Optimum Australian Equities Value Fund

Introduction and Launch

5th January
Prepared by Heinrich Jacobs
Managing Director & Chief Investment Officer

Disclaimer
Op#mum Capital Management Pty Ltd ABN 60 154 164 020 (also referred to in this presenta#on as Op#mum Capital
Management, the Trustee, the Manager, us, we and our) is the Trustee and Investment Manager of the
Op#mum Australian Equi#es Value Fund (the Fund) ABN 38 923 100 447. The Trustee is a corporate authorised
representa#ve (No. 467287) of Lanterne Strategic Investors Pty Ltd (ABN 49 098 472 587, AFSL 238198).
This presenta#on is not a recommenda#on to invest in the Fund and may not include all of the informa#on that a
prospec#ve investor needs to make an investment decision. Op#mum Capital Management does not take into account
the individual circumstances of any prospec#ve investor, nor does it give any advice whatsoever but to the extent that it
does, it cons#tutes only general advice and not personal advice. Accordingly, prospec#ve investors should make their
own independent enquiries and obtain professional legal, nancial, tax and accoun#ng advice before making an
investment decision.

Contents
Who We Are
What We Do
How We Are Dierent
Overview of the Fund
Our Investment Philosophy
Our Investment Strategy
Our Investment Process
Why ROE & Good Capital Management are cri#cal
Example of a model poraolio (compounding businesses)
Example of a poor business with bad economics
Conclusion
How to Invest

Who we are

Op#mum Capital Management is independent and privately owned investment management rm located in
Melbourne, Australia

A highly experienced team (and growing) with ve decades of banking, markets, and diversied industry
experience

Specialist exper#se in Risk Management, Financial Analysis, Business Valua#ons, Corporate Strategy
Development, Corporate Governance

The Team

Combined 12 years nancial advisory, investments, business management and leadership

experience

Banking & Finance, Technology, and Diversied Industries

Previous management posi#ons at ANZ Bank, Suncorp Bank, Tennis Australia & Metcash

Established and managed a number of businesses at ANZ with FUM $100m $1.5b

Acquired advanced technical and fundamental skills and exper#se with focus on equi#es,
investment lending, liquidity, risk management, property, transac#onal banking, and
balance sheet analysis

Educa#on: Master of Business Administra#on (MBA) & Post Graduate Cer#cate in

Management (Dis#nc#on)

25 years of nancial markets experience

Currently the Principal/Director of Lanterne Asset Management and the Chief Opera#ng
Ocer for Avenir Capital

Prior, Director at Credit Suisse First Boston Australian Equi#es & Bain & Company in London

Peters primary role is focused on providing risk management, governance, and compliance
oversight for our Australian Equi#es Value Fund

Heinrich Jacobs
Managing Director &
Chief Investment Officer

Peter Cozens
Non-Executive Director

The Team

Experienced CEO, Lawyer, and former Director of companies including Coles Myer
Group, GE Capital, Pacic Diamond, Retail Franchise Solu#ons, Midas Asia Pacic,
and the DBYD Group

Exper#se covers business management, nance, corporate structuring, strategic

planning, due diligence, and business acquisi#ons and divestures across the
building, nance, franchise, wholesale, retail, automo#ve, mining, and u#li#es
sector

Currently the CEO of the Australian Associa#on of Dial Before You Dig Services

Currently holds several board posi#ons including the Australian Government

Solicitor and Torus Group

Educa#on & Memberships: Bachelor of Laws & Bachelor of Commerce (University

of Melbourne); Cer#ed Prac#cing Accountant (CPA); MAICD; LIV

Sophie Valkan
Non-Executive Director

What We Do

We act as a nancial duciary for our clients

Provide investors with access to one high quality investment product that meets a broad range of needs, including
income and capital growth

We manage money (equity capital) on behalf of trustees and advisers of self-managed superannua#on funds, high
net worth individuals, companies, and charitable founda#ons

We seek to iden#fy high quality companies for inclusion in the fund that will oer good long-term capital growth
opportuni#es, with a stable and reliable income stream with low to moderate risk

We conduct extensive market research, stock selec#on, and the buying and selling in rela#on to the securi#es in
our Investment Fund

Our absolute focus is to protect our clients capital (and ours) and ensure all investments oer a margin of safety

How Are We Different?

