Tristan Waine – Investment Journal

With the closure of the Hurdle Rate Unit Trust I have decided to not only reduce my activity dramatically but also to gradually concentrate the portfolio towards what it was just prior to starting it, being 8-12 companies. Not only have I returned to full-time employment as a Senior Accountant at RSM (one of the largest accounting firms globally), our family has purchased our first home and is bringing a son to the world so I will have my hands full juggling all of these priorities.

Before deciding to do this I did purchase shares in Quickfee given their ongoing profitability following their US pay-now divestment, and their intention to pay out large dividends going forward, far removed from their growth at all costs approach of the past.

Then, in July I began selling out of my lower conviction holdings and set timelines on some which have remained. I sold my holdings in both IFCA and Autocount as the former management does not particularly impress me, and the latter catalyst failed to play out and in the current state I lack conviction in their future. Miroku Jyoho was also sold as I deemed it to be my weakest conviction of my Japanese holdings. I also sold Fiducian given the increased scrutiny from ASFA and ASIC in recent times which puts a big question mark on their long-term prospects given the actions of these regulators in recent times. Finally, Info-Tech was also sold on similar lack of conviction relative to other holdings.

Looking forward, there are some other names I think have a limited shelf-life in the portfolio worth mentioning as well. Banqup is struggling as a going concern and I am giving myself until the end of 2028 to observe the impact of the major e-invoicing mandates that could save their business. I suspect that Quickfee will delist in some way or another within the next few years. Getbusy and Reckon both have incentives to have part or all of their business sold-off by the end of this decade. I am not sure that AF Legal has an executive team or shareholder base that lends itself to a ‘very’ long-term hold either but am willing to hold that so long as the execution continues.

I particularly see myself holding the broadly-owned firms for a long time to come, despite the advent of artificial intelligence. I really like the ownership structure of Elixirr, MHA, Prime Financial Group, and DSW Capital. Kelly Partners less so, but, provided that Brett continues to be a major shareholder and motivated CEO I would like to stay around for a long time as well. Then there are founder-owned software companies I think are resilient including Innoscripta, Macompta, Robot Payment, and Avant Group. The remaining holdings are also founder-owned including Bridge Consulting, Asiro, and FSA Group. These final 12 holdings are the higher conviction names and warrant a skew in sizing.

There is a possibility that I consider investments that don’t fit into the confines of a competency circle, but, I don’t think that is a problem I will have until I start running out of the ideas above due to broken theses or forced sales. Like I said initially, I don’t really have time to actively source new ideas so I would like to let things run if at all possible, and as such am favouring investments with an appealing long-term business case rather than short-term flip.

The portfolio is down 16.2% year to date. Very little of that came from the businesses. Look-through earnings across the seventeen holdings rose 21% over the same stretch, while the multiple I pay for them fell from 26.7 times to 17.8 times. Twelve of the seventeen earned more than they did at the start of the year. That said, more than half of the improvement is Banqup losing less money rather than anything being earned — strip it out and the remaining sixteen grew look-through profit 7.0%, on a multiple that fell from 18.2 times to 13.8 times.

I decided to close the Hurdle Rate Unit Trust in favour of returning to work. I am looking to settle down and start a family and the stress of entrepreneurship is getting to me as both lack scale or downtime. I have returned capital to unitholders and replicated the portfolio in my SMSF. I retain a tax agent license and continue to provide tax advice and financials preparation services for Australians across all entities.

New positions made in the year include:

• Robot Payment – A founder-led Japanese subscription invoicing & payments software. The business is expected to grow at a moderate rate whilst multiplying margins several fold in the near term.

• MHA – A newly listed partner-owned English auditor expanding into other areas and geographies by acquisition. It has a 20 year track record of double digit self-funded organic growth.

• FSA – Founder-led Australian non-compliant lending business set to benefit from increased interest margins in the near term trading at an upfront earnings yield over 10%.

• Netfonds – Founder-led German wealth business (Like a combination of Centrepoint & COG Financial Services) set to experience strong operational gearing from faster growth in higher margin areas.

• Innoscripta – Founder-led German R&D software with rapid organic growth (high double digits) at a mid single digit earnings yield.

