Quarterly Investment Update Antares Elite Opportunities Fund – June 2021

For adviser use only

Highlights for the quarter Performance: The Fund returned 8.9% (net of fees) for the June quarter, outperforming its benchmark by 0.6%.

Contributors to performance: Positive contributors – , , NAB (underweight), , (underweight); Negative contributors – , CBA (underweight), a2 Milk, ANZ, Santos.

Stock activity: Buys/additions – Afterpay, Downer EDI, Endeavour Group; Sells/reductions – BlueScope Steel, Boral,

Fund snapshot

Inception date 18 November 2002

Benchmark S&P/ASX 200 Total Return Index

Investment objective The Fund’s objective is to outperform the Benchmark (after fees) over rolling 5 year periods.

Investment returns as at 30 June 20211 Period 3 months 1 year 3 years pa 5 years pa 10 years pa Since inception pa Net return2 % 8.9 35.3 7.6 10.5 8.6 10.6 Gross return3 % 8.9 36.7 8.5 11.3 9.4 11.4 Benchmark return % 8.3 27.8 9.6 11.2 9.3 9.5 Net excess return % 0.6 7.5 -2.0 -0.7 -0.7 1.1 Gross excess return % 0.6 8.9 -1.1 0.1 0.1 1.9

1 Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. 2 Investment returns are based on exit prices, and are net of management fees and assume reinvestment of all distributions.

Contributors to performance Pleasingly the Fund enjoyed another strong quarter returning 8.9% (net of fees) vs the benchmark return of 8.3%. The Fund’s strong annual return of 35.3% (net of fees) also beat the benchmark return of 27.8% by 7.5%. As Figure 1 illustrates, the S&P/ASX 200 price return of 24.0% over the last twelve months is the strongest over the last two decades; and we are pleased to have delivered returns in excess of this over the last twelve months.

1

Figure 1: S&P/ASX 200 Price Return

Source: Bloomberg, Antares; June 2021

Attribution

Positive

Positive contributors to performance included our overweight position in Aristocrat Leisure (ALL) that delivered another strong result during the quarter. The company delivered an EBITDA increase of around 6%, however what was most pleasing was the tremendous performance of its high growth and high multiple Digital business which grew EBITDA by over 48%. Our overweight position in Boral (BLD) also added to performance following corporate activity, BLD’s recent price rise has been driven by its major shareholder, Network Investment Holdings, a wholly-owned subsidiary of (SGH), outlining an unsolicited off-market takeover offer to acquire all of the issued shares in Boral, that SGH does not already own, for $6.50 per share. Our long-standing overweight position in Iluka Resources (ILU) delivered strong returns over the quarter driven by a surprisingly robust sales result coupled with increased prices.

Figure 2: Fund attribution – June quarter

60 48 50 Overweight Underweight 40 30 23 24 19 22 20 10

-10

-20 Basis Basis Point Contribution -30 -22 -20 -27 -27 -26

-40

ANZ

a2 Milk a2

Boral Limited

Santos Limited

Qantas Airways Qantas

Iluka Resources Iluka

Aristocrat Leisure

National

Woodside Petroleum Woodside Commonwealth

Source: Antares; June 2021

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 2 Negative Detracting value for the quarter was our overweight position in Qantas (QAN). As the market became increasingly concerned with the spread of the Delta Covid variant, QAN and other travel stocks that require the opening of the economy suffered. Also detracting value for the quarter was our underweight in Commonwealth Bank CBA delivered a 3rd quarter trading update that showed above system lending growth in home loans and business lending while still reporting very low bad and doubtful debts. Our overweight position in a2 Milk Company (A2M) detracted from performance as the company continues to be sold down on the back of a string of profit downgrades largely driven by the collapse in the Daigou distribution channel that requires international travel to resume.

Stock activity Table 1: Stock Activity

Portfolio trades Buy Sell

Core

Trading APT, DOW BSL, BLD

During the quarter Woolworths (WOW) demerged its drinks and hospitality assets, Endeavour Group (EDV), resulting in an extra stock in the portfolio. As a result, we exited our position in BlueScope (BSL) to make room in the portfolio. We have owned BSL for some time now and have benefited from its strong performance. BSL has been the beneficiary of strong global steel prices, driven by a resurgent housing market in Australia and disciplined supply and strong demand in the US. Indicative steel margins, as illustrated in Figure 3, are at all-time highs (grey line) in the US and although off their peak remain elevated in Australia (orange line). Although the good times may remain stronger for longer they are likely to mean-revert in the longer term, taking the BSL share price with them.

Figure 3: BlueScope share price vs steel price spreads

Source: Bloomberg, Antares 2021

During the quarter we exited our Boral (BLD) position and introduced Downer EDI (DOW) into the portfolio. As shown in Figure 4, Boral has outperformed the market over the last two years with a total return of almost 40% vs the benchmark return of 23%, while over the same period DOW has fallen by 11%.

