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.

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.

The new positions divide fairly cleanly between software and professional services.

On the software side, Robot Payment is a founder-led Japanese subscription invoicing and payments business expected to grow at a moderate rate whilst multiplying margins several fold in the near term. Innoscripta is founder-led German R&D software with rapid organic growth in the high double digits at a mid single digit earnings yield. Info-Tech is founder-led Singapore accounting and HR software expanding into Malaysia and beyond at a double digit earnings yield.

On the services side, MHA is a newly listed partner-owned English auditor expanding into other areas and geographies by acquisition, with a 20 year track record of double digit self-funded organic growth. Netfonds is a founder-led German wealth business, something like a combination of Centrepoint and COG Financial Services, set to experience strong operational gearing from faster growth in higher margin areas. FSA is a 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%. Two more were returns to familiar ground: Kelly Partners, which you know by now, where the price dropped a lot and I added a very small amount (1%), and Avant, which I re-entered after a retrace downward.

One new position did not last the year. Sylogist was bought early on the thesis that a transition from direct to partner-led sales was underway and temporarily impacting margins, alongside an ongoing shift to subscription and backed by strong CEO incentives. I sold after some DOGE related delays forced forecasts to be stepped out a number of years and prompted a reevaluation of potential margins.

Six older positions were sold. Anexo went to a management take-under and I sold on an initial pop for a decent overall profit. Centrepoint Alliance I sold after a re-rating of around 50%, since low growth means changes in yield matter more. Sequoia Financial Group went on increased scrutiny regarding their relationship with the Shield Master Fund, and Litigation Capital after a series of case losses caused me to lose conviction, fortunately avoiding further loss. Begbies Traynor and COG Financial Services were simply replaced, with no change of thought on either thesis.

Of the positions held for the full year, the Japanese holdings were the most eventful. Asiro grew revenue 42% and took its post-tax margin from 3% to 15%, beating both its own and its revised guidance, with cash rising from JPY1.6b to 2.5b. Results were boosted by high-margin transactional legal services that tapered in Q4 and will be de-emphasised, making 2025 a hard comp, and the new Bonobo and Legal Base AI services are not in the conservative roughly flat guidance. Asset Value Investors in the UK has accumulated a third of the business, with publicised comments suggesting Asiro focus on the high margin Legal Media division and return more capital. Bridge Consulting grew revenue 11% but profit fell 13% on front-loaded headcount and sales investment which deepens in 2026 (guiding revenue +21%, profit -24%); it won a J-Adviser license for the Pro-market and an outsourced-CFO initiative with Tsuji Hongo, a major Japanese tax group. Miroku Jyoho grew revenue and profit 5% and 3%, diluted by the shift to subscription revenue which would otherwise suggest strong double digit growth, a change expected to accelerate as the ERP SaaS releases in the year ahead.

The e-invoicing names moved together. Autocount grew revenue 46% and profit 52% on the initial phases of the mandate; it has a smaller client base than IFCA, but smaller clients are also more likely to be on Autocount cloud, which is subscription rather than license, and I suspect another strong year as smaller mandates drive far greater quantity of businesses onto the software. IFCA grew revenue 36% and profit 716% on 2023, though I only bought a few months ago; Q4 was up 35% and 770% respectively on continued growth from upgrades driven by the mandates, but given license sales, average product sales price and the 2025 mandate thresholds it is unlikely the next year comps well. Macompta grew FY25 revenue 29% with operating profit up 5% after product and staff investment for the mandate and the accounting-firm partner push, with Q1 revenue +28%; it was submitted as an approved e-invoicing platform and flagged intent to up-list to Euronext Growth in 2026. Banqup, excluding divestments, saw revenue fall 11%, and given far lower interest it appears net loss will narrow from around 53m in FY24 to around 32m in FY25, primarily from the lower interest expense on the Francisco loan.

The professional services platforms continued to compound. DSW Capital grew H1 revenue and profit 156% and 132%, mostly a full year of DR Solicitors, with organic revenue up 18% and profit down on investment and weak M&A (the prior H2 had an Oct-24 Budget windfall); DR Solicitors consultants went from around 20 to 26, all high-margin headcount. AF Legal grew revenue 27% and profit 77%, with Q1 FY26 accelerating to +43% and +116% — the Armstrong Criminal Law purchase at the end of Q1 FY25 flatters the comp, but organic was strong too. Culture is improving, with Great Place To Work moving from 53% in Aug-23 to 85% in Nov-25 and attracting returners, and FY26 should be clear of legacy matters with a new practice-management system to lift productivity. Prime Financial grew revenue 21% and per-share profit 37%, both organic and acquired, on a $55-60m run-rate with a renewed emphasis on margins and cash collection which is pleasing, and I am comfortable given broad partner ownership. Elixirr, in my first year of ownership, put 30% and 16% onto the per share top and bottom line at just 15x earnings, added five new partners and extended its US presence significantly through the acquisition of Hypothesis, an insights consultancy with strong presence in the Mag7.