• Info-Tech – Founder-led Singapore Accounting & HR software expanding into Malaysia & beyond at a double digit earnings yield.

• Kelly Partners – You know this one by now, price dropped a lot and I added a very small amount (1%).

• Avant - I re-entered after a retrace downward.

New positions sold in the year include:

• Sylogist – Bought early in the year on the thesis that a transition from direct to partner-led sales was underway and temporarily impacting margins along with an ongoing shift to subscription, backed by strong CEO incentives. Sold after some DOGE related delays forced forecasts to be stepped out a number of years and a reevaluation of potential margins.

Old positions sold in the year include:

• Anexo – Management take-under, sold on an initial pop for a decent overall profit.

• Begbies Traynor – Replaced, no thoughts on thesis.

• Centrepoint Alliance – Sold due to re-rating of ~50%. Low growth so changes in yield matter more.

• COG Financial Services – Replaced, no thoughts on thesis

• Sequoia Financial Group – Increased scrutiny regarding their relationship with the Shield Master Fund

• Litigation Capital – Series of case losses caused me to lose conviction, fortunately avoided further loss.

Positions held for the full year include:

• Asiro – Revenue +42%, post-tax margin 3% -> 15% (beat its own and revised guidance); cash JPY1.6b -> 2.5b. But results boosted by high-margin transactional legal services that tapered in Q4 and will be de-emphasised — 2025 a hard comp. New Bonobo and Legal Base AI services not in the conservative ~flat guidance. Asset Value Investors (UK) has accumulated a 1/3 stake in the business, with publicised comments suggesting that Asiro focuses on their high margin Legal Media division and return more capital.

• DSW Capital – H1 revenue/profit +156%/+132% (mostly full-year DR Solicitors); organic revenue +18%, profit down on investment + weak M&A (prior H2 had an Oct-24 Budget windfall). DR Solicitors consultants ~20 -> 26 — high-margin headcount.

• Autocount – Revenue +46%, profit +52% on the initial phases of e-invoicing. The company has a smaller client than IFCA, but, smaller clients are also more likely to be utilising Autocount cloud which is subscription based as opposed to license. Going forward I suspect Autocount may have yet another strong year as smaller mandates drive far greater quantity of businesses onto the software.

• AF Legal – Revenue +27%, profit +77%; Q1 FY26 accelerating to +43%/+116% (Armstrong Criminal Law bought end-Q1 FY25 flatters comps, but strong organic too). Culture improving — GPTW 53% (Aug-23) -> 85% (Nov-25), attracting returners ('boomerangs'). FY26: clear of legacy matters + new practice-management system to lift productivity.

• Prime Financial – Revenue +21%, per-share profit +37% (organic + acquired). $55-60m run-rate; renewed emphasis on margins and cash collection — pleasing. Comfortable given broad partner ownership.

• Bridge Consulting – Revenue +11%, profit -13% — front-loaded headcount/sales investment, deepening in 2026 (guide revenue +21%, profit -24%). Won a J-Adviser license for the Pro-market and an outsourced-CFO initiative with Tsuji Hongo (a major Japanese tax group).

• Getbusy – ARR +5% (8% cc); adjusted loss widened from breakeven to GBP1.8m (1/3 higher central costs, 2/3 lower Workiro/VC profit — migration automation, marketing, gross profit; fierce AU competition from FYI Docs etc.). SmartVault strong: ARR +16%, flat profit — it's the one fit for sale.

• Macompta – FY25 revenue +29%, operating profit +5% (product/staff investment for the e-invoicing mandate and accounting-firm partner push). Q1 revenue +28%; submitted as an approved e-invoicing platform and flagged intent to up-list to Euronext Growth in 2026.

• IFCA – Revenue up 36%, profit up 716% on 2023, noting that I only bought a few months ago. That said, Q4 was up 35% and 770% respectively following continued growth from upgrades driven by e-invoicing mandates. Given the license-sales, average product sales price, and the mandate thresholds in 2025 it is unlikely that the next year will comp well.

• Banqup – Excluding divestments revenue fell 11% and given the far lower interest it appears that net loss will narrow from ~53m in FY24 to ~32m in FY25, primarily from the far lower interest expense on the Francisco loan.

