Hedge Clippings | 21 March 2025

All of a sudden, next Tuesday's Federal Budget is upon us. No doubt Jim Chalmers was hoping the Federal election would be sufficiently early so he would not have to go through the motions, but the weather patterns in Queensland put paid to that. So unless Albo, who has previously confirmed next Tuesday evening as budget night, changes his mind over the next 3 or 4 days and pays a visit to the Governor General, that's when it will be.

While it might be a bit of a phoney budget, the logic of holding it pre-election is quite simple, even if Chalmers has to 'fess up to a deficit closing in on $30 bn. December's Mid-Year Economic and Fiscal Outlook (MYEFO) predicted deficits of $26.9 bn for this financial year, and $143.9 billion from now until 2027-28. Most punters will ignore that, firstly as the figure's too large for them to comprehend, and secondly, it doesn't immediately and directly hit them where it hurts, in the hip pocket.

What Jim's budget speech allows is the announcement of a whole range of cost-of-living relief measures, and we've seen and heard a few of them already: Energy bill relief, support for renters, an expansion of bulk-billed GP visits, and cheaper medicines under the PBS, etc., etc.

In other words, directly aimed at the family or household budget.

This will be the start (as if it hasn't been going on for a while already) of the election campaign build-up, even before the traditional pork barrelling in specific electorates takes place. You can only expect handouts, however - tax reform, which is desperately required is unlikely to get a mention.

Should Albo spring a surprise and pre-empt the Budget, the government will be limited to releasing a Pre-Election Economic and Fiscal Outlook (PEFO), independently prepared by the Treasury and Department of Finance. Apart from being independent, it will have none of the theatre and spin potential of Chalmers bringing a whole host of hand-out goodies out of his bag on the night.

It's a tight election schedule however, with the deadline of 17th May, and with school holidays, Easter and Anzac Day all falling in between.

If all of this seems pretty tedious for a Friday afternoon, it does have one benefit, namely (hopefully) taking Trump off the front page for a second. Sadly, that's unlikely to last for long - if at all.

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How to Find the Best Stocks After a Market Correction

Marcus Today

February 2025

Why Timing the Bottom is About Sentiment, Not Fundamentals

If you ever say, "I can't buy it, it's gone up 10% in a week," you will struggle as an investor. If you think, "It's up 100%, I've missed it," you doom yourself to conservatism. Chickens don't make money.

You will never find a ten-bagger if you're selling at a 10% gain. Thirty-five stocks in the All Ordinaries have more than doubled in the last year, and 90 are up more than 50%. Do not sell because something has gone up--sell because it's going down.

In a recovery, the stocks that rise the fastest are often the ones that fell the hardest. If the market has already started bouncing, you must buy stocks that have already gone up. Sometimes, you have to buy stocks that have gone up a lot.

The Key Signs of a Market Bottom

No one knows exactly when corrections will come. Those who seemed to predict them were only right in hindsight. They made noise at the right time, and then, after the fact, claimed victory.

You can't predict a market bottom before it happens--but you can recognise it when it arrives. The key signs to watch for:

• Extreme negative sentiment--when the herd has given up.
• A sudden change in market commentary--the shift from panic to cautious optimism.
• A big up day or week after heavy selling--a key signal that the bottom may be in.
• Volatility dropping and buying volume increasing--showing that money is flowing back into stocks.

The best way to time a top or bottom is to read Marcus Today. Not kidding!

Using Market Sentiment to Buy at the Right Time

You Can't Predict the Bottom - But You Can React to It

Do not think you can be clever enough to predict the bottom before it happens. You can't predict the big sell-offs, just like you can't predict the exact turning point. But you can watch the signs and act decisively.

The stock market has an average gain rate of 9% per year. If the market has run well beyond that pace, it becomes vulnerable. But don't act based on warning signs alone--wait until the correction begins, then react.

Yes, be more alert when things get ridiculous, but still--wait for the move. When warning signs turn into a major sell-off, be ready to be decisive.

Indicators That Show a Recovery is Starting

The moment to buy is not when things look cheap - it's when sentiment turns. Fundamentals won't tell you when to buy.

Instead, watch for:

• Large up days on high volume--big money stepping back in.
• Insider buying and institutional fund flows increasing--smart money making its move.
• Riskier assets leading the bounce--growth stocks and speculative names rebounding first.

