Mirrabooka Investments Limited (MIR) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Mirrabooka Investment Shareholder Briefing Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Terry Campbell, Chairman of Mirrabooka Investments. Please go ahead.

Thank you. Good afternoon, everyone. I'm Terry Campbell, the Chairman of Mirrabooka Investments. Welcome to our briefing this afternoon. Up until the onset of COVID, we used to really enjoy traveling around Australia, so giving these presentations at various state capitals in person. We had hoped that we might be able to restart them again this month, but the low curve, it doesn't seem to be as lethal as it used to be. It's certainly still very strong. So we felt it was best to have this webinar for another year. However, we're very keen to resume our direct contact with shareholders, and hopefully, we might be able to do something next October in association with the Annual Meeting. In turning to the details of today's webinar, I have with me today Mark Freeman, our CEO and Managing Director; Kieran Kennedy, a portfolio manager from the Investment team; Stuart Low from the Investment team; Matthew Rowe, our Company Secretary; and Geoff Driver, our General Manager of Business Development. Before we start the presentation, a little bit of housekeeping. The briefing is based on the material available on the company's website. If you're using your computer to access the presentation via the webcast, the slides will change automatically. If you are accessing by phone only, the PDF of the slides with page numbers will be available, and hopefully, the boys will mention the page numbers from time to time. Finally, as we -- the operator said, there will be time for questions and answers at the end of the webcast. So I'll now hand over to Mark to start the presentation.

Okay. Thanks, Terry, and good afternoon, everyone. So if we move to the slides, Slide 2, just the agenda. I'll just give you a bit of introduction on the funds and how we go about running it, then I'll pass to Geoff to talk about the most recent half year results, and then Kieran Kennedy and Stuart Low will talk through the portfolio and markets and the outlook. So moving to Slide 3, just our usual disclaimer to say we're here to talk about what we're doing in Mirrabooka. We're not giving any advice. On to Slide 4. Just to go back to the objectives of Mirrabooka. We're aiming to provide medium to long-term investment gains through holding investments in selected small and midsized companies. We also aim to provide attractive, fully franked dividends back to our shareholders. Then on to Slide 5. Just to remind everyone our approach, what we're looking for in companies. We assess 3 main things, which is the quality of the business, the financial strength and management. So just a couple of comments on the business quality. We're seeking companies that produce a sustainable return on capital that we find attractive. And we look for businesses that can also grow, and will talk about not having impediments to continue their growth. And financial strength. Our sheet balance is always -- is very important for us. A strong balance sheet provides resilience and an opportunity to reinvest in the business, and we want the return to be supported by cash flows. Management is critical, particularly in small and midsized companies. We like management teams that act like they're a substantial shareholder, and they very often are. We also want the executives to be experienced and passionate about what they do. And just some other comments on our approach to managing the portfolio. We are a medium- to longer-term investor. We seek to buy into stocks when we see fair value for quality. We're very worried about overpaying. We often build our holdings. Yes, we have more conviction or a very common approach of ours is to use price dips, often when stocks go out of favor to add. We will sell companies when the investment case changes. We do monitor the holdings for excessive valuations, so we will pay back positions to manage our risk. And we do maintain a spread of holdings. What we're seeking to do is have a consistent return to our investors. So on to Slide 6. So the benefits of this approach, as I said, a more consistent or consistency of our long-term returns and alignment of interest. We've got a comparative low management cost compared to other investment products in the market with no performance fees. Given our longer-term approach to investing, the result is low turnover and, therefore, a tax-effective investment vehicle. We know other managed funds out there that don't consider tax at all when they have high turnover. My guess is they'll be generating a fair bit, which ultimately shareholders have to pay. And directors and staff are significant investors in Mirrabooka, so we have an alignment of interest with our shareholders. So moving on to Slide 7. Just a bit more on the cost, or what we call MER, which is management expense ratio. You can see over time, as the growth of the fund has benefited from the capital gains, we get economies of scale, and the MER has moved down accordingly. So therefore, shareholders are seeing, again, for this type of product, a comparatively low-cost model. And on to Slide 8. We've got pictures of the investment team, just to say -- to show you, and this is the team that's involved in the running of the 4 investment funds of the group managers, which is AFIC, the Australian Foundation Investment Company; obviously, Mirrabooka, JBWere and Ansell, so an experienced team. Moving on to Slide 9, just a comment on ESG. We know that ESG is a separate issue. ESG is really integrated into our investment framework. So it's an important part of our process. It tells us something about the sustainability of a business model, which is a key input into the way we think about companies. As a long-term investor, we want companies that have strong government and risk management processes. It's important to us as well as environmental and social issues. And so we regularly review companies to ensure ongoing alignment with our frameworks. Engagement with the companies we invest in is also important, and along with that, its responsibility to vote on resolutions, of which we take very seriously. We do take advice from a proxy adviser. However, at the end of the day, we make our own assessment and evaluation on those matters. And as I said, we will vote. If we have concerns about any resolutions being brought forward, we will engage with the company and express our views. At the end of the day, we want resolutions that we think favor our shareholders' interest, particularly as a long-term investor. So with that, we'll do just a quick overview of the last results, and I'll pass over to Geoff to run through that slide, which is Slide 11.