• Miroku Jyoho – Revenue and profit increased 5% and 3% in 2025, diluted by the shift to subscription revenue, which would otherwise suggest that MJS has strong double digit growth. This change is expected to accelerate further as the ERP SaaS releases in the year ahead.

• Elixirr – My first year of ownership saw Elixirr put 30% and 16% to the per share top and bottom line at just 15x earnings. They added 5 new partners and extended their presence in the US significantly through the acquisition of Hypothesis, an Insights consultancy with strong presence in the Mag7.

• Reckon – Revenue +15%, profit +67%. Business group rode Xero's pricing changes to make its own; legal grew revenue while cutting costs (halved losses). Cash Flow Manager as expected; progress converting clients (e.g. Reckon One unlimited plan).

• Fiducian – Revenue +13%, profit +19%, client-advised assets +10% with controlled staffing. Trimmed to my smallest position over a concerning ASIC civil proceeding into their model (which can run against client best-interest despite the name). A common type of investigation historically.

Looking at my activity since inception half of it came in the last 2 years of the 6 and 1/2 since inception. Whilst 2025 was an improvement on 2024, making 18 trades a month is almost one every trading down and I want to scale this back significantly. Diversifying played a part in this of course, but, still an ideal world would be for my investments to last 5 to 10 years and for me to hold 20 of them, demanding that 2-4 be replaced per year. Add in some allowance for some replacements either due to de-listings or adverse outcomes, and I could reasonably allow to cap out at 2 trades a month on average if I was acting as the investor I should be.

A new investment in Asiro at the start of the year was a major contributor to our results in the year. Asiro is a founder-led legal media business in Japan, not unlike ZIGExN. The main profit driver for the business is a number of niche websites focused on matching lawyers with prospective clients, with smaller businesses in recruitment and insurance. The company announced that it was putting additional resources into recruitment and systems and would be unprofitable for 2023 and 2024 before returning to a 20% operating margin in 2025. Prior to this the company had consistent organic growth in excess of 30% with 20% margins and there was no reason to believe these margins weren’t ‘normal’ as nothing material has changed within the business. Despite this, the company traded at an earnings yield of about 10%, over the course of the year the company reported very strong results and expanding margins.

Plenty of other investments were made such that speaking about every one would be cumbersome. The main ones are:

• Autocount – Founder-led Malaysian accounting software firm lined up to benefit significantly from continuing digitalisation and e-invoicing mandates. Optically expensive but huge near term inflection potential.

• Bridge Consulting – Founder-led Japanese corporate finance boutique & accounting network with strong organic growth and capital efficiency at a double digit earnings yield.

• Macompta – Founder-led French accounting software also lined up to benefit from continuing digitalisation and e-invoicing mandates. Also optically expensive and inflection potential in the near(ish) term.

• Centrepoint Alliance – Australian wealth licensing business (like Sequoia/Diverger) trading at double digit earnings yield with sensible management and modest organic growth.

• COG Financial Services – Australian Broker aggregator with a double digit earnings yield and near term margin inflection due improving interest margins.

• IFCA – Founder-led Malaysian property ERP software with significant market share transitioning to cloud backed by a significant net cash balance.

• Unifiedpost – Belgium invoice compliance software with major partnerships set to benefit significantly from Belgium and France E-invoicing mandates.

• Elixirr – English partner-owned management consulting business with very strong profitability and growth.

• Miroku Jyoho – Founder-led Japanese accounting firm software with significant market share transitioning to cloud trading at a double digit earnings yield.

There were also some positions that were both new and sold during the year including:

• Wrkr – Australian employee superannuation compliance business with near term inflection potential by way of paydaysuper and MUFG rollout. Sold as it received some M&A speculation interest and doubled quickly.

• PensionBee – English private pension provider with strong tailwinds growing rapidly (30%+) with signficant operating leverage. Sold after a strong re-rate and alternatives.

• Avant – Japanese corporate accounting outsourcing & software. After strong results saw a rapid 60% increase.

• Euro-Tax – Too reliant on economic factors, Poland appears to be heading in adverse direction for Euro-Tax.