The software and wealth holdings were mixed. Getbusy grew ARR 5%, or 8% in constant currency, but the adjusted loss widened from breakeven to GBP1.8m — a third from higher central costs and two thirds from lower Workiro and VC profit across migration automation, marketing and gross profit, with fierce Australian competition from FYI Docs and others. SmartVault was strong, with ARR +16% on flat profit, and it is the one fit for sale. Reckon grew revenue 15% and profit 67%: the business group rode Xero’s pricing changes to make its own, and legal grew revenue while cutting costs, halving losses, with Cash Flow Manager performing as expected and progress converting clients onto plans such as Reckon One unlimited. Fiducian grew revenue 13%, profit 19% and client-advised assets 10% on controlled staffing, but I trimmed it 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 cluster into three themes.

The largest was accounting software riding digitalisation and e-invoicing mandates. Autocount is a founder-led Malaysian accounting software firm lined up to benefit significantly from continuing digitalisation and e-invoicing mandates, optically expensive but with huge near term inflection potential. Macompta is its French counterpart, founder-led and similarly placed, also optically expensive with inflection potential in the near(ish) term. Unifiedpost is Belgium invoice compliance software with major partnerships set to benefit significantly from the Belgium and France e-invoicing mandates. Two others are cloud transitions rather than mandate plays: IFCA, founder-led Malaysian property ERP software with significant market share transitioning to cloud and backed by a significant net cash balance, and Miroku Jyoho, founder-led Japanese accounting firm software with significant market share transitioning to cloud, trading at a double digit earnings yield.

Two are Australian financial services. Centrepoint Alliance is a wealth licensing business in the mould of Sequoia and Diverger, trading at a double digit earnings yield with sensible management and modest organic growth. COG Financial Services is a broker aggregator, also on a double digit earnings yield, with near term margin inflection due to improving interest margins.

Two are professional services firms. Bridge Consulting is a founder-led Japanese corporate finance boutique and accounting network with strong organic growth and capital efficiency at a double digit earnings yield. Elixirr is an English partner-owned management consulting business with very strong profitability and growth.

Several positions were both new and sold within the year. Wrkr, an Australian employee superannuation compliance business with near term inflection potential by way of paydaysuper and the MUFG rollout, was sold after it received some M&A speculation interest and doubled quickly. PensionBee, an English private pension provider with strong tailwinds growing rapidly at 30%+ with significant operating leverage, was sold after a strong re-rate and in favour of alternatives. Avant, a Japanese corporate accounting outsourcing and software business, saw a rapid 60% increase after strong results. Euro-Tax I exited as too reliant on economic factors, with Poland appearing to head in an adverse direction for it.

Of those owned last year and since sold, Bravura’s stellar interim results led to a large re-rate and I exited with a six month double. Orchard Funding I had added to significantly into a two-thirds drawdown, and sold after it doubled for a decent overall profit. Kulcs-Soft’s risk of an MBO materialised and I sold immediately with minimal return. Finexia Financial’s inaugural results call left me thoroughly unimpressed, and I sold immediately. Peoplein I simply got wrong.

Among the positions held for the full year, the professional services platforms did most of the work. DSW Capital closed the year with 28% more fee earners (8% organic) and a transformational acquisition of DR Solicitors, bringing in a legal platform specialised in primary care; the bottom line moved from a slight loss of £30k to a profit of £260k, with DR set to contribute over £1m next year, reducing corporate finance to around 30% of revenue and even less of profit. AF Legal grew revenue 16% with margins moving from under 1% to about 4%, and acquired all Armstrong divisions from GTC Legal across two deals, which should add nicely to profitability. Prime Financial grew revenue 21%, though two acquisitions and lateral hires diluted EPS from 2.2c to 1.4c, which I expect to rebound; both deals are appealing and bring aligned new partners. Sequoia Financial I did not hold for the full year, divesting during the EGM process and now owning far less, amid unrest over Interprac’s credibility without the Jones family and in light of Venture Egg; revenue rose 26% and EBITDA 88% on licensee operational gearing, and it collected a lot of dividends along the way.

The two software holdings were quieter. Getbusy grew ARR only 5%, which was disappointing, with lower cash from a delayed R&D credit and the Smartpath acquisition (low upfront cost, earn-out on future revenue). Reckon was flat on both revenue and profit but acquired Cash Flow Manager at year-end at around 4x earnings, which is strong, though old software has a limited shelf life; Xero’s big price changes should let Reckon follow suit.

Fiducian grew revenue 10% and profit 17%, minimal incremental cost letting 10% higher FUMAA drop faster to the bottom line in strong markets, and vice versa. The two legal finance positions were less kind. Anexo saw revenue and profit fall 12% and 61%, though the prior year was flattered by the VW case resolution; KPIs were mostly up and cash conversion respectable. Litigation Capital’s NAV per share rose 5% despite a slightly higher fair-value MOIC, with a strong early case win in the second half likely offset by an end-of-half loss, and the 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.