Thanks, Mark. So Slide 11, and good afternoon, everyone. So as Mark mentioned, this is pretty ancient history now. That's a 6 months' result to December. But just a couple of key features I wanted to point out here. Clearly, the half year result is up very strongly, following the increased contribution from investment income, so our recovery in income following the low points with COVID. The interim dividend was maintained at $0.035 per share. And just to note, that was funded fully from realized capital gains. Again, a feature of Mirrabooka is the dividend is sourced from income received, plus also the generation of realized capital gains, which can be a little bit harder to move, given the nature of the portfolio and the desire of the investment team to perhaps take a little bit off the top when valuations get to a point or where there are a number of takeovers in this sector. The share price return was the other thing I wanted to point out here. It was higher than the portfolio return over the 6 months as the share price actually moved to quite a premium through the period or by the end of the calendar year. So if we move to next slide, Slide 12. We can see here, in fact, that the share price is trading at quite a significant premium, go up to close to 15% at one point, and that's the reason we actually offered a reasonable discount quarter -- reasonable discount on the share purchase plan, which we'll discuss in more detail a little bit later on. So with that brief overview of the results and where the share price is trading, I'll now pass back to Kieran to run through the portfolio performance and the equity market conditions.

Thanks, Geoff, and good afternoon, all. I'm starting on Slide 14 on our portfolio performance updated to the end of February. We consistently encourage shareholders to first assess our progress on a 10-year basis as this best aligns with our long-term investment objectives. We are pleased, albeit never satisfied, with our 14% return per annum over this time frame, which I'll discuss further later. Returns over 3 and 5 years also reflect well on both our investment process and the team's delivery against it. It is worth noting that the returns to both Mirrabooka and its benchmark indices are presented on the basis of a shareholder capturing full value for franking credits on this slide. In the case of Mirrabooka's figures, this franking adjustment is only made when we pay out these franking credits to our shareholders as a dividend. This methodology causes an appropriate degree of conservatism in a year like we have just experienced, where sales of holdings have incurred higher-than-usual capital gains tax, which has negatively impacted our NTA but not yet seen a franking credit adjustment through our dividend payments. So on to Slide 15 and taking our focus back to the long term. This chart plots the 10-year return of both Mirrabooka and its small and mid-cap index benchmark for every month end since Mirrabooka's first 10-year anniversary in 2009, and a reminder that Mirrabooka was formed in 1999. We're passionate believers in a 10-year view being the too-often-overlooked key to investing in listed equities. Two critical factors drive this. First, it is where you really start to benefit from compound investment returns; and second, because longer time frames significantly reduce the volatility in market returns. The orange section on this chart represents the 10-year returns through investment in our mid- and small-cap benchmark index since Mirrabooka started. Mirrabooka has consistently added to this index return through outperformance, as shown in blue. The return for the Mirrabooka investor is expressed on the chart as the combination of orange and blue, a range of approximately 8% to 17% per annum when measured over these 10 years. When you consider some of the negative daily headlines we have seen over Mirrabooka's history covering wars, financial crises, global pandemics, acts of terrorism, amongst many others, there has been a lot to worry about. But 8% to 17% per annum, despite all of these challenges, is a testament to the ability of a portfolio of quality companies to consistently grow and prosper. On Slide 16 and 17, we reflect on the incredibly dynamic economic environment seen over the past 3 years. The backdrop for our investing in the year immediately preceding the COVID pandemic, marked 1 on the slide, saw broadly supportive economic conditions with most uncertainty coming from the wild card with a Twitter account that was occupying the White House at the time. Period 2 reflected the collapse in business