And those owned last year that were sold:

• Bravura – Stellar interim results led a large re-rate. Exited with a 6 month double.

• Kulcs-Soft – Risk of MBO materialised and sold immediately with minimal return.

• Finexia Financial – Inaugral results call was thoroughly unimpressed, sold immediately.

• Orchard Funding – Added significantly into a 2/3 drawdown, sold after it doubled for a decent overall profit.

• Peoplein – Got it wrong…

Positions held for the full year include:

• DSW Capital – Closed the year with 28% (8% organic) more fee earners and a transformational acquisition of DR Solicitors, bringing in a legal platform specialised in primary care. The bottom line increased from a slight loss of £30k to a profit £260k, with DR set to contribute over £1m next year, reducing corporate finance to ~30% of revenue and even less of profit.

• AF Legal – Revenue +16%, margins <1% -> ~4%. Acquired all Armstrong divisions (2 deals) from GTC Legal — should add nicely to profitability.

• Prime Financial – Revenue +21%; 2 acquisitions + lateral hires diluted EPS 2.2c -> 1.4c (expected to rebound). Both deals appealing and bring aligned new partners.

• Sequoia Financial – Didn't hold the full year — divested during the EGM process; now own far less. Unrest over Interprac credibility without the Jones family and in light of Venture Egg. Revenue +26%, EBITDA +88% on licensee operational gearing; collected a LOT of dividends.

• Getbusy – ARR +5% (disappointing); lower cash from a delayed R&D credit and the Smartpath acquisition (low upfront cost, earn-out on future revenue).

• Reckon – Revenue/profit flat, but acquired Cash Flow Manager at year-end (~4x earnings — strong, though old software has a limited shelf life). Xero's big price changes should let Reckon follow suit.

• Fiducian – Revenue +10%, profit +17% — minimal incremental cost lets 10% higher FUMAA drop faster to the bottom line in strong markets (and vice versa).

• Anexo – Revenue/profit -12%/-61% (prior year flattered by the VW case resolution). KPIs mostly up; cash conversion respectable.

• Litigation Capital – NAV/share +5% despite a slightly higher fair-value MOIC; H2 had a strong early case win likely offset by an end-of-half loss — concentration is somewhat concerning.

At the start of the year I left Kelly Partners due to strong offers from several other firms. Unfortunately the firm I joined was not good and I ended up leaving in May. I decided I wanted to try my hand at running a business and set up a trust to manage money before also becoming a tax agent in October. At the same time, after proposing to my partner I have been preparing for a wedding in January 2024. As I wanted to maintain full alignment I reallocated my capital from my family trust to units in the new Hurdle Rate Unit Trust.

At first I essentially replicated what I had however from August onward, I started to diversify more broadly since I didn’t want excessive volatility in an open-ended structure.

From existing holdings, Diverger was taken-out at a large premium (though, not enough!) and ended up being a major contributor. I also took part in a number of special situations including odd-lots and merger arbitrage with mixed success in the latter. I won’t be doing any of this going forward though as I don’t think it’s worth the time.

AF Legal was also re-entered and I got a great ~50% return as new management became permanent, revenue grew organically, and margins turned strongly into the positive.

Some of the new positions are detailed below:

• Finexia Financial – An Australian private-credit business trading at over a 30% earnings yield with 2 years of consecutive profit. I am treating this akin to a net-net with a payback rather than a long-term compounder. The introduction of a 30% dividend payout in conjunction with the consecutive year of profit piqued my interest.

• Fiducian – An Australian wealth business that operates a network of over 80 financial advisers with funds management and administration in-house. The business generates a percentage of assets meaning that flows and performance are crucial to it’s future. It is a founder-led firm with decades of success in operations. I was able to buy it at close to a double digit earnings yield.

• Reckon – An Australian holding company with domestic accounting software and US legal software. The unprofitable legal business is masking the profitable accounting software firm and has strong incentives to be divested by the end of the decade. If you strip out the legal business it is trading at teens earnings yield. This business spun out Getbusy back in 2016 and I have been a user of both.