The new positions fall into a few groups.

Two are Australian financial services businesses. Finexia Financial is a private-credit business trading at over a 30% earnings yield with two consecutive years of profit. I am treating it akin to a net-net with a payback rather than a long-term compounder, and it was the introduction of a 30% dividend payout alongside that second year of profit which piqued my interest. Fiducian operates a network of over 80 financial advisers with funds management and administration in-house. It earns a percentage of assets, so flows and performance are crucial to its future, and it is founder-led with decades of success in operations. I was able to buy it at close to a double digit earnings yield.

Two are accounting software. Reckon is an Australian holding company with domestic accounting software and US legal software, where the unprofitable legal business is masking the profitable accounting one and has strong incentives to be divested by the end of the decade; strip the legal business out and it trades at a teens earnings yield. Reckon spun out Getbusy back in 2016, and I have been a user of both. Kulcs-Soft is Hungarian accounting software at a double digit earnings yield on a 100% payout, with growth. The founder owns more than 90%, so there is risk of a take-private, but it has 13 years of listed history.

Three are specialised lenders and legal finance. Litigation Capital funds litigation with a strong track record and an asset management model just taking off, where performance fees are expected to drive higher returns on equity; the highly specialised nature of the investments means high risk, and underwriting is a black-box. Anexo is an English auto credit hire and legal firm assisting no-fault drivers recover from insurers, a relatively new model in which Anexo is the leader, trading at a steep discount to net tangible assets with a number of catalysts including the dieselgate cases on other manufacturers and a changing business mix toward the faster growing and more profitable social housing claims business. Orchard Funding is a founder-led English insurance premiums and professional fee funding business (firms, golf memberships, RVs and the like), trading at less than half NTA despite a long history of strong profitability and ROE.

The last two are bets on depressed earnings recovering. Bravura is an Australian pension and funds administration business with a revolving management door, where 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 is an Australian staffing business suffering from a high debt load and volatile margins, trading at a low single digit earnings multiple on recent earnings, where I am betting on a better than feared profit.

Among the positions held for the full year, DSW Capital was the clear disappointment. After a flat top line in fiscal 2023 (ending 30/4/23) it shrank further in the subsequent half, with revenue per fee earner falling to £160k from around £230k the year before. That is occurring at a time when the group now carries a listed cost base and increased central heads, driving margins down to low double digits from more than 40% in prior years.

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

The two advice businesses moved in opposite directions. Sequoia Financial Group announced the hugely successful divestment of Morrison Securities for $40.5m, however continuing profit declined by more than half on weak margins across all divisions, reflecting depressed corporate finance activity and the payment of an advice claim made against them; Sequoia is now extremely cashed up and I look forward to how they deploy this. Prime Financial Group grew revenue and profit 28% and 15% respectively, partly boosted by the acquisition of Intello in October 2022, an SMSF administration provider, though cash flow fell around a third 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 seven positions, most of them clustered around accounting and advice.

Kelly Partners was trimmed dramatically in the second half, and its sizing is now in line with the other positions. It was up only about 10% in the year, and profits grew about the same as they had in prior years.

Three of the holdings are Australian advice businesses, bought for much the same reason. Diverger is detailed above. Sequoia Financial Group is similar to it, a wealth management business trading at a double digit earnings yield with an ambitious organic and inorganic growth strategy, and a future dividend policy which, if realised, would make the current price look measly. Prime Financial Group differs in that it owns and operates its accounting and wealth firms rather than supporting them as the other two do. The partners own 45%, which creates a strong cross-sale incentive and aligns them with shareholders.

The remainder are English. DSW Capital is a recently listed, partner-owned (78%) professional services support business, providing central services and working capital funding to start-up professional firms. GetBusy is a listed document management software business serving accounting firms, with two core products across the UK and Australia and the US, along with a third in development; incentives there are strong to realise a material cash return to investors by the end of the decade. Begbies Traynor is a founder-led insolvency firm pivoting into specialised property consulting, trading 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). Every one of them is founder-led, which was less a deliberate screen than a reflection of where this kind of value kept turning up.

Two are Australian. Kelly Partners is an SME accounting firm trading on a ~12% earnings yield with a durable ~30% ROIC, ~5% organic growth and a ~50% payout ratio. Hitech is a government staffing business, work which requires high trust and clearance, growing ~10% p.a. on a 100% payout ratio at a ~10% earnings yield, fully franked.

Two are North American. Namsys is a Canadian cash-transit software business growing ~10% p.a. with 100% free cash flow conversion and a ~10% earnings yield. Evergreen Gaming is a Canadian indigenous casino operator earning high teens ROIC, close to a net-net, trading at 3-4x EV/EBIT.

The last is English. Character is a toys manufacturer with high ROIC trading at a ~8% earnings yield, hurt by the downfall of Toys R’ Us in Scandanavia.