF and with considerable Top 10 overlap. The overview really
showcases the breadth of our opportunity set, and the prospectiveness of our portfolios. This content is
reproduced as an Appendix to this report.

Performance Commentary
After a strong initial performance run in 2021, we’ve handed back gains and struggled to get traction in terms
of the bottom line to investors. Some individual investments have been regrettable, while others have
performed very well. And the backdrop has been one of a particular challenging smaller company sector over
the past 18 months or so. The DMX Capital Partners report highlights the trouncing many smaller companies
have faced over the past year, as highlighted in the table reproduced below:

Again, as highlighted in the DMXCP report, market conditions and de-rating to so many companies have brought
us to a position where the overall prospectiveness of our portfolios – we believe – has never been greater. Some
meaningful declines in share prices for individual names have been absorbed by the broader portfolio in recent
times, with some of these now potentially spring-loaded to deliver handsomely into the future.

Thank you for your ongoing trust and support.


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