Sandon Capital’s 2023 AGM Season Recap

Source: Sandon Capital

By: Sandon Capital

Sandon Capital’s 2023 AGM Season Recap

The end of November marks the end of AGM season for companies with a 30 June balance date.  For the Sandon Capital portfolio, AGM season has been positive.

AGMs are often eschewed by professional investors, potentially because they already have “access” to management and may consider turning up to an AGM as a little superfluous.  What they miss, however is the opportunity to meet and speak with non-executive directors (NEDs).  The AGM is typically the only opportunity for investors (professional or individual) to meet with NEDs, particularly in the informal environment of tea and biscuits after the meeting.

This provides an opportunity for an investor to buttonhole a director or two and begin to form some first-hand opinions about the people overseeing the company.  The AGM also provides an opportunity to meet with and talk to other shareholders.

We try to attend all the AGMs for our companies and two stood out for us this year – A2B Australia Ltd (A2B) and IDT Australia Ltd (IDT).

In the last two years both companies have undergone substantial changes which Sandon Capital consistently campaigned for and which have now begun to pay off.

In the case of A2B it parted ways in early 2022 with a long-standing MD and its chairman. The new executive chairman, appointed soon after, conducted a strategic review.  Not one of those euphemistic ones that re-affirms the status quo, but rather one that led to meaningful change.  The result was a new strategy entitled “Better before bigger”, which really repudiated most of what the previous board and management had been trying to do.  We welcomed that change and the more than 50% increase in stock price since we first invested indicates shareholders generally are pleased.

Over the last 12 months A2B has been delivering results and building momentum.  The taxi fleet has returned to near pre-COVID levels, the company is profitable and has sold all its property assets, as owning them was not required for operations.  The gross sale proceeds were approximately $105 million, for properties that were reported in 2021 as having a book value of $10.7 million and a fair value of $81.1 million.  A special dividend of 55 cents per share is now planned.

At this year’s AGM a new strategy was presented, entitled “Better to best” – clearly an upbeat ambition.  Perhaps more interesting than hard facts and figures, were the brief discussions with NEDs after the AGM.  Of those we spoke with, what was really pleasing to hear were the comments about staff morale and enthusiasm throughout the company.  When we first invested, these were among the issues we had identified (and not only because of COVID-19).   Given the value of a company is ultimately the present value of all future cashflows, such enthusiasm is crucial.

The other company that stood out for us was IDT. Like A2B, IDT has recently undergone significant board and senior management change.  The new CEO has devised a strategy that seeks to earn an acceptable return on the assets of IDT, namely its TGA and FDA licensed manufacturing facility located in Boronia, Melbourne.  IDT’s people are key to earning such returns.

Now more than a year since the change of management, IDT shareholders are beginning to see the new strategy take effect.  In that time, IDT has identified new opportunities, including manufacturing psychedelic therapies, building a sterile fill facility for advanced therapy medicines, it has grown its commercial contracts and lessened its dependence on government work.  It also recapitalised, providing sufficient capital to fund its turnaround.

The improved mood at IDT is almost palpable.  While there’s still a lot of work to achieve the turnaround, it is encouraging to speak with directors and senior executives who are so enthusiastic about IDT’s future prospects. IDT shareholders are beginning to see the benefits, with shares up 54% on the issue price of the recapitalisation.

In both the case of A2B and IDT, we’re really pleased to see that the changes we identified and campaigned for are being realised and delivering benefits to these businesses. In each case, full credit must go to the new boards and management teams.

We’ll cover other noteworthy developments across the portfolio in our November monthly report, out by mid-December.


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