By Will Simpson, Founder of Blue Oceans Capital
In the three months to 30th of September, the Blue Oceans Capital portfolio gained 9.68%. Gains were largely made up of 3 companies, Afterpay, Zip Co and Solar Edge. Other companies found themselves quite overvalued in June/July and have since come back to fair prices with the recent market downturn. All that is, except for A2 Milk. If a company misses analysts’ expectations by 3% is the market justified in devaluing it by 24%? In this case, I think not.
With volatility brings great opportunity
Over the last quarter, the market has seen volatility that has brought with it opportunity. We completed analysis on Wisetech (ASX: WTC) in late June and valuation indicated the stock fairly priced at that time. Wisetech has created a software platform that facilitates global trade by process automation and removing cross border friction. For many regions in the world, and growing rapidly, it is only possible to ship goods from one point to another by using Wisetech. Complexity, such as Brexit and Chinese regulations, only strengthens Wisetech’s value add. This would have been an exceptional buying opportunity for us in a company strongly meeting our quality criteria. However, all funds are currently deployed in our existing investments and I wouldn’t be selling a quality company and paying capital gains tax to take a position in another quality company. We had to watch this opportunity come and go with the stock now quite overpriced. If the fund had been open we may have been in a position to make the investment. We continue to watch Wisetech.
Volatility in recent weeks has opened up another opportunity, Adyen (AMS: ADYEN). Traditional banking models are undergoing one of the largest disruptions of any industry today and that’s not going to stop. Adyen, based in Amsterdam, is at the forefront of global digital payments. Traditionally, when launching in new markets, companies needed to set up bank accounts in each country. Adyen has created a global banking solution that facilitates payments inside a company’s digital infrastructure. When you make a purchase on eBay or pay your Netflix subscription, Adyen facilitates that payment. For eBay and Netflix they are able to use one payment gateway globally and to integrate data flows from transactions into their digital architecture. Adyen enables the capture of valuable consumer behaviour data and have a multitude of adjacent value streams to move into.
A jittery market is currently scrambling for any piece of news to give it some direction. What’s needed is a sensible dose of earnings to reveal the path forward. Fortunately, we have only one week to wait.
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About Blue Oceans Capital
Capital flow is critical to business success. Investors, as providers of that capital, have an opportunity to create significant impact. Blue Oceans Capital is an ethical investment fund and signatory to The United Nations Principles of Responsible Investment. We target 15% annualised returns and have achieved 41% over 3 years. Join us in making real progress on global issues while achieving satisfactory returns.