TAMIM's earnings season report card

The final six months of 2023 presented a challenging backdrop with prevailing macroeconomic conditions and a sense of uncertainty.

Anticipations for the earnings season until the end of December were initially subdued. Despite this, the period delivered results that exceeded expectations, particularly for several companies within the TAMIM portfolio. In general, we had a strong reporting period. Companies looking to cut costs are now starting to show the results of those measures. Consumer spending has remained resilient while labour shortages are beginning to alleviate. The prospect of rising interest rates continues to recede and inflationary pressures show signs of easing.

However, it is crucial to note that the outlook is not uniformly positive. Companies burdened with substantial debts are grappling with sustained higher interest rates, and some sectors, notably healthcare, continue to face challenges in returning to pre-COVID levels.

In this article, we delve into the performance of selected TAMIM stocks, highlighting both notable successes and areas of concern.

The Good

Several holdings within the TAMIM portfolio demonstrated strong performance during the reporting period.

We’d previously touched on the impressive results of Aussie Broadband Ltd (ASX: ABB) and ClearView Wealth Ltd (ASX: CVW). Furthermore, we saw strong reporting from the likes of SRG Global Ltd (ASX: SRG) and Bravura Solutions Ltd (ASX: BVS). We take a closer look at two additional TAMIM holdings that reported excellent results. 

Close the Loop Ltd (ASX: CLG)

Close the Loop is a global recycler creating innovative products and packaging that includes recyclable and made-from recycled content, as well as collect, sort, reclaim and reuse resources that would otherwise go to landfill. We covered the business in greater detail back in September last year.

First half earnings exceeded the company’s guidance with operating earnings (EBITDA) for the half year of $22.6 million, a 129% increase compared to the corresponding reporting period. The incredible growth is a result of the first reporting period that has included the impact of recent acquisitions including ISP Tek Services, Alliance Paper and Close the Loop Plastic Recycling acquisitions.

It’s important to note that Close the Loop is a capital intensive business and as mentioned above there have been a number of acquisitions.

As a result the profit figure is heavily impacted by depreciation and amortisation as these investments are recognised through the profit and loss over time. Depreciation and amortisation increased 244% to $10.9 million. Despite this increase, Close the Loop managed to increase profit after income tax by 25% to $5 million.

Close the Loop Group CEO Joe Foster commented:

"The global tailwinds for the circular economy are building strongly, with many major OEMs making public commitments regarding product circularity, reuse, and recycling. Close the Loop’s leadership in the IT recovery space and our trusted relationship with the world’s largest OEM, provides the Company with an opportunity to expand its Recovery Division globally.

We are only at the beginning of this circular economy journey, and with a coalition of entrepreneurial founders and management strongly aligned with shareholders, we are confident that our Recovery businesses’ first-mover advantage in the global circular economy will be rewarded."

The company continued the positive announcements, upgrading its FY24 EBITDA guidance to be between $44 million to $46 million. 

Dropsuite Limited (ASX: DSE)

Global cloud backup and archiving software provider Dropsuite Limited revealed their full year 2023 results continuing their impressive growth trajectory.

The company delivered a 48% increase in revenue to $30.6 million with gross margin expanded 2% to 68%.

With the reinvestment back into the company and a higher non-cash share-based employee payments expense the company saw total operating expenses increase by 60% yet still improved profitability by 9% to $1.5 million with its focus currently on re-investment rather than expanding its operating leverage.

The key operating indicators to follow for Dropsuite showed impressive growth. Annual Recurring Revenue (ARR) grew by 35% to $34.32 million, Average Revenue Per User (ARPU) increased 9% to $2.46 up 9%. Paid users increased 24% to 1.16m and direct partners grew by 24% to 620.

The company delivered positive operating cash flow and free cash flow for a third consecutive year. Dropsuite has a strong balance sheet with $24.3m in cash and no debt as of 31 December 2023.

While Dropsuite did not provide quantitative guidance the business is positioning itself to expand its product line while continuing to grow its ARR via its existing partner ecosystem.

The company is taking a steady approach between balancing re-investing in its product and profitability. Dropsuite expects to continue increasing Research & Development and Go-To-Market functions in 2024 while maintaining cash flow and profitability similar to the 2023 year levels. Dropsuite is open to merger and acquisition opportunities should the right transaction be available.

The Bad

Not every company can shoot the lights out over the reporting period.

Articore Group (ASX: ATG) formerly known as Redbubble saw its marketplace revenue drop 10% on the back of softer trading conditions. Provider of healthcare communication and clinical workflow management solutions Austco Healthcare (ASX: AHC) had slowing organic revenue growth.

Tabcorp Holdings Ltd (ASX: TAH)

Tabcorp Holdings delivered lacklustre results for the half ending 31 December.

The company saw revenue for the 6 months drop 5% compared to the corresponding period on the back of weakening in the wagering segment. Group EBITDA fell 14% to $170 million while Group Earnings Before Interest and Tax (EBIT) declined 32% to $50 million. The company also took a hit with a significant impairment charge of $731.9m after tax to the Wagering and Media business. Tabcorp’s management team put the recent weakness down to difficult macroeconomic conditions as well as a return toward a more normal market following high growth through the covid-19 period.

While disappointing, we believe the value in Tabcorp could be realised through takeover. With leading Australian brands spanning wagering, media, and integrity services, with national scale and reach we believe it could be an attractive buy to major international players.

The TAMIM Takeaway

The latter half of 2023 proved to be a challenging period amidst prevailing macroeconomic conditions and uncertainties. Despite initial subdued expectations, the earnings season brought about results that surpassed projections, demonstrating the resilience of certain companies within the TAMIM portfolio. It’s important to celebrate success, it's equally as important to acknowledge the challenges. While one swallow doesn’t make a summer, the long term investor can take encouragement from this recent reporting period and continue to focus on quality underlying businesses.

Disclaimer: Close the Loop Ltd (ASX: CLG), Dropsuite Limited (ASX: DSE), Aussie Broadband Ltd (ASX: ABB), ClearView Wealth Ltd (ASX: CVW), Bravura Solutions Ltd (ASX: BVS), and Tabcorp Holdings Ltd (TAH) are currently held in TAMIM Portfolios.