activity and sentiment as the world began to appreciate the full magnitude of COVID-19. Period 3 reflects the stunning subsequent market recovery as the unprecedented injection of both fiscal and monetary stimulus proved extremely effective. Those who tuned into our AGM in October will recall our caution then as we were observing valuations on many stocks that seemed based on an assumption that the tailwind from stimulus would continue well into the future. Period 4 on the chart marks the shift that we've seen in calendar 2022. In late 2021, as stimulus was supporting economic demand, this began to overwhelm the supply challenges of a still COVID-disrupted global economy. This has seen inflation quickly escalate to levels not seen in decades, which in turn has seen central banks first -- slowly, but lately abruptly -- realizing that interest rates and other settings are far too stimulative for the current economic conditions. The addition of Russia's recent invasion into Ukraine has only added to these inflationary pressures and the complexity of the policy pathway forward for central banks. So on to Slide 17. What impact has this volatile world had on our portfolio performance? In the pre-pandemic year, marked 1, the portfolio returned a strong and outperforming 20% as our businesses were performing well and were well supported in the market. The COVID-induced correction, marked period 2, saw a very sharp decline across the market of just under 30% over 2 months. And then from the low point, period 3, shows the magnitude of the recovery with our portfolio returning a hard-to-fathom 115% over 21 months, strongly outperforming a still stunning 86% for the mid- and small-cap index. This period of stimulus saw a double benefit as earnings rebounded very quickly and higher valuations were being applied to these earnings. As 2022 has ushered in recognition for the need to tighten financial conditions, we've seen equity markets become much tougher. Our portfolio fell 15% over the months of January and February compared to 9% for our benchmark. The main factor in this underperformance has been the market adjusting down the appropriate valuation for the sorts of quality companies that we like to own; at the same time, as commodity prices have spiked, to the benefit of many cyclical companies that we don't own. In isolation, this 15% portfolio fall is quite significant, happening over such a short time frame, only a handful of times across Mirrabooka's history. But in the context of the last 3 years, it isn't at all surprising. We will cover how we have navigated these conditions with our recent transactions on later slides. Importantly, even after including these challenging last few months, our 3-year portfolio return of 61% versus the benchmark at 37% remains very strong. I'm now on Slide 18 and will pass to my colleague, Stuart Low, who will commence a discussion on the current health of the portfolio, starting on Slide 19.

Thanks, Kieran, and good afternoon, everyone. Moving to Slide 19, our portfolio snapshot quality indicators. Top of this slide, we have referenced previously the highlights and attributes we look for in our investments. We'd like to emphasize that the performance of the Mirrabooka portfolio is driven by the strength of the underlying companies we invest in. On the left of the chart, when we talk to business quality, we can see that the large majority of the portfolio produces returns well above their cost of capital and have strong forecast earnings growth. In terms of financial strength, almost the entire portfolio is cash flow positive, and nearly 50% of the portfolio is what we would describe as a highly conservative balance sheet, with either net cash or debt equivalent to less than 1 year's cash flow. And finally, on the right, one of our favorite statistics that we love is that half of our companies are founder-led or have management with significant personal investments in the company. We like that alignment as it means that management think and act like owners of the business because they are. Turning to Slide 20. This chart illustrates the long-term nature of our investment style with many of our top 20 holdings having been in the portfolio for a number of years. We believe to truly capture full value for our investments, we need to give them time to compound. As you would expect, this chart shouldn't change much from period to period, but I would note that since last we presented this slide, SEEK, Temple & Webster and NEXTDC have slipped outside the top 20 stocks but are still owned in the portfolio. I'll now turn back to Kieran.