Optimum Capital
Management

Large Institutional Funds

PROS

CONS

The size of asset base can limit the ability to move in

and out of the best investments

Market Capitalisation-weighted strategies suffer from

an inherent bias towards hot segments of the market,
and often feature concentrated economic bets

Market Cap weighted and tend to focus only on large

cap companies, missing valuable opportunities in the
mid-small cap space

Can be expensive relative to size and management

have no skin in the game. Poor alignment of interests

We will have a smaller asset base giving us the ability to

move in and out of the best investment opportunities

Our only bias is to invest in the very best companies that

we can buy at a discount to valuation, regardless of
economic trends, fads etc
We have a Market Cap agnostic strategy. We will invest
across the spectrum; large, medium, small, and micro
cap

Good value relative to size. Tight cost controls

Excellent alignment of interests between management

and investors

Very flexible, nibble, and flat structure

No skin in the game. Very poor alignment of interests

between management and investors
Limited flexibility, bureaucracy, slow decision making

Overview Of The Fund

Investment(Strategy(and(Objec3ve(

To(provide(investors(with(superior(long<term(absolute(returns(in(
the(form(of(capital(growth(and(income(from(a(por>olio(of(
shares(in(excep3onal(Australian(&(New(Zealand(companies(
listed(companies(on(the(ASX(that(we(can(buy(at(an(aErac3ve(
price(

Por>olio(Structure(&(Weigh3ngs(

15((30(Companies(
0%(<(100%(Equi3es(
0%(<(100%(Cash(
No(short(selling(
No(nancial(leverage(
(

Benchmark(

All(Ordinaries(Accumula3on(Index((XAOAI)(

Investor(Prole(

Sophis3cated,(Professional(and(Wholesale(Investors.(A(limited(
number(of(retail(investors(via(a(personal(oer(

Risk(Prole(

Medium(

Suggested(Investment(Period(

Five(years(

Our Investment Philosophy

We are a disciplined investor seeking out investment opportuni#es

in companies that we can purchase at a discount to our assessment
of the fundamental value or intrinsic value of the company

High convic#on fund with a concentrated strategy

Margin of safety and valua#on is at the heart of our investment

philosophy and investment selec#on process

Bonom-up, Fundamental Analysis

Our Investment Strategy

Op8mum'Capital'Management'
Core'Competency'
Ac8ve'
Capital'Alloca8on'
Exper8se'

Disciplined'&'Repeatable'
Investment'Process'

Fundamental*Value*
Based*Approach*

Focus*on*Catalysts*

'

Seek' companies' with' short' term' imperfec8ons' in'

fundamentals'

Pursue' special' situa8ons' and' transforma8onal'

events' such' as' corporate' takeovers' that' drive'
shareholder'value'

Mispriced' assets' with' temporary' aws' caused' by'

general'market'condi8ons,'sen8ment,'strategy,'or'
other'company'specic'issue.'

Strong'Risk'Management'
Culture/Systems'

Focused'on'business'
fundamentals'&'valua8on'

Proven'Track'Record'

Seeking*Compelling*
Opportuni;es*

T h o r o u g h' u n d e r s t a n d i n g' o f' b o 1 o m' u p'

fundamental'analysis'and'value'opportunity'

Our Investment Process

ASX Listed
Companies

Quantitative
Screen

Qualitative
Screen

Portfolio
Construction

$2,200$companies$

$Financial$Modeling$Phase$
$Ranking$Process$(Financial$Strength$|$Protability$&$
Growth)$$
$Investable$Universe$~$700$issues$

$Idea$Genera3on$
$Strong$Business$Models$
$Durable$Compe33ve$Advantages$
$Management$Team$
$Investee$Universe$~$90$W$150$companies$

$15$$30$companies$selected$for$investment$

Our$ investment$ process$ starts$ by$ selec3ng$ of$ the$ 2,200$$

ASX$ Listed$ Companies$ the$ 700$ companies$ that$ made$ a$
prot$in$the$past$12$months.$
From$the$700$companies$we$individually$rank$companies$
using$ a$ range$ of$ metrics$ to$ shortWlist$ down$ to$ 90$ $ 150$
companies.$Metrics$include:$
W

PEG$

OCF$&$FCF$yield$

Cash,$Debt,$and$Growth$rate$levels$

The$nal$stage$is$a$qualita3ve$screen$and$deep$dive$
into$the$quality$of$the$management$team,$and$assess$
the$strength$of$the$companies$business$model$and$if$it$
has$any$durable$compe33ve$advantages$that$allow$for$
sustainable$ growth$ over$ the$ investment$ cycle.$ From$
the$ 90$ $ 150$ companies$ we$ select$ the$ nal$ 15$ $ 30$
companies$to$make$up$the$investment$por`olio.$

Why ROE & Good Capital Management Are Critical (example)

!
!
Year!