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 3

Figure 4: Boral (BLD) and Downer EDI (DOW) share price performance

Source Bloomberg, Antares, June 2021

BLD’s recent price rise has been driven by its major shareholder, Network Investment Holdings, a wholly-owned subsidiary of Seven Group Holdings (SGH), outlining an unsolicited off-market takeover offer to acquire all of the issued shares in Boral that SGH does not already own, for $6.50 per share. At the time of our sale BLD was trading at over 10x EV / forecast EBITDA, higher than any time over the last three years. With BLD trading at a premium to the proposed takeover price we decided to exit the stock and deploy the proceeds into DOW. At the time DOW was trading at around 7x forecast EBITDA, representing more than a 30% discount to BLD.

Figure 5: Boral vs Downer EDI EV/EBITDA (x)

Source Bloomberg, Antares, June 2021

There are a number of attributes that have drawn us to DOW beyond an attractive valuation:

• Buyback - DOW is conducting a 10% buyback which on some estimates is 6% EPS accretive

• The sale of DOW’s contract mining and laundry businesses has reduced its carbon footprint by around 35%

• Exposure to government stimulus through road maintenance, rail and major capital works

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 4 • An improving return on equity (ROE) profile that is forecast to exceed DOW’s cost of capital

• A growing dividend yield; currently around 3.5%

• The ongoing transformation process of selling cyclical, capital intensive businesses and transitioning to government-backed urban services with more predictable earnings.

During the quarter we exited our position in Oil Search (OSH) and deployed the proceeds into Afterpay (APT). Our position in OSH was instigated in April 2020 and during the deeply discounted capital raising at $2.10 per share. We exited our holding at over $4.00 per share. OSH’s growth aspirations are still appealing to us, however given the risk, both operational and financial, along with the reduced upside to our target price, we decided to exit the stock.

The Fund has been zero weighted in the high growth technology sector until this quarter when we introduced APT into the portfolio at a modest underweight position early in the quarter and built the position as the quarter went on. There are a number of attributes that attract us to the company.

Founded in 2014, Australia's largest Buy Now Pay Later (BNPL) company has since expanded into North America, the UK and Europe, which are the markets that will drive growth. We are attracted to the business model of its core BNPL product offering and the positive feedback loop it provides both consumers and merchants. Furthermore, multiple growth drivers support the outlook; geographic expansion is continuing, maturation of consumers and expansion into adjacent products.

It would also be remiss not to mention APT’s ESG risk which is one of the key reasons we have chosen to invest in APT. APT has a key difference to its competitors - it has a merchant driven business model that we believe reduces social risk. Afterpay's merchant-revenue model, which charges them 3-6% of underlying sales, may present less social risks than customer-driven models that rely on fees and high interest rates. APT’s customer income derived from late fees fell to 8% of 1H21 revenue, from 20% in fiscal 2017. Other buy now, pay later providers and credit card issuers earn 60-80% of revenue from fees and interest. Afterpay's customers overwhelmingly see it as a means to develop savings patterns, not as a source of credit.

Figure 6: APT vs other BNPL providers source of fees

Source: Bloomberg; June 2021

Finally, how do we value APT? Valuing such a large, growing global business is not without risk, both upside and downside. Forming a clear picture is difficult but what we are more certain of is the strength of the business model, the massive addressable market and, to date, impeccable execution of the strategy by the management team. Figure 7 compares some basic Price to Sales data for APT and its peers. As is often the case with valuations, its about the growth assumptions.

Figure 7: APT and peers Price to Sales (x)

Source: Bloomberg; June 2021

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 5

Outlook Figure 8 charts the long-term performance of the S&P 500 index overlayed with periods of US recession. As illustrated, times of severe negative returns for the index are often coincident with periods of US recession. Although sell-offs do occur outside these periods they are generally short lived. Our central case remains that we are not headed into a recession over the next 12- 18 months hence we remain relatively positive towards equities.

Figure 8: Relationship between S&P 500 performance and US recessions

Source: Bloomberg; June 2021

We also have a firm belief that it is the business, and more specifically the industry, cycle that drives the market and its leadership. When looking at some of these broad indicators, such as the ISM indices presented in Figure 9, there is nothing indicating an imminent contraction in growth.

Figure 9: ISM Indices

Source: Bloomberg; June 2021

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 6 However, what is clear is that growth has likely peaked. Whether we look at China or the US or other developed countries, growth has been strong and the rates of growth achieved over the last year are unlikely to be repeated. This also suggests that best returns from the market have also been achieved - the S&P/ASX200 return for the 12 months to 30 June 21 was the strongest in 20 years.

Table 2: Historic and Consensus Forecast GDP growth

Country 2019 2020 2021 2022 2023 Majors (YoY%) 1.6 -4.5 5.4 4 2.1 Countries Australia (YoY%) 1.9 -2.4 5.1 3.2 3 Canada (YoY%) 1.9 -5.3 6.2 4.1 2.1 Eurozone (YoY%) 1.3 -6.5 4.5 4.2 2 Japan (YoY%) 0 -4.7 2.6 2.5 1.2 United Kingdom (YoY%) 1.5 -10.1 6.8 5.3 1.8 United States (YoY%) 2.2 -3.5 6.6 4.1 2.4 Source: Bloomberg; July 2021

Our positive medium-term view is supported by:

• Global vaccination roll-out (and continued efficacy)

• Policy, although tighter is still not tight

• Savings rates that are still very strong

• Producer price inflation appears to be cresting

• Wage inflation remains consistent with levels observed over the last few years.