Thanks, Stuart. As alluded to in my earlier comments, we are becoming increasingly cautious on valuations through 2021. On Slide 21, we seek to shine a light on how our investment process adapted to these conditions. On the left of the slide, we show the largest new positions that we added in the 6 months to the 31st of December, along with Peet, which was an existing small holding that we build up to a full unit. These stocks are characterized by meeting our quality threshold due to their strong market positions, balance sheets and management teams, but generally not providing the same long-term growth excitement as some other stocks in our portfolio. The arrows next to these stocks give a guide as to how these purchase decisions have stood up through the changing market environment of early 2022. Computershare has proven a very well-timed purchase as the latent benefit of higher interest rates on their profits has come through very quickly. Worley is a global leading energy-focused engineering business that we think is well placed to participate in a structural shift away from fossil fuel-dependent energy over the next decade and beyond. Since our purchase, the nearer-term challenges of the world generating sufficient oil supply to meet post-COVID recovery in demand and the urgent need to replace dependence on Russian oil supply has seen a strong share price rally. JB Hi-Fi has continued to deliver sales at an elevated level that many feared would roll over sooner. This is providing exceptional cash flow, which led to their recent buyback announcement. Bapcor has slightly fallen due to a messy CEO change, but as a leading provider of car parts to automotive workshops across the country, it is a resilient business. And Peet has held up well due to the valuation support coming from their residential land bank. On the right, we show our selling. Qube and Tassal were exited due to our view on their long-term growth potential maturing, sales that were, therefore, not really reflected on the equity market conditions that we were observing at the time. Xero was exited at a price significantly higher than its current level. As a 50-leader stock, it had moved out of our investment universe. The very buoyant pricing environment for fast-growing global software businesses saw us sell out of Xero more decisively than we may have based on the business' outlook in isolation. And ARB and Objective are long-standing, highly successful investments where we saw elevated share prices, increasing the risk profile of our investment and, therefore, reduced our position at higher prices. We don't typically review our investments on such a short-term basis, so don't expect to see a similar slide in future meetings. But given the significance of the shift that we have just witnessed in equity market dynamics, we thought it provided some useful insight into our process. What we are really trying to demonstrate is that we are business quality and long-term growth focused first, use our recognition for relative value in choosing when and how to transact. The impact of these and all other decisions we made in that 6-month period has seen a net value increase of approximately $9 million for the portfolio. This highlights how volatility can actually aid in our pursuit of the best possible long-term returns for the portfolio. So on to Slide 22, and I'll hand you back to Stuart to cover how, moving into this calendar year, we've been back on to more familiar ground in buying stocks with strong long-term growth prospects.

Thanks, Kieran. And just reiterating, still on Slide 22, I guess, Kieran has mentioned the rotation that we saw in the last 3 months, and with this rotation, we're presented with an opportunity to buy some of these businesses and deploy some more capital into them. I'll go through each in a little bit more detail. There is a few logos on the page, so I'll group them into buckets for discussion. Across the top line, we have REA Group, Carsales and Netwealth. They are the dominant property portal, automotive classifieds business and independent financial investment platform in Australia. Each of these is a segment leader and have continued to operate strongly throughout this COVID-impacted period. However, due to the rotation from high-growth businesses to value and resource stocks, they have been sold off at various times, presenting us with the opportunity to add to these industry leaders what we would describe as fair prices. IDP, Corporate Travel and Nanosonics are 3 businesses that the market would describe as COVID losers. These are businesses that were heavily impacted by COVID-related lockdowns over the last 2 years. IDP is the leading international student placement business in the world, and Corporate Travel is a very large travel agent operating in Asia Pacific, U.K. and North America. As expected, these businesses witnessed a severe decline in demand, but given their robust balance sheets and business models, they are able to survive and, in both cases, acquire distressed competitors at bargain prices. As travel conditions normalize, we believe both businesses entered this period with much stronger industry positions than previous. Nanosonics is the leading provider globally of disinfection equipment for ultrasounds. And whilst you would expect infection control to be a priority for hospitals going forward, due to the severity of COVID, many hospitals shut down to all but absolutely necessary staff and procedures. This impacted sales of new equipment and consumables. Like IDP and Corporate Travel, as the health care system begins to normalize, Nanosonics should resume its strong growth trajectory. The other businesses mentioned on this slide are JB Hi-Fi; Domino's Pizza; and online retailer, Temple & Webster, all of which were deemed COVID winners. With travel and other leisure activities curtailed, consumers rotated spending to electronics, furniture and home goods, benefiting JB Hi-Fi and Temple & Webster. With people forced to work from home, Domino's was a natural beneficiary. Although we acknowledge each of these businesses had an element of one-off sales throughout the period, we believe that like IDP and Corporate Travel, they are exiting the COVID period with much stronger industry positions than they entered. There will undoubtedly be volatility in their earnings, but we feel that recent share prices aren't fully reflecting the scale of the opportunity in the next 5 years. JB Hi-Fi remains the category leader in a growing segment, Temple & Webster still has less than 2% market share and Domino's has an exciting global store rollout program. I'll now hand back to Kieran.

