Thinking small to win big Novaport Capital May 2023 Conventional wisdom suggests that 'time in the market' is a less risky strategy than 'timing the market'. Boom and gloom provide attractive entry and exit points but only if the timing is right. Accurately identifying market peaks and troughs is notoriously difficult. In our experience, gradually allocating more to markets during times of market distress and less when 'everything is awesome' is a preferable approach. Small caps, and in particular, industrials, present an opportunity for investors at current levels. The Small Ordinaries benchmark has underperformed the ASX100 since November 2021. Notably, industrials have underperformed resources, which have been supported by thematics such as energy security, battery materials, and gold. In addition, adjusting to tighter monetary policy has weighed on small industrials. The recent underperformance presents a chance for investors to incrementally allocate to the sector. Falling liquidity signals capitulation Investors' willingness to trade reveals their confidence, or lack thereof, in the market. Rising liquidity can create a virtuous circle during a bull market, when abundant liquidity entices more capital into markets (attracted by lower trading costs). Yet when liquidity falls and markets are falling, the cycle works in reverse. Capital ceases to flow to (or exits) the market due to illiquidity concerns. Since November 2021, liquidity in the small industrials sector has dropped meaningfully. Thus far in 2023, the daily average value of turnover for small industrials has been $704m, down a third (from $1,070m) during the same period in 2021. The decline in liquidity indicates that a lower amount of new money is being put to work in Small Caps. Contrarian investors have a better chance of picking up a bargain now, relative to last year. Microcaps have been hit harder Not surprisingly the decline in liquidity has been most pronounced for the smallest of small caps. 74% of the smaller small industrials (with a market capitalisation of less than $1 billion) had lower turnover in the last 12 months relative to the previous year. Adjusting for stocks which benefited from index inclusion, 85% of companies saw turnover decline. The impact on liquidity has been lower for the larger small companies, 63% had lower turnover (or 69% adjusting for index changes). Unsurprisingly, 37% of 'larger' small caps (market cap >$1bn) outperformed the benchmark relative to a mere 14% of the 'smallest' companies. One of our holdings Quantum Intellectual Property Ltd, provides a case study of the current dynamic in microcaps. Quantum has a meaningful and growing share of the Australian Patent, Trade Mark and IP Legal Services market. Over the last year their share price has fallen by 19%, materially under-performing the small cap benchmark. On our estimates, the company trades on an attractive discount to earnings and yield metrics relative to the broader market, however its share turnover is 23% lower than the previous year. In a recent market update, the company reaffirmed expectations for organic growth, improving margins and further consolidation opportunities. The decline in liquidity merely reflects that the stock has fallen off the market's radar in our view, creating an investment opportunity. Quantum is just one example of similar opportunities arising in the current market environment.   Different exposures than large caps The Australian stock market is heavily weighted towards highly profitable bank and resources stocks. The smaller end of the market has a wider range of exposures, from resource exploration stocks and retailers to fast growing technology businesses. The composition of the small caps benchmark evolves over time.  Furthermore, industrial companies are less risky than three years ago. We estimate that loss making companies are now only 5% of the small industrials' universe, down from over 30% before the pandemic. The current small cap market has a lower exposure to risky, early stage or loss-making companies. Following the recent underperformance of small caps, we see attractively priced opportunities relative to the large cap universe.  For example, Domain Holdings offers faster growth than REA Group (as it increases market penetration), yet it trades at a discount.  At the same time, small cap building materials companies in markets with high barriers to entry, trade at through cycle earnings multiples in the mid-teens, despite having more favourable industry structures relative to than their historical averages. Smaller Companies have traditionally been more volatile and sensitive to the economic environment, which is expected to be challenging. There are valid reasons to be cautious. However, the small industrials benchmark is comprised of more robust businesses post the 2022 market correction.  Their underperformance relative to large caps and the withdrawal of liquidity suggests the market is already fearful. This presents us with an opportunity to increase our exposure to quality, but overlooked, businesses. Author: Sinclair Currie, Principal and Co-Portfolio Manager Funds operated by this manager: NovaPort Microcap Fund, NovaPort Wholesale Smaller Companies Fund This material has been prepared by NovaPort Capital Pty Limited (ABN 88 140 833 656 AFSL 385 329) (NovaPort), the investment manager of the NovaPort Smaller Companies Fund and the NovaPort Microcap Fund (Funds). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 (Fidante) is a member of the Challenger Limited group of companies (Challenger Group) and is the responsible entity of the Funds. Other than information which is identified as sourced from Fidante in relation to the Funds, Fidante is not responsible for the information in this material, including any statements of opinion. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable to your circumstances. The Fund's Target Market Determination and Product Disclosure Statement (PDS) available at www.fidante.com should be considered before making a decision about whether to buy or hold units in the Funds. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. NovaPort and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, NovaPort and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties. Fidante is not an authorised deposit-taking institution (ADI) for the purpose of the Banking Act 1959 (Cth), and its obligations do not represent deposits or liabilities of an ADI in the Challenger Group (Challenger ADI) and no Challenger ADI provides a guarantee or otherwise provides assurance in respect of the obligations of Fidante. Investments in the Fund(s) are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Accordingly, the performance, the repayment of capital or any particular rate of return on your investments are not guaranteed by any member of the Challenger Group.

