Firetrail Australian Small Companies Fund OCTOBER 2020

PERFORMANCE (AFTER FEES)

Month Quarter 6 Months Fund incept2

Fund1 3.08% 11.71% 39.60% 12.38%

Benchmark 0.46% 4.69% 15.10% -9.57%

Excess Return +2.63% +7.01% +24.50 +21.95%

FUND DETAILS ABOUT FIRETRAIL

Firetrail is an investment management boutique which is Unit prices 31 October 2020 majority owned by the Firetrail investment team. Application price $1.1269 Additionally, the investment team is invested alongside Redemption price $1.1202 clients in the investment strategies. NAV price $1.1236

AUSTRALIAN SMALL COMPANIES FUND Fund Details The Australian Small Companies Fund (“Fund”) is a APIR Code WHT3093AU concentrated portfolio of our most compelling Australian S&P/ASX Small Ordinaries Benchmark Small Company ideas. The strategy is built on fundamental, Accumulation Index deep dive research guided by the philosophy that ‘every Inception date 20 February 2020 company has a price’. Number of Holdings 41 Fund size $10mil INVESTMENT OBJECTIVE Management fee* 0.85% p.a. The Fund aims to outperform the Small Ordinaries Performance fee* 20% of outperformance Accumulation Index over the medium to long term. *Please read the Product Disclosure Statement for more details

PORTFOLIO POSITIONING 31 OCTOBER 2020 THEMATIC POSITIONING 31 OCTOBER 2020

Top 3 Overweight Holdings (Alphabetical) Relative to the Benchmark Beacon Lighting Group Ltd 15.00% GWA Group Ltd 10.00% Serko Ltd 5.00%

0.00%

-5.00%

-10.00%

-15.00% Australia China Global Yield

Past performance is not a reliable indicator of future performance. 1. Firetrail Australian Small Companies Fund (‘Fund’). Net Fund returns are calculated based on exit price with distributions reinvested, after ongoing fees and expenses but excluding taxation. 2. Fund inception is 20 February 2020. PORTFOLIO COMMENTARY

The Fund returned 3.08% for the month ending 31 October 2020, outperforming the Small Ordinaries Accumulation Index by 2.63%.

CONTRIBUTORS TO RETURNS

Positive contributors to returns included holdings in travel technology company Serko, fund manager Janus Henderson and bank Virgin Money UK. Detractors included energy company Senex Energy, retailer Kathmandu and miner Gold Road.

SMALL COMPANY FOCUS oOh!media (OML) oOh!media is our highest conviction holding in the small cap media sector and has been a core position for the strategy over the past several years. oOh!media is also the largest player in the outdoor advertising category in Australia, with media displayed on roadside billboards, in airports, shopping centres and offices.

The Firetrail Australian Small Companies portfolio is a portfolio of 30-40 of our highest conviction small cap ideas – companies that display strong valuation upside on a 3-year view and will not disappoint consensus expectations in the short term. In the case of oOH!media, we believe that market expectations will be exceeded! There are two key reasons for this:

1) The recovery will be swift. Over the next 12 months we expect to see a swift recovery in audiences to oOh!media’s key assets as state borders open and office workers return to buildings. Unsurprisingly, the ad dollars follow audience eyeballs, and as audiences recover, we expect that companies (many of whom are cashed up from a retail boom) will begin to redeploy advertising spend. 2) Operating leverage. oOh!media has a large, fixed, cost base made up predominantly of fixed rental contracts and employee costs. The same operating leverage that forced the company to raise equity in the depths of COVID lockdowns will also provide a benefit as the market recovers. We estimate a 1% increase in revenue translates through to 4-5% at the bottom line!

On a medium-term view oOh!media is the only listed traditional media player not experiencing structural declines in audiences, and we expect this to continue for the following reasons:

1) Whilst online advertising is a great way to generate quick sales, brand advertising will continue to be a core component of a company’s media spend allocation in conjunction with call to action marketing. 2) A strong brand helps build trust and loyalty, which is arguably even more important in an online world, where more companies are vying for a consumer’s attention. 3) We are confident OML will increase its share of the $16bn Australian ad market from 7% in CY19 to 10% over the next 3-5 years.

Fig 1. oOh!media is a diverse out of home media exposure Fig 2. …each category is recovering at a different level post with revenue split by category as follows… COVID*

oOh!media revenue by category Audiences as a % of Pre-Covid levels

100%

7% 80% Commute 11% 60% 37% Road

22% Retail 40%

Fly 20% 23% Locate 0% Commute Road Retail Fly Locate

Source: oOh!media, Firetrail, October 2020 Source: oOh!media, Firetrail, October 2020. *Note data is excl Victoria SMALL THINGS THAT MATTER THIS MONTH…

The Consumer Sentiment index continued its rapid ascent in October, reaching 105 – levels not seen since July 2018 and up by some 39% since April lows. Ad spend is highly correlated to consumer confidence and the result prompted us to update our media industry model during the month. Below we provide some brief commentary on this market and what to expect moving forwards.

Fig 3. The WBC/Melbourne Institute Consumer Sentiment Index increased by ~12% month on month in October to reach levers not seen since July 2018

Australian Consumer Confidence

109 104 99 94 89 84 79 74

Source: Tradingeconomics.com, Westpac Banking Corporation, Melbourne Institute, Firetrail, October 2020

The Australian ad market was decimated in Q2, CY20 falling by around 40% yoy – almost 2x the decline that was seen during the depths of the GFC! We believe the reason for such a precipitous decline vs the GFC was that companies had limited time to assess the impact of the pandemic on their own business and consumers. No category of ad spend was spared in Q2 and the declines have continued into Q3. However, some categories saw revenue decline more dramatically than others.

Outdoor media was the outlier, with spend declining by ~65% in Q2 and down ~56% in Q3. In all media forms ad spend is correlated with eyeballs. With indoors clearly in favour, as people were not moving around cities, airports or roads where billboards are located, this had a commensurate impact on spend. Radio fared worse than during the GFC despite usually being one of the more resilient categories, as there was the perception radio is only consumed when people are driving. Online was down ~40% and TV down >30%, despite audiences increasing during the period on both media platforms. For media buyers this was clearly the smart trade!

Fig 4. Performance of media categories CY 2020

10% 0% -10% -20% -30% -40% -50% -60% -70% Q1 Q2 Q3 Q4

Online TV Radio Outdoor

Source: SMI, Commercial Radio Australia, Outdoor Media Association, Firetrail, October 2020

Short term data suggests that current spending levels are still well below pre-Covid run rates however, we are more optimistic moving into Q4. Two key economic indicators giving us confidence advertisers will return to the market are:

1. Consumer confidence, which improved dramatically in October hitting 105 - higher than it was at the beginning of the year pre-Covid, and 2. GDP growth, which is expected to turn positive in the September and December quarters.

At a category level, we expect TV ad spend to move into positive territory as the AFL and NRL grand finals fell into Q4, instead of Q3 in a ‘normal’ year. For Outdoor, we are expecting a big improvement on Q3 as restrictions ease across the country and state borders open-up. As a result, more people will hit the road, airports and shopping malls heading into the busy Xmas period. Radio should benefit for similar reasons, as Australians set off on road trips over the break.

It is also important to consider how Covid has disproportionately impacted advertising customers as ad spend is somewhat discretionary. The most negatively impacted sectors include:

1. Travel, a top 3 spender, and Entertainment & Leisure a top 10 spender. Ad spend for these segments is still down 80- 90%. 2. Automotive manufacturers, another top 3 spender, have been impacted on the supply side by Covid. Many OEM factories are operating at 60% of normal capacity due to strict social distancing requirements, as a consequence auto ad spend is down ~40%

On the flip side, we are seeing some bright spots that will partially offset declines in these 3 big categories:

1. The largest spender on advertising CY19 was Retail. Australian retailers have been a big beneficiary of Covid as consumers spent government stimulus and their usual annual travel budget on local goods. As a result, retailers are cashed up heading into the crucial holiday selling period and we expect they will spend big on advertising campaigns to build brand and stay front of mind with consumers. 2. We expect Alcohol/Food/FMCG to pick up some of the slack as companies look to capitalise on Aussies staying local for the holiday period. The impact of no international travel is expected to result in a million extra mouths at home to feed this Christmas! 3. Government/Finance and Insurers are also expected to maintain spend into year end to capitalise on a surge in loan volumes.

Fig 5. CY19 Top industries by ad spend Fig 6. …historical and forecast ad market growth

Total ad market growth Retail 30.0% 22% 15.0% 0.0% -15.0% Motor Vehicles -30.0% 10%

Travel / Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Historical growth Forecast growth Accommodation

9%

Source: Nielsen Ad Intel Data, Firetrail, October 2020 Source: Broker data, Firetrail, October 2020.

This document is prepared by Firetrail Investments Pty Limited (‘Firetrail’) ABN 98 622 377 913 AFSL 516821 as the investment manager of the Firetrail Australian Small Companies Fund ARSN 638 792 113 (‘the Fund’). This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

Pinnacle Fund Services Limited ABN 29 082 494 362 AFSL 238371 ('PFSL') is the product issuer of the Fund. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) ABN 22 100 325 184. The Product Disclosure Statement (‘PDS’) of the Fund is available at www.firetrail.com. Any potential investor should consider the PDS before deciding whether to acquire, or continue to hold units in, the Fund.

Whilst Firetrail, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Firetrail, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.

The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of Firetrail and its investment activities; its use is restricted accordingly. All such information should be maintained in a strictly confidential manner.

Any opinions and forecasts reflect the judgment and assumptions of Firetrail and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Firetrail. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.

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