• Litigation Capital – Funder of litigations with a strong track record and an asset management model just taking off. The performance fees are expected to drive higher returns on equity. The highly specialised nature of the investments means that there is high risk and underwriting is a black-box.

• Anexo – English auto credit hire and legal firm assisting no-fault drivers recover from insurers. The model is relatively new and Anexo is the leader. The company trades at a steep discount to net tangible assets with a number of catalysts including the dieselgate cases on other manufacturers, and changing business mix toward a faster growing and more profitable social housing claims business.

• Orchard Funding – Founder-led English insurance premiums and professional fee funding business (firms, golf memberships, RVs etc.). Trades at less than half NTA despite a long history of strong profitability and ROE.

• Bravura – Australian pension and funds administration business with a revolving management door. Constellation Software pedigree are major shareholders and taking a more active stance such that I expect margins to recover significantly and a single digit P/E as capable in the near future.

• Peoplein – Australian staffing business suffering from high debt load and volatile margins. The shares trade at a low single digit earnings multiple on recent earnings and I am betting on a better than feared profit.

• Kulcs-Soft – Hungarian accounting software at a double digit earnings yield (100% payout) and growth. Founder owns >90% so there is risk of a take-private, but, it has 13 years of listed history.

Positions held for the full year include:

• DSW Capital – After a flat top line in fiscal 2023 (ending 30/4/23), DSW Capital shrunk further in the subsequent half with revenue per fee earner shrinking to £160k, down from around £230k in the year before. This is occuring at a time where the group now has a listed cost base and increased central heads, driving margins down to low double digits, from >40% in prior years.

• Getbusy – ARR grew 14% on the prior year with their net loss to £0.6m, closely aligned with cash outflows. Getbusy has always operated at a small accounting loss offset by advance subscription fees, generally speaking I expect any specific comparative periods to vary a little bit due to timing.

• Sequoia Financial Group – Sequoia announced the hugely successful divestment of Morrison securities for $40.5m, however, continuing profit declined by more than half due to weak margins across all divisions due to depressed corporate finance activity and the payment of a advice claim made against them. Nonetheless, Sequoia is now extremely cashed up and I look forward to how they deploy this.

• Prime Financial Group – In 2023 Prime grew revenue and profit 28% and 15% respectively, partly boosted by the acquisition of Intello in October 2022, an SMSF administration provider. Cash flow fell ~1/3 on the prior year due to growth in the capital intensive R&D tax service and higher cash taxes.

Aspire Global was cut short due to a takeover by the US-listed Neogames, forcing me to realise a 37% short-term gain and look for a replacement. This replacement was Diverger, an Australian advice business operating in advice compliance, tax training, and asset management. The business is a high quality one plagued by recent regulatory intervention which caused the underperformance of an ill-timed acquisition made just before the banking royal commission. This goodwill and associated amortisation is masking strong incremental return on their capital, causing it to trade at a 12% earnings yield.

In the latter half of the year I decided firstly to diversify a bit more given cash flows were now not overly material to the portfolio, and secondly, to focus more on my circle of competency as an accountant. This meant a reallocation of capital away from ZIGExN towards new businesses in line with this approach.

But first of all, AF Legal was a major upset this year with a 68% decline. Extended losses despite revenue growth caused further investor distrust in the operational leverage story, whilst the announcement of a transformational acquisition of GTC Legal later in the year was a major turning point in the business. In short, the acquisition negotiations fell through, and parties privy to some dubious internal practices of the management had leaked these practices to the financial media. Major shareholders came together to spill the management and now have a task ahead to replace the management permanently, regain trust, and restore margins. Fortunately, the partnerships continue to operate. That said, I decided to divest my position late in the year in fear of the unknown. A lot of valuable lessons were gained here, even if it hurt!

Turning back towards the circle of competence point, I ended the year with the following positions:

• Kelly Partners – The position was trimmed dramatically in the 2nd half and now sizing is in line with other positions. It was only up about 10% in the year and profits grew about the same as prior years.

• Diverger – As detailed above.

• DSW Capital – A recently listed partner-owned (78%) english professional services support business which provides central services and working capital funding to start-up professional firms.

• Getbusy – An english listed document management software for accounting firms with two core products in the UK/AU and US along with a developing product. Incentives are strong to realise a material cash return to investors by the end of the decade.