Thanks, Stuart. While our largest holdings are visible in our NTA releases, we are aware that many shareholders like to track activity beneath these in stocks that might be new to the portfolio or that we have exited, which we have listed on Slide 23. New holdings IPD Group and EGL are among the smallest companies that we own, which does come with somewhat higher risk. IPD is an established Australian distributor providing a channel for electrical manufacturers' products to access Australian markets. The company IPO-ed late last year. We were taken by the down-to-earth nature of the people, the track record of the business and some of the opportunities that are emerging in electrical equipment as the world transitions away from fossil fuels. A very reasonable valuation and their cash on the balance sheet didn't go unnoticed either. It has performed well with a profit upgrade since our purchase. EGL is a business with a managing director who is very familiar to us, Jason Dixon, one of the key executives that we got to know well in our successful long-term ownership of Tox Free Solutions prior to its takeover by Cleanaway. Jason has done a great job lifting the operating standards in EGL since his arrival. The early-stage growth options in sourcing world-class European waste sorting equipment for large Australian waste companies as well as a technology to remove harmful PFAS chemicals from water could prove exciting for EGL with a positive environmental impact as well. Stocks we recently exited are Atlas Arteria, where the relatively short concession life for their key toll roads was increasingly in conflict with our long-term investment approach. Deterra, where a jump in the iron ore price before we were able to establish a meaningful investment unit, saw us shift our focus to better value opportunities while making investment gain; rhipe, where we received a takeover offer; Lark, where a highly publicized CEO departure both called into question and then removed, key pillars of our investment thesis requiring a decisive exit for a profit and; Superloop, where we grew increasingly wary of the competitive intensity in the telecommunications market that they operate in. We are happy to take questions on any of these stocks, amongst any others of interest, in question time. So on to the outlook, beginning on Slide 25, a challenging task in such an unpredictable world. The first thing I'd say is that we don't seek to gain an investment edge by having a more insightful ability to predict economic variables. Our outlook is instead based on the returns that we broadly expect, given today's starting point in respect to value and offer. Giving a 1- to 2-year market outlook is, in reality, a guess. Current market uncertainties make this even more so. I appreciate this is not particularly helpful commentary. In terms of our portfolio, in a way, it has actually been helpful to begin to experience some of the rotation of the past few months, even to the detriment of our short-term relative returns, as we have seen this looming on our horizon for a period of time. Having commenced, it is now clearing our path to allocate more capital to our favorite businesses again. This rotation could well have further to play out, but on a 1- to 2-year horizon, we'd expect to return to an environment where the earnings of our holdings become the key driver of their share price performance again. Looking longer term, it's a similar story with the recent correction providing a better base for future returns. It has been this backdrop and the prospect of enhanced volatility throwing up some really compelling long-term opportunities that saw us recently announce our share purchase plan, details of which Geoff Driver will summarize shortly. So some concluding remarks. On Slide 27, we provide a snapshot of the things that are exercising the minds of the executives running our portfolio holdings. Continued COVID challenges are creating significant labor access issues. The return of flow of skilled migration is keenly anticipated by many, and staff shortages due to COVID isolation continue to be rough. Supply chains are as tight as we can remember. Many companies have more stock on the water than they have in warehouses as they desperately try to ensure they can meet the demand of their customers. The usual capital efficiencies of running a supply chain just in time have been replaced by a contingency-led, just-in-case mindset, and the contingency of having alternate sources of critical inputs has rapidly moved up the strategic agenda. Remote working continues to be a lot to take in a tight labor market, where stability is at the top of many employees' priority lists. Companies are seeking to strike the optimal balance between an engaged, satisfied workforce while promoting the need for face-to-face collaboration. And during our recent round of reporting season meetings, we were struck by the number of CEOs who were preparing to jump on an airplane to see employees and customers, many of which they hadn't met yet. The consumer demand environment is hard to read. On one hand, household balance sheets are in pretty good shape. The cost of living pressures are building, and there is plenty to knock confidence about for those who are watching the news. And the approach to ESG matters has never been more important. Good companies have seen its importance from a social license-to-operate basis for many years, but it is now viewed as a critically important feature of being the sort of company that a range of key stakeholders want to support. And with that, on Slide 28, I'll say thanks for listening and hand back to Geoff Driver to close with the key aspects of our current share purchase plan offer.

