Investor Update - March 2025

The ASX 200 fell 3.4% in March as valuation multiples continued to decline from record high levels. As at the end of March, the index was down 9% from its February high, with the ASX 200 price-to-earnings multiple adjusting lower to ~16.9 times, led by the sharp de-rating of technology stocks.

The likelihood of weaker growth and rising inflation emanating from a new regime of global tariffs has been heralded by a period of incalculable uncertainty. Naturally, there has been a notable chilling in sentiment, leading to a dramatic reassessment by investors of their exposure to risk assets. This was evident in the continued sell-off in growth stocks during March.

We have recently added Aurizon Holdings (AZJ) and Orica (ORI) to the portfolio—two industrial businesses with distinct exposures but a shared focus on capital discipline, shareholder aligned frameworks, and undemanding valuations. Both businesses have shifted their focus toward returns on capital, supported by conservative balance sheets and active capital return programs through buybacks and dividends.

Each business operates in asset-intensive sectors where operating leverage, capital efficiency, and disciplined reinvestment are key to long-term value creation. Trading at 10–15% discounts to their historical valuation ranges, both offer attractive entry points into essential service providers leveraged to production and infrastructure activity rather than commodity price cycles. With clearer capital frameworks and improving earnings quality, we see scope for valuation recovery as their repositioning continues.

We also initiated a position in Vicinity Centres (VCX) that owns a $15.1bn retail portfolio anchored by the Chadstone Shopping Centre, Direct Factory Outlets (DFO’s), and strategic CBD shopping centres. VCX benefits from high occupancy levels ~99 per cent and constrained competition due to planning restrictions and minimal new retail supply. VCX’s investment fundamentals are attractive trading at a ~0.85x its Net Tangible Asset (NTA) and a distribution yield of ~5.4 per cent. Gearing levels are conservative at 26.4 per cent.