SUMMARY OF SPEC HOLDINGS RESULTS--Ok this time

 

SPECULATIVE POSITIONS—C79, SPZ

The vast majority of my holdings are quality growth companies. There is a small exposure to speculative holdings, which in aggregate have provided no alpha. In fact, after five years on the retail site Strawman, I am yet to be convinced that there is a repeatable process for adding value here, with business development risk being very high and adding a luck swing factor to the results.

After much testing and as much heartache, I have come to the view that the three factors, that I will follow for investments are, firstly the company is profitable or near to it, the company has a product that has proven unit economics and thirdly, that there is a large TAM to grow into, which is probably international, so proven international expansion. That significantly cuts the field down.

Summaries of the two largest spec holdings.

C79 FH26 RESULT

A strong half driven by more units deployed and an increase in utilisation. Revenues were 49% higher, and ebitda was 152% higher. C79 was profitable for the half for the first time. Margins increased half on half 20% to 33%.

The result is being driven by two factors. Firstly, units deployed were 43 at the end of the half, up 4 and a bit better than expected. C79 also disclosed that contracted units were 72, which indicates an increase in the sales rate, which we should see in 2026. Total TAM was maintained at 610 units, so 5% penetration. The second and more important in this result was much better utilisation. C79 receives a minimum volume payment per unit, but as utilisation increases above this, the margin improves, and that is what we saw this half. Revenues from additional sampling was 27% of revenues compared to 11% pcp.

C79 indicated utilisation rates as 1m/month currently on a total capacity of 1.7m/month or 40k per unit. Of these, the labs are more able to generate additional volumes as they contract third-party volumes, while on-site units are constrained by the mine volumes and mining plans. APAC saw the greatest increase in utilisation. C79 are keen to expand further internationally and has done so, but is reluctant to expand unless there are enough units to support overhead and maintain margins.

Deployment costs were kept quite steady, and C79 are confident of operating leverage in the future.

Guidance was maintained despite a strong result, which implied FY earnings above the range given. The comment was made that the $A was being watched since it is strong right now, and guidance is conservative.

Manufacturing capacity stands at 18 units per, at this stage.

C79 also mentioned that other minerals are being considered, silver and copper being mentioned, but others as well.

There was a step up in performance for C79; obviously, gold plays a part in this story and is very hot right now. Starts to look interesting under $7.

SPZ FH26

Revenues were 96% higher due to the acquisition of Peak Parking and organic growth. UNPATA was 163% higher. Ueps up 121%. Peak Parking was above expectations.

The number of sites was increased by 200 to 1982, with 3000 sites as a 12/28 target, 14% cagr.

The performance by geography varied markedly. The UK increased revenues by 64% and ebit 46%, but PBN growth was flat. There appears to be a work down of the back book (1.2m PBNs), with increased legal costs and recovery costs. The Uk result showed a significant one-off due to the backlog. More normal conditions are expected in the future.

The revenue increase would have been 49%, without the PP acquisition. SPZ mentioned 9% organic PBN growth, plus the UK backlog. SPZ mentioned that without the lower margin UK back book and the Switzerland start-up costs, margins were 300bp better.

Germany and NZ saw good revenue growth, 23% and 38%, and a corresponding increase in PBNs. SPZ commented that Germany is expected to be the largest European market in the near future after some investment. Germany turned ebitda positive during January. Switzerland has also been set up. All these are considered favourable markets with good pay ratios.

Denmark hit issues with a change in regulation where the initial breach notice must be placed on the windshield. That change added cost and slowed recoveries. SPZ are attempting to get the regulations changed.

The US has started off well with 13 of 17 sites changed to ANPR technology, and a lot more is expected, with M&A being very likely. The number of infringements in the US looks far higher by site than in other countries, and the willingness to pay is lower. How this pans out over time will have to be monitored.

SPZ group margins are expected to improve over time as the low margin and loss makers mature, and the technology is implemented in the US at scale. That said, there could be regulatory issues capping the size and frequency of notices, as well as changing the behaviour of the motorists and also the mix of those notices needing recovery and legal follow-up. The company states that it monitors ROI on each site closely and can switch focus if sites do not hit hurdles. Some variability in performance can be expected, but it should be outweighed by the growth into a huge TAM.

Valuations around 90c look like an attractive entry point.