MORAM - Monthly update + Q&A June
Sunday 2nd July
The first weekend of every month takes place the monthly update and the Q&A.
We believe that the Q&A (question raised by subscribers) is a great opportunity to address more specific aspects of the analysed companies or more general questions about the market or specific industries.
In the Monthly update, we review the recent developments of the showcased companies over the past twelve months and our assessment of their current market position. We also share portfolio management insights and our outlook on the market situation.
In this Q&A session, we discussed New Fortress Energy, Arcos Dorados, Vysarn, Vermilion, Unidata, Good Times Restaurants, Hotel Chocolat, and Ferretti. In addition to that, we shared our opinion on the best risk/reward opportunities within our universe of analysed companies.
2) Monthly update
The main idea behind the monthly updates is to share reflections on market trends, comment on the situation of companies we cover from the current market perspective and discuss our approach to portfolio management on the current market scenario.
In general terms, the performance of the indexes during this first semester has been more than notable, with 1H23 being one of the best first halves of the year in decades.
This June, the S&P 500 gained another 7%. Particularly, the consumer discretionary sector, which we have been pivoting towards for the past 9 months, and on which several of our recent theses have focused, has been the best-performing sector of the month, with a +11.57% return in a month where all sectors have been in positive territory. Regarding market capitalization, small and medium caps have outperformed mega caps for the first time this year, in a year that has been especially marked by the fact that mega caps are sustaining the indices (>70% of the stocks are performing worse than the S&P 500 (+16.38% YTD) and >40% are in negative territory YTD) and where the performance of the Russell 2000 index (+7.88% YTD) is significantly lagging behind the other indices.
At Moram, as you may already know, we specialise in analysing small-sized companies in sectors that we believe will outperform the rest within a 12-24 month period. Currently, the majority of our theses are focused on the consumer discretionary sector or the natural gas and luxury yacht industries. Before delving into the situation and our outlook for the companies, here's a brief comment on these sectors:
The inflation indicators continue to decrease (from 2.95% to 2.34% in the US and from 13.32% to 11.22% in the UK), and companies have already updated their prices (at least those we follow), resulting in margin recovery expected for 2023 and 2024. Despite the good performance of the sector in the first half of the year, we believe there are still companies with significant discounts.
We have removed the paywall of the Good Times Restaurants (one of our companies within the consumer discretionary sector). Also, we had another conversation with their CEO at the end of May and we shared our views here.
This month seems to have marked a turning point in TTF (Title Transfer Facility) prices, which hit a low point at the end of May and have risen over 50% during the month of June, reaching €37 per MWh. European inventories are currently at 78%. Similarly, the Henry Hub prices have increased over 30% in June, and the JKM (Japan-Korea Marker) has also risen considerably due to the heatwave in these countries as well as in China. The outlook forecasts extreme weather conditions in both Europe and the US, which will further support cooling demand.
As we have mentioned several times, we believe that volatility will prevail in the short term, and it is likely that prices will remain higher than normal until the opening of the new liquefaction terminal in Qatar in 4Q25, although not reaching the levels of 2022.
An industry that has been highly attractive due to the uneven growth between the number of ultra-rich individuals and new yacht sales over the past decade. Since the onset of the Covid pandemic, this trend has been reversing, with a surge in new yacht orders, but there is a lack of available capacity at shipyards for the next three years. All companies in this industry are benefiting, but some were proactive and expanded their capacity before the start of the supercycle, while others are playing catch-up. We cover 6 companies within this industry in Moram.
One of the companies we cover, Ferretti, had its IPO on the Milan Stock Exchange this week, and we have opened up the thesis on the company.
We are also considering publishing an analysis on Beneteau, as there is a special situation occurring that may be interesting to examine in more detail.
Our market outlook
Looking ahead to the second half of the year, we expect money flows to shift from mega caps to small caps. We are unsure whether this will happen imminently or if there will be a certain correction after the gains of the first half of the year before small caps gain momentum. In terms of sectors, we see a very attractive risk-reward profile in the discretionary consumer sector, as well as in other sectors previously mentioned, either due to overselling (natural gas) or a supercycle (luxury yachts). In the company section, we will discuss the situation of the companies presented on the website and provide our perspective on each of them