'Small Talk' - cold, hard data on FY22
We thought we would review the cold, hard data on the financial year 2022 that came to an end on June 30. The data tables paint a clear picture: companies priced on high multiples coming into the year faced a sobering reassessment of their valuations, as did unprofitable businesses; the only safe haven was the energy/commodities complex; small stocks were shunned by nervous investors, and the tech sector was particularly under pressure.
The difference between high EV/EBITDA and low EV/EBITDA stocks in our "FIT" universe was the most stark - an 18% differential in price returns (where we split stocks into three baskets - low, middle and high).
Five of the worst six performed stocks were in the Buy Now Pay Later (BNPL) space, led by merger partners Sezzle (SZL) and Zip Co (Z1P) in first and third. The best returns came from an eclectic mix: heart device company Anteris (AVR) and heavy equipment maintenance business Mader Group (MAD).
Some of the less obvious takeaways from our "FIT" universe were that: it was not the case that the "dogs" of the prior year were the place to be - the "middle-of-the-road" stocks from FY21 held up best in FY22; and companies with market caps between $750m and $2 billion suffered notably worse declines than those capped under $100m.
The wash-up from FY22 is that we are now seeing more attractive valuations AND the recapitalisation opportunities we have been highlighting are beginning to flow. For bottom-up investors like Equitable Investors, we believe the opportunity set will be as rich as it has been in many years and we are keen to engage with investors who want to be part of this "recap" opportunity through Dragonfly Fund.
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