At extreme moments, the market lifts all boats on the way up, just as it sinks them on the way down. If you're trying to time the market, watch the herd--don't follow it.

Stock Selection After a Correction

What Stocks Rebound the Fastest?

Catching the bottom of a correction is all about sentiment.

When everyone has lost faith in the market and is doing 200 miles an hour with their hair on fire, they generally also lose sight of fundamentals.

That's an opportunity. But you don't buy on the numbers--you buy on sentiment changing for the better.

You need to spot that, and the way to do it is the same way you spot the top: On the balance of probabilities.

If the market has fallen a lot, has a big up day or week, and the tone of the commentary is changing for the better, on the balance of probabilities, that is a bottom.

Watch the herd, don't join the herd.

Avoid These Stocks After a Market Crash

Fundamentals are useless when it comes to timing the market. It's why value investors can never time the market--a PE ratio will never tell you when to sell or buy.

Sentiment watching (price watching) gives you a much better chance.

At extreme moments, the market drives all--sinks all boats, lifts all boats. Focus all your attention on identifying the "Pivot Point" in the market.

In corrections, the woods are on the move--forget the trees until the forest is going up again.

It's no good saying "NAB is cheap" when the GFC is starting.

When the market is crashing, everything will look cheap halfway through the sell-down--but you don't buy falling stocks because they're cheap.

That's for Buffett quoters.

You can't time the market on fundamentals.

Lessons from Past Market Crashes

What History Teaches About Buying the Dip

Stock selection comes second to the market.

In a recovery, stock selection is where you will make the most money--but not until you get the market right first.

If you get that right, you'll make money in everything.

Market first, stocks second.

Case Study: How Stocks Recovered from the GFC and COVID Crash

The recovery will come fastest and hardest in the stocks that have suffered the most extreme sentiment swings.

In a recovery, it is not the stocks with the best fundamentals that recover the best (far from it).

It is the stocks that involve the most sentiment in the price--often the stocks with no fundamentals but the most growth prospects.

The stocks that people made the most money in before the top, and lost the most money in during the correction.

They rebound the earliest, and they rebound the most.

The money is in identifying and timing the extremes of sentiment.

Spend the time in cash listing the "fad" stocks you're going to buy in the recovery.

It's not NAB.

Final Thought: Corrections Are Your Greatest Opportunity

At the end of the day, market corrections are not a threat--they are an investor's best friend. Instead of fearing them, welcome them. They provide the chance to sell at the top and buy at the bottom.

If you buy into the industry narrative that "timing the market is impossible," you'll miss some of the best opportunities of your investing life.

Corrections create wealth for those who know how to take advantage of them. The only question is--will you?

Author: Marcus Padley

Funds operated by this manager:

Marcus Today Equity Income SMA, Marcus Today Growth SMA

On the Road with Alphinity: Santos Carbon Capture and

Storage Project in Moomba, South Australia

Alphinity Investment Management 

March 2025

Towards the end of January, Jess was invited to the official opening of the Moomba Carbon Capture & Storage Project (CCS) at Santos' Moomba Gas Plant in northeastern South Australia. The project is designed to store up to 1.7 million tonnes of CO2 per year, which is equivalent to 10% of South Australia's annual CO2 emissions, and is one of the largest operational CCS projects in the world. Santos has also stated that this is one of the lowest cost CCS projects globally, with a lifecycle cost of less than US$30 per tonne of CO2.

The Cooper Basin, where Moomba is located, covers 130 square kilometres and stretches 500 kilometres from east to west. The gas field is twice the size of Tasmania and the actual size of England. Out there, the operational team need to bring in or generate everything needed. They generate all the water and bring in the food needed to support 1000 people working on the fields at any one day. There are 150 separate gas fields and 1,000 producing gas wells.

A group of about 80 people, including staff, project partners and other key stakeholders, flew in for the day to see the new facility and hear about the achievements of the project team. The site tour was brief, and they were only able to view it from outside the fence. Still, she gained a strong understanding of what a CCS project actually looks like.