Business!
!
Beginning!
Equity!($)!

!
!
Return!on!
Equity!(%)!

!
!
!
!
Earnings!($)! Payout!
Ra7o!%!

!
!
Dividends!
($)!

!
!
Ending!
Equity!($)!

0"

Market!
!
P/E!Ra7o!

!
!
Share!
Price!($)!

10"

2.50"

1"

1.00"

25"

0.25"

0"

0"

1.25"

10"

3.10"

2"

1.25"

25"

0.31"

0"

0"

1.56"

10"

3.90"

3"

1.56"

25"

0.39"

0"

0"

1.95"

10"

4.80"

4"

1.95"

25"

0.48"

0"

0"

2.43"

10"

6.00"

5"

2.43"

25"

0.60"

0"

0"

3.03"

10"

7.50"

Annual!
Rate!of!
Return!

!
25%!

Consider this
If you buy and sell shares in a company on the same P/E ratio, and assuming the company does not
pay a dividend and it is able to generate a high rate of return on equity, then all things being equal the
earnings and the share price will grow at the same rate as the ROE which in this case is 25%

Example of a Model Portfolio (Compounders)

Company(

ASX(
Code(

ROE(
(%)(

Forecast(
Dividend(
Yield((%)(

Ini?al(Rate(
of(Return(
(%)(

Total(
Returns((10(
year(Avg(%)(

Market(
Cap((m)(

ANZ$Bank$

ANZ$

16$

8.5$

8.10$

10.5$

88,847$

Ainsworth$
Game$
Technology$

AGI$

26$

5$

7.80$

10$

780$

CSL$

CSL$

41$

1.5$

3.5$

26$

41,464$

Patents/reputaPon$

Seek$

SEK$

19$

2.5$

3$

25$

6,000$

Network$eect$

Breville$Group$

BRG$

23$

5.5$

5.5$

17$

870$

Brand/ReputaPon/Design$

WOW$

24$

7$

6.5$

11.5$

38,690$

Low$cost/brand/logisPcs/
geographic$monopoly$

Carsales$

CRZ$

51$

5.2$

3.7$

22$

2,524$

Network$eect$

Iproperty$

IPP$

6$

X$

1.1$

90$

352$

Network$eect$

Resmed$

RMD$

20$

1.7$

3.8$

16$

9,685$

Patent/reputaPon$

Flight$Centre$

FLT$

24$

7$

8.20$

11.5$

3,300$

Footprint/reputaPon$

McMillian$
Shakespeare$

MMS$

25$

7.5$

7$

26$

826$

25%((

4.7%(

5.3(

24%(

Woolworths$

TOTAL(
AVERAGE(

Compe??ve(Advantage(

Oligopoly$
Knowledge/Experience$

Switching$costs$

A Business With Poor Economics (example)

2000#
#
$2.9b&&&&&&&&&&Equity&

2010#
#
$5.8b&&&&######Equity&

$3.1b&&&&&&&&&&Debt&

$5.6b&&&&&&&&&&Debt&

$517m&&&&&&&&Prot&

$116m&&&&&&&&Prot&

ROE&&&&&&&&&&&&&18%&

ROE&&&&&&&&&&&&&2%&

Note the addi#onal $2.9b in equity you have contributed and the addi#onal $2.5b in debt to keep this
business going.
Return on Equity less than what you can get in a term deposit.

Conclusion

Alignment of interests between investors and members of the investment team

Focus on a single fund, one product, one set of fees

Investment focus on companies that provide a reliable and increasing income stream with tax awareness benets (franked dividends)

Experienced management team and board of directors with diversied experience

Repeatable and reliable investment process

Flexible investment mandate (market capitalisa#on agnos#c; can be fully invested or hold cash depending on market risk and valua#ons)

Tight cost controls

We invest our own capital alongside investors

Our size gives us a compe##ve advantage. We can move quickly and are not subject to internal bureaucracy and slow decisions making

How To Invest

The next step is to read the Informa#on Memorandum (IM) and then complete the Applica#on Form anached to the IM.

Applica#on forms and monies are to be submined to Apex Fund Services and details can be found in the Applica#on Form.

If you require a copy of the IM please email Heinrich Jacobs (Chief Investment Ocer) at info@op#mum-capital.com.au

Visit our website at www.op#mum-capital.com.au

Thank you