Thank you, Kieran. So as Kieran mentioned, we've opened a share purchase plan on the 3rd of March to allow investors -- or shareholders, I should say, to subscribe up to $30,000 worth of additional shares. The pricing is actually at the low of $3.18, which was set just prior to the record date prior to the announcement or a 10% discount to the volume weighted average price of Mirrabooka shares over the 5 ASX trading days up to and including the day in which SPP is due to close, which is next Monday on the 4th of April. As I mentioned earlier on, we set the 10% discount because, in fact, we were trading in excess of that at the time of pricing. Clearly, with the way the market's moved and the onset of the Russian invasion in Ukraine, it has pulled back a little bit, but we still believe it's trading at a reasonable premium and so forth. Therefore, I should say that the pricing should be attractive to shareholders. The applications closed on the 4th of April. And just to remind shareholders that those shares that -- or those shares that are issued as a result of the share purchase plan are entitled to 50% of the final dividend that would be announced relative to the result of the end of this financial year. So with that, I'll hand back to Terry Campbell to conclude the formal part of the meeting, and then we'll go to questions and answers. Thank you, Terry.

Thanks, Geoff. Well, it's certainly an uncertain world. And just as much as I was in 1999, I'm convinced that this is the area of the market that is the place to be. Well-managed smaller companies, I think, are better placed to adjust quickly to the changed conditions or changing conditions than their larger counterparts. It's also a great place to be in the market. As you can tell from the presentation we've just seen, the comments and the purchases and sales, it's an area that requires constant surveillance that -- where just ordinary investors like myself, even though I've had a history over career in the investment market, you just don't have the order of the time to sort of guide the markets properly. And I'm very impressed with the team that we have here running the portfolio these days. And things like -- most of us agree that it's a good idea to buy on dips, but I'm not sure we ever get around to doing it, whereas this time, the team were disciplined. When we had the big sell-off, the team were into the markets. So I think the directors -- well, the directors remain involved with the team. There's a lot of feedback at our regular investment committee meetings, which are held about every 2 weeks. Most of us are still involved in business, either as nonexecutive directors or running companies. So there's a good feedback between the investment team and the Board. So as I said, the outlook is uncertain, but I think we're in the right place at the right team. So with that, I'll invite any questions.

Okay. Thanks, Terry. [Operator Instructions] So I'll start with an online question team, Terry and the team. There's a question here. "Is there any exposure to unlisted companies or private equity within Mirrabooka? And I guess from that perspective, what is our general approach to those sectors of the market in terms of investing for Mirrabooka in those sectors?"

Thanks, Geoff. It's Kieran Kennedy here. I'll take that one. Look, our focus is investing in listed small and mid-cap companies. But like in many other aspects of the way we invest, we look to maintain full flexibility in the interest of our shareholders. So we do consider and have a Board, and have one at the moment, companies that are called pre-IPO effectively. So they're unlisted, but they're on the pathway to being IPO-ed over the next year or 2 to maintain that flexibility. But entering into private markets, it's a different area and not our focus.

Thanks, Kieran. There's a question here and I might pass this through to you, Mark. "Why is the management expense ratio at 0.41% higher than, say, for AFIC, which is almost 3x more, which is 3x lower, I guess, than for Mirrabooka?"