Turning our attention to valuations one might be cautious given the high level of global indices and multiples. However, if we look relative to bonds, and look to the equity risk premium as an example, investors are being compensated for taking on the additional risk. As shown in Figure 10, the equity risk premium (calculated simply as the earnings yield less the risk-free yield) has hovered around 3-4% for almost the last decade and continues to trade around these levels.

Figure 10: Australian and US Equity Risk Premium

Source: Bloomberg; Antares June 2021

Strategy As discussed in the preceding Portfolio Activity section, we have made some changes to the portfolio during the quarter that have resulted in a more diversified portfolio. We now have exposure to the growing tech sector via the addition of APT into the portfolio and have reduced some of the “pointy end cyclical” exposure with the removal of OSH and BLD. These decisions along

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 7 with our previous switch out of and into have helped insulate the portfolio from the switch back into growth that we have seen over the June quarter.

As always, we maintain an eye on valuation anomalies and continue with our healthy obsession to generate insights on companies that are miss-priced by the market. At the end of the quarter the best description of our portfolio positioning is broad and diversified without any particular skew towards a sector, style or theme.

The funds GICS exposure relative to the benchmark and portfolio fundamentals are presented in table 3. Our largest sector overweight remains Communication Services, driven by our overweights in (TLS), Seek (SEK) and (NEC) offset by our underweight in Real Estate. From a stock specific perspective our underweights contributing most to risk are NAB and (WES), both not owned, occupying the top two positions, followed by Northern Star (NST) and IGO. Active share remains at the 50-60% range.

Table 3: Portfolio Statistics - Antares Elite Opportunities Fund

Elite Opportunities Fund at Over/underweight Portfolio % Index % 30 June 2021 %

Energy 2.8 3.0 -0.2 Materials 21.8 20.3 1.5 Industrials 8.9 6.6 2.3 Consumer discretionary 5.8 8.2 -2.4 Consumer staples 7.0 5.2 1.8 Health care 8.2 10.1 -1.9 Financials ex REITs 28.3 30.0 -1.7 Information technology 2.3 4.2 -1.9 Communication services 9.2 4.2 5.0 Utilities 0.00 1.50 -1.50 Real Estate 3.9 6.7 -2.8 Cash 1.8 0.00 1.8 Total 100.0 100.0 0.0 Source: Antares Equities, Factset June 2021

Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 8 LEGAL DISCLAIMER

Important information: Antares Capital Partners Ltd ABN 85 066 081 114, AFSL 234483 (‘ACP’), is the Responsible Entity of, and the issuer of units in, the Antares Elite Opportunities Fund ARSN 102 675 641 (‘the Fund’).

An investor should consider the current Product Disclosure Statement (‘PDS’) when deciding whether to acquire, or continue to hold, an investment in the Fund, whether an investment in the Fund is an appropriate investment for the investor and also consider the risks associated with any investment.

We recommend investors obtain financial advice specific to their situation. Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. Any projection or other forward looking statement (‘Projection’) in this report is provided for information purposes only. No representation is made as to the accuracy or reasonableness of any such Projection or that it will be met. Actual events may vary materially.

Any opinions expressed by ACP constitute ACP’s judgement at the time of writing and may change without notice. ACP is part of the IOOF group of companies (comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate) (‘IOOF Group’). The capital value, payment of income and performance of any financial product offered by any member of the IOOF Group including but not limited to Antares, are not guaranteed. An investment in any product offered by any member of the IOOF Group including but not limited to Antares, is subject to investment risk, including possible delays in repayment of capital and loss of income and principal invested.

This document has been prepared in good faith, where applicable, using information from sources believed to be reliable and accurate as at the time of preparation, no representation or warranty (express or implied) is given as to its accuracy, reliability or completeness (which may change without notice). Any opinions expressed in this document constitutes ACP’s judgement at the time of issue and is subject to change. ACP believe that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this communication.

Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. Any projection or other forward looking statement (‘Projection’) in this document is provided for information purposes only. No representation is made as to the accuracy or reasonableness of any such Projection or that it will be met. Actual events may vary materially. Any opinions expressed by ACP constitute ACP’s judgement at the time of writing and may change without notice.

In some cases the information is provided to us by third parties, while it is believed that the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. None of ACP, any other member or the IOOF Group, or the employees or directors of the IOOF Group are liable for any loss arising from any person relying on information provided by third parties. This information is directed to and prepared for Australian residents only. ACP disclaims all responsibility and liability for any loss, claim or damage which any person may have and/or suffer as a result of any persons reliance on any information, predictions, performance data and the like contained within this document, whether the loss or damage is caused by, or as a result of any fault or negligence of ACP, it’s officers, employees, agents and/or its related bodies corporate.

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Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 9 Get in contact

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Antares Elite Opportunities Fund Quarterly Investment Update – June 2021 10