• Sequoia Financial Group – Similar to Diverger, an Australian wealth management business trading at a double digit earnings yield with an ambitious organic and inorganic growth strategy and future dividend policy which if realised, would make the current price measly.

• Prime Financial Group – An Australian advice group that owns and operates accounting and wealth firms (rather than supporting like the above two companies). 45% owned by the partners creating a strong cross-sale incentive and alignment to shareholders.

• Begbies Traynor – Founder-led english insolvency firm pivoting into specialised property consulting. Trades at a double digit earnings yield despite high teens to low 20s return on equity over a decade or so.

Only a single purchase was made in October of the founder-led Maltese iGaming business, Aspire Global. The business exhibited all the traits one might want to see including a demonstrable moat with >20 gambling licenses and a risk-aware focus on regulated markets with a healthy war chest of net cash following it’s B2c division divestment. Organic growth has been 16% p.a. in the four years up to 2019 when it completed it’s first deal and has accelerated since given the strength of these mergers. At an entry valuation of 8% earnings yield and high double digits return on capital I believe Aspire has a bright future ahead of it.

Kelly Partners was responsible for more than 100% of the result this year having doubled again (after having doubled in the 6 months to December 2020 as well). In January of this year I joined their Wollongong partnership as an accountant under Marija Murray, one of the 4 partners at the time (now 3). The experience has been positive but rather similar to what I was doing at another firm in the previous 3 years. The main differentiator is the performance culture in my view which is more nuanced in reality but referred to in aggregate. In the past 2 years the company has grown per share profit ~60% from 7c to 11c which isn’t really justifying the ~450% increase in price, instead the company appears to have accumulated a following of foreign investors which see this as a serial acquirer of sorts instead of the domestic view of roll-up. It is crazy how different perceptions can be attached to what are quite similar businesses, save some few crucial differences around the joint liability of partnerships and non-recourse debt.

Despite positive fundamental progress AF Legal (+40% per share revenue, swing to statutory loss) and ZIGExN (~10% higher per share profit) did not contribute meaningfully to the results this year.

In early 2020 I made the choice to start a family trust for me and my girlfriend with the aim of compounding to financial independence in a tax-efficient manner. This choice was made a few weeks before a deep crash due to COVID-19 induced world lockdowns. So, I ended up divesting most of my investments at a drawdown and remained out of the market for about 6 weeks (March/April) and was slow to deploy capital into the new trust following this, missing most of the recovery.

This could have been worse but a January investment into Plus500 was a strong contributor to results. The CFD broker was trading at a mind-bendingly low price (12% earnings yield) for what seemed like a high quality business that was generating on average >100% ROE per year for the last 6 years. It was pooring all profits into a mixture of dividends (8% yield) and buybacks (4% yield). With growing global tensions the likelihood of growing profits substantially seemed assured with higher volatility a sign of higher trading volumes and hence higher commissions for this business. Up until the date of my divestment Plus500 delivered a 33% return in just 3 months, despite a >20% market drawdown in most indices. It was my largest position over those 3 months and took ~4% off my drawdown.

Fast forward to the trust, It wasn’t until about July when it was completely deployed into just two names, ZIGExN and Kelly Partners at a ratio of 1:1. The rationale behind this was to deploy on the basis of earnings power rather than portfolio allocation as my cash inflows were far higher than any investment returns I could reasonably expect. For me this meant I was going to buy something new every 6-12 months depending on my savings rate, and I had chosen to make these investments on a very long-term lens to shift my focus toward increasing my earnings power.

It doubled in the 6 months after adding to the trust, but you know Kelly Partners already so I will detail the other investment. ZIGExN is a Japanese serial acquirer of media assets, namely, websites designed to match users to one-another in simple terms. ZIGExN has specific expertise in this regard as a business that was originally conceived in Recruit Holdings (The business that owns the job site ‘Indeed’) and underwent a management buyout by Joe Hirao in the late 2000s before listing on the Tokyo exchange in 2013. Joe holds more than half the shares and has compounded extremely well since that buyout in a highly capital efficient manner. I see scope for the business to continue to compound at a high rate (15-25%) for a long time and managed to buy the business at an 8% earnings yield.

