Clime Capital Ltd (ASX: CAM) is a listed investment company (LIC) that runs a portfolio that targets both large ASX shares and small ASX shares.
Some of the largest positions in Clime's portfolio at the end of December 2020 were: Electro Optic Systems Hldg Ltd (ASX: EOS), InvoCare Limited (ASX: IVC) and RPMGlobal Holdings Ltd (ASX: RUL). Here's a closer look at what Clime thinks of each one.
Adairs Ltd (ASX: ADH)
Adairs was an ASX share that was recently added to the Clime portfolio. The fundie said that it provided attractively priced exposure to the booming e-commerce sector. Adairs is one of the country's biggest homewares and home furnishings retailer. It can genuinely call itself an omni-channel operator because around 40% of its sales came from the online channel in the first half of FY21.
Clime pointed out that in a trading update given a couple of months ago, Adairs' total sales rose 23% in the first 23 weeks of FY21, with like for like sales across 167 stores up 17% (5.2% including a 12-week closure of 43 stores in Victoria) and Adairs online sales went up 99%. Mocka, the 100% online nursery furniture business that Adairs acquired just over a year ago, saw sales rise by 45%.
The fund manager thought the ASX share was an opportunity as omni-channel retailers were left behind by investors in preference for the online pure plays, creating some "interesting" opportunities.
Clime pointed out that Adairs is expected to generate more online gross profit than the whole of Temple & Webster Group Ltd (ASX: TPW), yet Adairs has a much smaller market capitalisation. The fund manager thinks there's opportunity for more online growth, but as an omni-channel operator. Adairs could also capture demand returning to physical stores as conditions normalise.
City Chic Collective Ltd (ASX: CCX)
This ASX share is another omni-channel beneficiary. The plus-size women's apparel retailer is making significantly more than half of its sales online and has online exposure to large offshore markets like North America and the UK. It also has a store network of over 90 shops across Australia and New Zealand.
Clime said that City Chic is targeting acquisitions of high quality digital assets of competitors that have been bankrupted by the under-performance of the physical store network.
City Chic recently bought UK-based plus-size retailer Evans in the UK. The purchase price was $41 million, which the fundie said represents approximately 1x the $46 million online revenue, or about 5x earnings before interest and tax (EBIT) on Clime's calculations.
The ASX share said at its AGM in November that for the first 20 weeks of FY21, City Chic saw comparable sales growth of 18.7% and a significant improvement in gross margins since the worst of the COVID-19 disruption. Gross margins are now above 50%.
Clime said it still sees an opportunity in the City Chic share price, despite the recent share price rally.
Fortescue Metals Group Limited (ASX: FMG)
Climate explained that in in the three months to 31 December 2020, the Fortescue share price went up 43.7%.
The driver for the ASX share has been the strength of the iron ore price, which increased by 32.1% in US dollar terms in the quarter. Fortescue's performance reflects the company's pure play exposure to the commodity, according to the fundie.
The stimulus efforts in China have centred on steel intensive activity, which is driving demand for Australia's iron ore at the same time as supply from Brazil has been impacted by infrastructure failures and COVID-19 related disruption.
Fortescue recently revealed that the iron ore miner made US$940 million of net profit after tax in the month of December 2020. For the six months to 31 December 2020, it made an unaudited net profit after tax (NPAT) of US$4 billion to US$4.1 billion.