Momentum is Building in Aged Care Novaport Capital May 2023 With established investments in both of Australia's listed residential aged care providers, Estia Health and Regis Healthcare, our positive outlook for the sector is informed by three factors. Firstly, advanced age is associated with complex and ongoing care needs which Residential Aged Care is uniquely positioned to provide. Secondly, Aged Care operators with established processes to consistently deliver care (meeting ever more demanding standards) have a clear opportunity to consolidate what is currently a fragmented sector. Finally, the demographic tailwind provided by a growing and ageing population supports demand growth for the foreseeable future. Aged Care Industry Consolidation - Number of Providers In recent years the sector had to navigate challenges including a squeeze in funding, the Royal Commission and COVID-19; however recent operational updates from the listed providers as well as an announcement from the Federal Government, highlights how positive momentum is building in the sector. Funding Clarity On 4th May 23, the Australian Government outlined how it will fund a 15% Aged Care workforce pay increase proposed by the Fair Work Commission. It is offering a meaningful increase in the AN ACC daily funding rate (rising to over $240 per resident) as well as a 'hotelling supplement' of $10.80 (per resident per day) to cover increased wages for aligned staff such as chefs. The funding increase is expected to pass through to workers in the form of higher wages, yet it reflects a positive outcome for the sector overall. It resolves a major uncertainty has dogged the sector since the Fair Work Commission first proposed wage increases for Aged Care employees.  It also indicates the current government's commitment to sustainably reform the sector. Providing financial incentives for workers to commit to a career in Aged Care should support improved quality of care and customer satisfaction. In the past, low wages have repelled workers from Aged Care and operators became increasingly reliant on temporary employment agencies to fill rosters. The margins charged by these agencies are high, therefore the financial burden of using agency staff has been punitive for operators. Stabilising the workforce represents a meaningful opportunity for Aged Care operators to improve their financial performance. Operating Metrics Improving Recent updates from both the listed Aged Care operators shows they have made good progress on driving operational improvement. Occupancy is trending higher following several years disrupted by the Royal Commission and then Covid-19. Higher occupancy drives both revenue and margin. The sector has is also making progress adapting to the AN ACC funding reforms. Following substantial changes to the funding model, Aged Care operators can now refine their operations to ensure they are adequately funded to provide better quality care to residents. Resolving the uncertainty about the funding structure has enabled operators to develop platforms and models to deliver sustainable care. Author: Sinclair Currie, Principal and Co-Portfolio Manager Funds operated by this manager: NovaPort Microcap Fund, NovaPort Wholesale Smaller Companies Fund This material has been prepared by NovaPort Capital Pty Limited (ABN 88 140 833 656 AFSL 385 329) (NovaPort), the investment manager of the NovaPort Smaller Companies Fund and the NovaPort Microcap Fund (Funds). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 (Fidante) is a member of the Challenger Limited group of companies (Challenger Group) and is the responsible entity of the Funds. Other than information which is identified as sourced from Fidante in relation to the Funds, Fidante is not responsible for the information in this material, including any statements of opinion. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable to your circumstances. The Fund's Target Market Determination and Product Disclosure Statement (PDS) available at www.fidante.com should be considered before making a decision about whether to buy or hold units in the Funds. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. NovaPort and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, NovaPort and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties. Fidante is not an authorised deposit-taking institution (ADI) for the purpose of the Banking Act 1959 (Cth), and its obligations do not represent deposits or liabilities of an ADI in the Challenger Group (Challenger ADI) and no Challenger ADI provides a guarantee or otherwise provides assurance in respect of the obligations of Fidante. Investments in the Fund(s) are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Accordingly, the performance, the repayment of capital or any particular rate of return on your investments are not guaranteed by any member of the Challenger Group.