Right at the end of the year I added a 3rd investment in AF Legal, a fast growing Australian family law firm that was founded in 2015 and listed by way of backdoor in 2019. The company has been growing revenue at an exceptionally fast rate with extremely cheap acquisitions and rapid organic growth. At a price of about 40-45c I paid up optically (~3x sales) but with the rate of growth expected it to make sense in the relative near term. Similar businesses such as accounting firms and other listed law firms can have double digit margins so I saw a pathway to <10x earnings within a few years in addition to a very long runway of growth.

In December of 2018 I started my first full-time job at the age of 22 having worked part-time in the past 4 years of my degree (Bachelor of Commerce – Accounting & Financial Planning). Between 2012 and 2018 I had dabbled in very small sums across some individual shares, mostly blue chips and in early 2019 I started to deposit my full-time savings into a vanguard index fund. In June 2019 I decided I was going to make the shift into 100% individual shares.

My investments were made with a valuation perspective from the get-go however lacked conviction with some high turnover in this half-year period as I learned a lot along the way. Some key investments made and closed during the period are detailed below.

One of my first investments, Bluescope appreciated 40% in the half-year which in hindsight was pure luck. Whilst I viewed the company as potentially undervalued, the thesis wasn’t really a thesis as it was more of an exercise in shallow valuation work! Whilst I was aware of it’s highly profitable and geographically advantaged US mill, the ultimate reason for the investment was based upon false security granted by an amateur DCF model.

Yowie, on the other hand, was a classic Benjamin Graham Net-net which I am more proud of. The chocolate is a household name here in Australia (well, it was 15+ years ago!) which is the reason it caught my eye. That, and it’s price below cash on the balance sheet, net of all liabilities. The company was subject to a flurry of takeover attempts with the goal of returning capital whilst also on a margin uptrend towards a breakeven point. Whilst the 30% return was in part luck due to timing of the 2c capital return (announced just days after my purchase), I am fond of the quality of this investment relative to Bluescope.

Class is a very niche accounting software business, specifically servicing a particular area of service for accountants in self-managed superannuation fund administration. The B2B business is a first-mover in cloud-accounting solely for these funds. Whilst Xero was the first-mover for general-purpose accounting software for small businesses, Class’ focus is far more narrow and they do not at all compete with one-another. The incumbent (emphasis on singular - duopoly), BGL is losing share to Class at a quick pace whilst Class products are priced at a 60% premium to BGL. Despite this, Class has a >99.5% annual retention rate in a market where there is ~3% churn historically. To some extent given the likelihood of older SMSFs being on archaic software (or none!) this starts to make sense, yet still is impressive. My investment here was on the basis of a high quality (>30% ROE) growing (double digit organic) business at a great price (11x EV/EBIT), whilst also being supported by an aggressive CEO incentive scheme to generate 3-year TSR of 25%+. That being said, with a 50% appreciation in a few months I chose to divest the position for something else, a decision that I would regret in hindsight.

Other dealings that ultimately didn’t end up sticking in the portfolio, nor contributed meaningfully to results included Collection House, Globe International, Onemarket, PAS Group, and Spark Infrastructure. I don’t deem these worth talking about as they were in and out rather quickly.

I closed the year with holdings that stretch the definition of GARP (growth at a reasonable price) surmised below:

• Kelly Partners – A founder-led Australian SME accounting firm trading on a ~12% earnings yield with a durable ~30% ROIC, ~5% organic growth, and a ~50% payout ratio.

• Hitech – A founder-led Australian government (requires high trust and clearance) staffing business growing ~10% p.a. with a 100% payout ratio at a ~10% earnings yield (fully franked).

• Namsys – A founder-led Canadian cash-transit software business growing ~10% p.a. with 100% FCF conversion and a ~10% earnings yield

• Evergreen Gaming – Founder-led Canadian indigenous casino operator with high teens ROIC, near net-net, trading at 3-4x ev/ebit.

• Character – Founder-led English toys manufacturer with high ROIC trading at a ~8% earnings yield hurt by the downfall of Toys R’ Us in Scandanavia.