Okay. So that really just comes down to economies of scale because, obviously, the MER is the cost on the portfolio side. So Mirrabooka is currently around $550 million to $600 million portfolio, whereas AFIC is over $8 billion. And so that's simply that relationship there. But what we did highlight in that slide, though, as Mirrabooka has grown, you did see that the MER has been declining over time.

Thanks, Mark. A couple of questions here related to the share purchase plan. Given -- I guess, where do we see value in the market to deploy those funds, given the change in the market? I guess it has gone up a little bit since we first announced the share purchase plan. And how quickly do we envisage the proceeds of those funds to be invested?

Yes. Like all -- it's Kieran again. Like all good questions, they're the most difficult to answer. So we were actually just talking about this, this morning. And I guess the first thing I'd say is we don't try and pick markets. We think that's a mug's game really, and we won't try and do that with this money either. But this world we're living through at the moment does feel particularly volatile. We've seen a regime shift, really, with what's happening with Central Bank policies. So we're quite open-minded about the valuation possibilities that come from that, which, I guess, going back to our SPP funding means we'll be quite patient. And really, it's a stock-by-stock analysis we'll be doing and having that patience to be open-minded that things might sell off quite a bit, and we want to make sure that we've got good firepower in that environment.

Thanks, Kieran. Can we please -- someone please comment on Carsales outlook and other transformative products previously envisaged materializing.

Yes. Thanks, Geoff. It's Kieran again. Look, like a lot of these online classifieds businesses, it's fascinating when you observe them through history, their ability to adapt. They don't come to market with one business model and say, "That's our business model for the foreseeable future." They're always thinking about, I guess, how their life started, they were disruptive. So how could we be disruptive? We should keep evolving our business model. In the case of Carsales, that's got them thinking about doing the whole transaction online effectively. So not just being a place to find the car online and be referred to a dealer but to be able to transact fully and thinking through all the different points that you need to cover in being able to do that through delivery and lots of other aspects. It's early days on that. So it's not transforming the way they're making money today, but we think on a 10-year view, the sorts of things you'd like to see coming through to give you confidence that can emerge and be a bigger part of the business are coming through. So it's a testament to the way this and other companies in that space are run.

Thank you, Kieran. Stuart, I'll throw this one to you. We have Temple & Webster in the portfolio. Would we consider Adairs?

Yes. Thanks, Geoff. It's Stuart here speaking. Yes, we do have Temple & Webster, and we have looked at Adairs over the years, and it has been a good investment and a good business. I guess the one difference that I would highlight is that Temple & Webster has a unique model. It doesn't carry a large majority of its inventory on its balance sheet like your traditional retailers do. So every year, businesses like Adairs need to make a call on what they think will sell, what trends are going to work this particular season, and they have to carry that on their inventory, on their balance sheet. Temple & Webster, with its dropship model and it's our wholesale partners, it means that it can offer a very broad range of products and categories. And it's not making a call on any particular trend in any given year, which means that it doesn't have to spend all of its cash flow going after opportunity position. It can focus that on growing marketing and other growth avenues. So I guess we think that Temple & Webster has a real chance to become, at least at the moment, the sort of online leader, whereas Adairs, whilst being a good business, it's still a little bit constrained by its business model.

Thanks, Stuart. Another question on Infomedia as well. Do we hold it and how is the company currently?

Yes. It's Kieran here. Please jump in, Stuart, for some added comments. We do hold it. So just to, I guess, give the full picture to shareholders. It's a small digital business that's effectively involved in making dealership -- car dealerships run more efficiently. So in the service area of a car dealership, there are a number of parts that you need to order when a car comes into the workshop. Infomedia has got an online catalog for that where you order those parts and some associated software products around that. We've owned it for a few years. It's been a little bit disappointing in share price turns. There's been some management change and the stock has sort of derated somewhat. But the resilience of the business has been there really strongly. The cash flow is solid. They've got a net cash balance sheet, a good recurring revenue model. And it's really just felt like it's needed someone to unlock a bit more of the growth potential we see. So we've been monitoring that closely with that management change. And it's early days, but the new CEO has been appointed, not yet commenced. And we look at his background, and that's all we can go at the moment. And we think he has a really relevant background. Stuart's got the details in front of him, so perhaps you could give us some of that.

Yes. Thanks, Kieran. Yes, I guess the new incoming CEO, Jens Monsees, has a background. He was Chief Digital Officer at BMW Group and was also the Automotive Industry Leader at Google. So that's pretty impressive background for someone that's going into an automotive software business. So that gives us some confidence, and we look forward to meeting him when he commences.

All right. Thanks, Stuart. I'll just check with the operator. Is there any calls -- sorry, any phone questions at all, operator?

I'm showing no questions from the phone line. [Operator Instructions]

Okay. Thank you. I'll continue on with the online questions then. I have a question here about -- which I'll answer, I'll ask and answer. So at the current dividend rate, what period forward is held in the profit reserves? Well, we have quite significant profit reserves. But relative to the dividend, the most important piece is actually a level of franking. We do like to pay fully franked dividends. As shareholders are aware, we have over 2 years' worth of franking credit available to us to support the current dividend payments. That's assuming, in fact, we have no further dividends coming through. So a very, very, very strong position. There's a question here -- a couple of questions, I guess, related more to the macroeconomic theme. One is about the increasing risk of stagflation and how Mirrabooka is positioned, but also a question about how rising interest rates affect smaller mid cap. So perhaps, I could throw those 2 questions in together and perhaps pass to Kieran as a first stab on this.

Yes. Thanks, Geoff. So I guess when you're sort of form an outlook for how your companies are going to perform in share market terms, it's always the combination of how the earnings will hold up and then how the market will rate those earnings and what that means for the share price compared to today. So thinking through the stagflation theme, I mean, I guess that's an environment where both of those come under pressure. You can have situations where costs are rising faster than prices and you get profit margins squeezed in companies. We think our process is as well-placed to handle that as you can be. There'll be some companies in the portfolio that would be exposed more to that than others, of course. But focusing on quality companies, that's really what we're getting at is sort of saying, for difficult economic environments, what are the sort of businesses that have a market position where they can effectively control their own destiny more. So we think no matter what real economic scenarios you throw out, we think we're doing as well as we can in terms of really focusing on quality and having the right companies to withstand that. On the valuation side, I mean, again, that gets back to ratings today versus ratings in a different environment, thinking forward, if market conditions become a lot tougher. There's not a heap we can do about that. We think -- we understand that the companies that we like, many others do like them. So they do come with premium valuations. So in a high interest rate stagflationary sort of environment, that can put more pressure on those ratings. But having said that, we think in the long term, in the very long term, the things -- the key driver of share price performance is generally the earnings performance of the companies, and we think we've got the right ones for that.

Just an observation on stagflation. It seems to me that it's -- well, it's a possibility. If it's going to occur, it's some way off because in the end, it really does require interest rates to exceed the rate of inflation because until you get to that situation, your monetary policy is -- effectively remains stimulatory. And so I think we're still some way away before the central banks would be prepared to push interest rates up high enough to reach that situation. And also, too, as someone that's still involved in business and a keen observer of it, I think the ability to pass on costs is better now than it has been for at least 25 years, anyway.

Thanks, Terry. A question about exposure to oil and gas, very topical in this environment. "Do you feel there is growth prospects in this area over the next 10 years still?"

Look, so perhaps starting with what we do have in the portfolio in terms of our exposure. We've got some Santos in the portfolio, which has effectively come about through our Oil Search holding, with that takeover. That's a stock that's -- it's too large really, for a mid- and small-cap portfolio in the medium to long term, but we'll deal with that, I guess, related to our view on where we are in that cycle. So that's something under consideration. And then there's really Worley, which is an indirect beneficiary as an engineering consultant to that sector. So that's our exposures. On the long term, look, I think like a lot of commodity-related stocks, in the long term, they tend to go up in parts of the cycle and then come down in other parts of the cycle. So I think our process and our approach to finding good long-term companies, we think the sorts of businesses we fill our portfolio with, will through the cycle beat commodity stocks, but there will be times in the cycle where being structurally underweight in those areas of the market does cause some performance pressure relatively. And look, we may be in for one of those for a period of time as it relates to oil and gas.