Essentially, it is a bunch of pipes and pumps in a shed, and Jess was struck by just how simple it all was. In fact, there is nothing that special at the site at all. This is not to downplay the achievement of the company in getting this project up and running, or the capital that has been spent building the pipeline infrastructure across a gas field the size of England. However, in the end, the technology and infrastructure involved are relatively simple. CO2 is captured at the Moomba gas plant and fed through dehydration units, it then goes through a four-stage modified natural gas compressor, and finally the CO2 itself is piped out to five injection wells using a mild steel pipe.

First injection at Moomba started mid-2024 and, so far, the team has achieved 98% effectiveness. The main limitation is during days of extreme heat, as the processing power of the compressors needs to be reduced; other than that everything has been working as expected. From here, the focus moves to monitoring and making sure that there are no adverse impacts from injecting CO2 back into the empty gas reservoirs.

At this point, there is only one other working CCS project in Australia, which is at Gorgon off the coast of Western Australia. Chevron's Gorgon CCS plant is the largest in the world with the ability to store 4 million tonnes of CO2 per year. Its plant injects the CO2 into a giant sandstone formation two kilometres under Barrow Island. Both projects have been heavily criticised by environmental groups, some investors, and some community members. CCS is still controversial. However, from what we saw during the site visit , this may well be a turning point for CCS in Australia.

CCS can be quite expansive to achieve but for Moomba, a few unique attributes has kept the lifecycle cost relatively low. Firstly, CO2 separation was already taking place at the site and secondly, transportation over long distances was not needed. Unlike other developments where hundreds of kilometres of pipelines might be needed, in this case only one 50km pipeline was built. This is the first of a number of CCS projects that Santos is proposing. Although the jury is still out as to whether the economics will work as well as they do at Moomba, the outlook is positive.

Funds operated by this manager:

Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Global Sustainable Equity Fund, Alphinity Sustainable Share Fund

This material has been prepared by Alphinity Investment Management ABN 12 140 833 709 AFSL 356 895 (Alphinity). 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.

Sports Investing: A Rising Global Opportunity

    Altor Capital

March 2025

The world of professional sports is undergoing a seismic shift, presenting unprecedented opportunities for investors. Previously the exclusive domain of billionaires, sports franchises have emerged as a unique and rapidly growing asset class, driven by robust business models, increasing media rights valuations, and the global appeal of sports as entertainment.

The Explosive Growth of Sports Investments

Sports organisations are becoming increasingly attractive to investors due to their resilient revenue streams, monopolistic market dynamics, and cultural significance. Unlike traditional industries, professional sports have proven to be non-cyclical and resistant to economic downturns. For example, just after the 2008 financial crisis, valuations of major American sports leagues such as the NFL, NBA, MLB, and NHL dropped only 1% collectively-the sole negative year in the past two decades (*Statista).

Key drivers of this growth include:

• Recurring Revenue Streams: Sports teams generate 60-80% of their revenue through annual contracted value (ACV) streams such as media rights (3-10 years), sponsorships (1-2 years), and long-term stadium agreements (up to 30 years).
• Monopolistic Characteristics: Professional teams operate in markets with limited competition, benefiting from regional exclusivity.
• Compelling Entertainment Content: Sports dominate media consumption, with 95 of the top 100 media events and 85 of the next 100 being sports-related.

According to the Ross-Arctos Sports Franchise Index sports team valuations in the US have compounded at over 13% p.a. for over 60 years (*RASFI). Valuations from 2000 have outperformed the S&P500 by over 6x.

The Media Rights Revolution: A Catalyst for Valuation Growth

The growth in media rights deals is one of the most significant drivers of increased valuations for sports franchises. The NFL's annual media rights revenue reached US$10b in 2024, while the NBA secured an 11-year deal worth US$76 billion. This trend has propelled the average value of NBA teams to double since 2021 (*Sportico).

In Australia, the sports market is following a similar trajectory. The National Basketball League (NBL), while not in the same scale as the NBA or NFL, has seen remarkable growth in fan engagement and viewership. By leveraging media rights and innovative broadcast strategies, NBL franchises have a unique opportunity to replicate the success seen in U.S. leagues.

Strategic Ownership: A Key to Unlocking Value

Investors in sports teams have historically faced challenges related to minority ownership stakes, which often come with limited control over operations. In the U.S., minority stakes have traded at discounts of 10-40%. However, as institutional demand grows, Goldman Sachs predict these discounts will diminish over the next decade. Full operational control allows owners to maximize a team's potential, optimizing revenue streams such as ticket sales, sponsorships, and merchandise.