This retailer has been savaged on results but does it provide an opportunity? Novaport Capital February 2023 Tim Binsted from NovaPort Capital runs the ruler over this retailer's results and provides an outlook for the coming 12 months. Specialty retail has been a tough place to operate over the past 12-18 months. Gone are the goldilocks conditions of the pandemic (at least from a retail perspective), where everyone was at home remodelling their living rooms and updating their décor. Replaced by an environment of higher interest rates, mortgage stress, and increased economic uncertainty. The company we're focused on today has been savaged by the market on the back of its latest results, perhaps unfairly, suggests Tim Binsted from NovaPort Captial.  I think it's not surprising that we've had some moderation, but the market's now extrapolating this going forward. It looks like a bit of an overreaction The stock in question is Nick Scali (ASX: NCK) and whilst the company's results were much stronger than a year ago, with revenue and EBITDA up more than 50% each, written sales orders were down more than 12% on January 2022 - and that's what has spooked the market.  The NCK share price performance has been solid since the June low, rallying from around $7 to north of $12 before today's results. Join me as I dive into the results with Binsted and get his take on the prospects for Nick Scali as it continues to navigate the post-Covid retail landscape.  1-year daily chart of Nick Scali (ASX: NCK), compared to the S&P/ASX 200. (Source: Market Index).  Nick Scali (ASX: NCK) H1 key results and company data Revenue $283.9m, compared to $180.3m a year-ago (+57%) EBITDA $112.2m, compared to $73m a year-ago (+54%) Orders $210.3m Interim dividend 40 cps, fully franked; record 7-Mar, payable 28-Ma Source: Market Index   In one sentence, what was the key takeaway from this result? It looks like the froth from the lockdown-driven boom in furniture sales has ended. The stock is down 13% on the results. In your view, was it an overreaction, an under-reaction or appropriate? I think it looks like a bit of an overreaction. I think we had the market jumping at shadows leading into the market lows with big fears about retail disaster. The whole sector sold off and then it rallied when trading was better than expected and it rallied quite hard into the result. Everyone was expecting that the boom in COVID sales couldn't last forever. I think it's not surprising that we've had some moderation, but the market's now extrapolating this going forward. I think it's jumped at shadows before, recovered and rallied.  And then now we've had one month that's down from very high levels and the market's jumping again. It looks like a bit of an overreaction We're there any major surprises in this result that you think investors should beware of? No major surprises. We've all seen rising rates. We all knew there was a huge boom in sales during COVID per this category in particular, those comps were never going to last.  I don't think it's surprising that this was going to ease a bit at some point.  I mean, they're [sales] not falling off a cliff. They're still well up on pre-COVID. I wouldn't have thought there's a massive surprise in there. The main positive surprise would be how well they're executing on the Plush acquisition.  Would you buy, hold or sell NCK on the back of these results? RATING: Hold Please note that NovaCapital currently hold this stock in its portfolio.  What's your outlook on NCK and its sector over the year ahead? Are there any risks to this company and its sector that investors should be aware of? You've got to assume there's going to be a continued easing in like-for-like sales just with the COVID heat coming off a bit.  I think you'd also expect that rising rates will put a little bit of a dent in as well, but you've got very strong employment, so that should support sales to some degree. As long as unemployment is below 4%, wages are still strong. That's a mitigating factor. And then you should see them bank a lot of synergies from the acquisition of Plush, which is going really, really well. They've got one of the best management teams in the business executing that. They've got $20 million out already on a runway basis, and they're getting the margins up in that Plush business. There's 6-7% percentage points of margin that they're getting through there.  I'd expect them to execute well on that and for that to drop through to the bottom line of the business. I think the retail sector, generally, it is going to get tougher with rates going up. You've got a lot of fixed mortgages rolling off, it's been well flagged, that's going to hit consumers, but we're coming off a really high base and the valuations aren't that high for Scali and some of its peers. There's a few offsetting factors there, but you have to say sales would have to be a bit less rosy, but it just depends on individual stocks and how they're placed to manage that. There will be a little bit of top-line pressure, but it's well-run business with good margins and a great acquisition to deliver synergies. From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious on the market in general? RATING: 2-3 I think you'd have to say it's pretty exciting. I think you probably have to say somewhere between a two and a three. And the reason that I've given you a range, I'd probably skew it more towards two. For cheapness, there is value, but we just haven't really seen the earnings pressures yet. We've had a very good period for market earnings. I think we've had the PE come down, bit of a de-rate with the interest rate rises, and we haven't seen the earnings pressure yet. Maybe we're just starting to see a little bit of that through pockets of the market. I think you want to see a bit more of an adjustment there. Plus, we've had a big rally over Christmas and into February reporting, so that's taken away some of the ultra cheapness out of the market.  But there's opportunity. The market's rebased a bit and it's a good time to be investing. 10 most recent director transactions Funds operated by this manager: NovaPort Microcap Fund, NovaPort Wholesale Smaller Companies Fund This material has been prepared by NovaPort Capital Pty Limited (ABN 88 140 833 656, AFSL 385 329) (NovaPort). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable, but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed.