Fat Prophets > Australasian Equities > Where we took profits and losses in 2023

Where we took profits and losses in 2023

December 27, 2023 FAT-AUS-1025

Where we took profits and losses in 2023

2023 was a big year in the financial markets. Global stock markets have outperformed expectations, avoiding a feared recession in the US and showcasing resilience in the Australian economy (among developed economies) amidst aggressive rate hikes. The UK and Japan displayed economic resilience, while China faced concerns, leading to mixed economic data. Hong Kong and Chinese stocks declined, with the Hang Seng index down 16% year-to-date.

The impact of inflation and interest rates took centre stage with central banks adjusting policies to mitigate economic downturn risks. We also made big moves into sectors from fossil fuels, uranium, and gold. The commodities space faced challenges, particularly in lithium, nickel, and copper. That said, we made efforts to improve the composition of the portfolio by trimming exposures in some sectors.

In 2023, we published 13 sell or sell-half recommendations, with 7 seeing decent to impressive gains and the remainder registering losses in various degrees. Any returns noted below include dividends. Our calls by stock are provided below in chronological order:

Tower New Zealand

Tower New Zealand was re-added to the portfolio in 2021 after successfully managing its post-GFC and Christchurch earthquake issues. We noted then that new management has proven to be forward-looking having ramped up investments in digitising operations and even enhance margins. Dividends also made a return after a 5-year hiatus.

It ultimately proved to be a lacklustre exposure with more challenges of earthquake claims (this time in Canterbury), flooding in Auckland among other issues (higher reinsurance premiums) caused gains from digitization to evaporate. With increased uncertainty, we opted to cut our losses with a sell recommendation booking a -20.5% dip in value.

Perenti Global

Perenti Global is a long-tenured exposure having been part of the portfolios since 2007. It has evolved over time but its recent performance has proven to be disappointing with the shares trading in a prolonged ‘consolidation’ (i.e. sideways), practically going nowhere. On the fundamentals, earnings were not impressive especially given risks it is exposed to (think geopolitical risks in Africa such as in Burkina Faso and Ghana) and an increased debt load. With concerns about uncertainty and the rising debt in an inflationary and interest rate environment, we opted for a clean break and locked in an unimpressive (due to its tenure) 21.3% gain.

ARB Corporation

ARB Corporation was another long-tenured exposure, added into the portfolio back in 2011 due to its impressive track record, solid distribution network and steady expansion. It was also reasonably priced yes poised for growth – a rare mix of growth and value.

However, in 2023, management flagged inflationary pressures and the resultant hike in costs and sales decline. Combine that with supply chain disruptions impacting the expansion into the US, we believe that it was better to make an exit as growth is likely to take further hits. We netted a solid 232.6% gain from this exposure.

Domain Holdings

Domain Holdings became part of the portfolio in 2017 after separating from Fairfax. Because of its unique place in the real estate market where it offers residential and commercial property marketing services through various listing portals as well as transaction services and provides data and technology services to real estate agencies. It was also attractively priced making a solid value case for the shares.

Its tenure in the portfolio, however, lacklustre largely moving in a broad consolidation. Its financial performance was also lacklustre with rising interest rates impacting prospects in the real estate market. In light of the weak outlook and lacklustre long-term performance, we opted to exit at a small loss.


Blackmores, after being flagged in Traffic Lights, was added to the portfolio in March 2020 at the start of the pandemic to ride the potential of the supplements market. Aside from the opportune entry point, the company has had a solid track record of growing sales over the years.

Almost three years later, we opted to exit with the COVID trade not panning out as expected with the various product lines proving to be ultimately a ‘discretionary’ spend while inflationary pressures started to impact profitability. However, the technical decision to exit proved too early as the company was eventually acquired by Kirin at ~$91.71/share plus a special dividend of ~$3.29/share. In any case, we at least locked in a gain of 14.6%.

Adore Beauty

Adore Beauty was another unusual addition to the Australasian portfolio based on the shifting trend in shopping behaviour – the move to online shopping for beauty and personal care which was a large addressable market. The company had a decent balance sheet with good leadership as well as a solid 13% market share in the online space.

It ultimately proved to be another disappointing exposure with the company not living up to expectations. Sales continued to decline while the active customer base has dropped some 9%. It didn’t help that the company was unable to post growth during COVID when most transactions were done online and this is in spite of new brands like Dior and Huda Beauty. We recommended an exit to free up tied up cash to invest in better opportunities elsewhere.

Medibank Private

Medibank Private was also another long-term exposure added to the portfolio on the back of its market leadership, favourable industry dynamics as well as expected productivity and profit growth post-privatisation.