Case Studies: Evidence of Success in Sports Investments

Several recent examples highlight the transformative impact of strategic investments in sports teams:

• Milwaukee Bucks: Former co-owner Marc Lasry sold his stake shortly before a new NBA media rights deal, benefiting from a valuation already pricing in the anticipated revenue growth.
• Kansas City Current: The National Women's Soccer League (NWSL) team's revenue jumped from US$8 million to US$30 million in a single year, driven by a new stadium and increased fan engagement (*SBJ).
• WNBA: The league's media rights deal recently quadrupled from US$50 million to US$200 million annually, reflecting explosive growth in women's sports (*The Guardian).
• Inter Miami: The club doubled its revenue to US$118 million after signing Lionel Messi, with growth seen across multiple facets, including merchandise, tickets, media rights, and sponsorships (*ESPN).

The Rise of Women's Sports

Women's sports are experiencing explosive growth, with increasing participation rates and fan engagement. The National Women's Soccer League (NWSL) has seen a dramatic rise in viewership, leading to a media deal worth US$240 million over four years-a significant increase from its previous deal. Similarly, the WNBA's latest media rights agreement is worth a staggering US$200m per season, considerably higher than their previous US$50m per season (*The Guardian) further solidifying women's sports as a key growth segment.

Speak to our team today to discover how private credit can transform your business financing.

Ownership of Venues: Unlocking Additional Revenue Streams

Owning venues provides significant opportunities to generate revenue beyond sports. Many U.S. team owners utilise their stadiums to host concerts, festivals, and other entertainment events during the offseason. This model has proven highly lucrative and offers a roadmap for other markets, including Australia, to diversify income streams.

Australia vs. the U.S.: Comparative Growth Potential

While Australia's sports market is smaller than that of the U.S., it is growing rapidly. Using basketball as an example, the NBL has benefited from increased international visibility and talent development, positioning it as the second most important basketball league in the world.

The relationship between the NBL and NBA has strengthened significantly in recent years, providing a platform for growth and collaboration. The NBL has become a key developmental pathway for aspiring NBA players, with athletes like LaMelo Ball and Josh Giddey using the league as a springboard to NBA success. This connection has elevated the NBL's profile internationally, attracting talent, sponsorships, and media attention.

Additionally, preseason games between NBL and NBA teams have fostered mutual recognition and enhanced fan engagement. These collaborations not only highlight the NBL's growing competitiveness but also position it as a league capable of nurturing top-tier talent. As this relationship deepens, it creates further opportunities for investors to capitalize on the NBL's rising prominence and its alignment with the NBA's global brand.

In a significant step toward strengthening this connection, the NBA recently announced its return to Melbourne for two preseason games in 2025, marking another milestone in the growing relationship between Australian and U.S. basketball (*NBA) These games will provide Australian fans with firsthand exposure to NBA talent while further integrating the NBL into the global basketball ecosystem. This reinforces the investment potential in Australian basketball, as its alignment with the NBA continues to drive visibility and commercial opportunities.

*statista - www.statista.com/statistics/202758/franchise-value-of-us-sports-teams/

*RASFI - michiganross.umich.edu/faculty-research/partnerships/ross-arctos-sports-franchise-index

*Sportico - www.sportico.com/leagues/basketball/2024/nba-team-values-warriors-knicks-lakers-lead-1234820970/

*SBJ - www.sportsbusinessjournal.com/Articles/2024/12/02/cpkc-stadium-kc-current

*The Guardian - www.theguardian.com/sport/article/2024/jul/17/wnba-revenue-set-to-surge-with-200m-a-year-broadcast-rights-deal#:~:text=The%20WNBA%27s%20current%20media%20deals,of%20the%20median%20NBA%20salary.

- www.theguardian.com/sport/article/2024/jul/17/wnba-revenue-set-to-surge-with-200m-a-year-broadcast-rights-deal#:~:text=The%20WNBA%27s%20current%20media%20deals,of%20the%20median%20NBA%20salary.

*ESPN- www.espn.com.au/football/story/_/id/41293395/inter-miami-made-big-bet-messi-paying-off

*NBA - www.nba.com/news/nba-australia-melbourne-games

Funds operated by this manager:

Altor AltFi Income Fund, Altor Emerging Growth Fund