Over the years, it proved to be a steady compounder but a major cyber incident coupled with lacklustre financial performance made us review the exposure. Weak investment in cyber security is a major risk especially for a financial firm where trust is paramount – losing customers and regulatory will just be the first of many issues. That said, the company also experienced setbacks to growth pre- and post-COVID prompting a speedy sell recommendation locking in a solid 116.9% gain.


Catapult was another relatively young exposure to the portfolio having joined around February 2020 due to its market leadership in a growing sector. We also saw opportunities from its ‘evolution’ towards a Software-as-a-Service model.

Despite that, performance proved to be elusive despite its status as a disruptor in the field of sports analytics with the company unable to navigate financial challenges and increased costs. Given the unfavourable macro environment (higher interest rates and inflationary pressures), we believed that resources would be better used elsewhere and we recommended a sell.

Platinum Japan Fund

The Platinum Japan Fund was another solid exposure to the portfolio but was originally meant for the Global Funds product. Due to its domicile in Australia, it was transferred to the Australasian portfolio.

Given its mismatch with the overall theme, we opted to cease coverage as there were simpler alternatives such as the iShares MSCI Japan ETF or other more concentrated exposures in the Global Equities portfolio.

Bubs Australia

Bubs Australia was another solid niche exposure added around the height of the lockdowns where we saw solid performance with demand for its infant formula remaining strong while management inked new supply agreements with major retailers. The solid technical ‘picture’ (then) coupled with improving fundamentals further supported our case.

Despite its solid product offerings, the unnecessary Boardroom drama and continued delays in securing the all-important regulatory approvals in both the US and China were the last straw. We opted to cut losses and as a ‘vote’ of no confidence for the remaining leadership, we recommended a sell.

Mincor Resources

Mincor Resources was first added to the portfolio back in August 2020 largely on its Kambalda Nickel project which (then) had been operating for over 5 years and producing 14,000 tonnes of nickel per year. We saw the exposure as a solid one and aligned well with dual demand from both the steel industry and burgeoning EV sector. The exposure here was a solid one during its tenure and even surged to a high of $2.84 (initial buy at $0.745).

However, the company was eventually acquired by Wyloo Metals and we posted a recommendation to accept the $1.40 cash offer. The overall return was a solid +87.9%.

Sky Network TV

Sky Network TV was a ‘turnaround’ exposure added in late 2018 as managements efforts to improve operations and financials were beginning to show. We also noted that the company was adapting to the changes in consumer behaviour by adopting internet-friendly access and satellite-delivered content. The valuations were also, then, attractive.

However, its tenure in the portfolio proved to be disastrous as a quote by Warren Buffett perfectly captures the issue “when a manager with a reputation for brilliance tackles a business with a reputation for bad economics, the reputation of the business remains intact.” The changing landscape has proven too difficult for management especially with the looming threat of streaming services. We opted to cut our losses as the company is unlikely to beat ‘bad economics’.

Bank of Queensland

Finally, we turn to the Bank of Queensland. Over its long tenure in the portfolio, it has not recovered to its pre-GFC levels due to various issues but was kept due to its solid ability to provide a steady income aside from acting as a diversifying exposure due to it being a regional bank.

The ultimate decision to exit, however, was a consequence of souring outlook with management flagging continued challenges to FY24 as cost pressures continue to impact earnings. It also doesn’t help that the bank’s performance did not match with the rising interest rates which, when it eventually starts to come down (perhaps as early as next year) will result in further price pressure as the bank’s margins would fall. We opted to lock in a modest (due to its tenure) 56.7% gain.

Fat Prophets has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites. Fat Prophets research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect. This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each recommendation for their own specific circumstances and realise that not all investments will be appropriate for all subscribers. To the extent permitted by law, Fat Prophets and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special, or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Fat Prophets hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.

Funds Management – In addition to the listed funds FPC, FPP and FATP, Fat Prophets Pty Ltd manages the separately managed accounts, namely Concentrated Australian Shares, Australian Shares Income, Small Midcap, Global Opportunities, Mining & resources, Asian Share, European Share and North American Share. These SMAs are managed under their own mandates by the fund managers, and this is independent to the research reports.

Staff trading – Fat Prophets Pty Ltd, its directors, employees and associates of Fat Prophets may hold interests in many ASX-listed Australian companies which may or may not be mentioned or recommended in the Fat Prophets newsletter. These positions may change at any time, without notice. To manage the conflict between personal dealing and newsletter recommendations the directors, employees, and associates of Fat Prophets Pty Ltd cannot knowingly trade in a stock 48 hours either side of a buy or sell recommendation being made in the Fat Prophets newsletter. Staff trades are pre-approved by an appointed staff trading compliance officer to ensure compliance with the staff trading policy.

For positions that directors and/or associates of the Fat Prophets group of companies currently hold in, please click here.