Trading Places: ‘Ethical’ substantial holders have made some multi-million dollar moves

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Trading Places is Stockhead’s weekly wrap of ASX small cap substantial holder filings. Substantial holders are defined as those holding 5 per cent or more of a company’s shares and these could be directors, individual investors or institutional investors.

Shareholders are required to announce to the exchange when their shareholding becomes substantial, when they have ceased to be substantial shareholders or any change in their holdings above 5 per cent.

‘Ethical’ buyers

This week there were two big purchases by fund managers that deemed themselves ethical. Ethical Partners Funds Management bought a 6.68 per cent stake in furniture retailer Nick Scali (ASX: NCK), paying $27.8 million.

No matter how ethical a company may be, investing is about making money and you cannot deny this one has been a money maker. Nick Scali made a $25 million half yearly profit and paid a 25 cent per share dividend (representing a 4 per cent yield).

Another “ethical investor”, Australian Ethical Investment was already a substantial holder in eye laser firm Ellex (ASX: ELX). But this month it’s topped up its holdings to 8.42 per cent, which cost it $1 million this month.

Also this week it completely sold out of Actinogen Medical (ASX: ACW). This sale netted them $1 million – thus explaining where it got the money to pay for the larger stake in Ellex.

It turned out Actinogen’s anti-Alzheimers drug was ineffective and shares fell nearly two thirds. But the stock was not totally wiped out like Factor Therapeutics (ASX: FTT) so it was able to escape with something.

You might be wondering how an investor can call themselves ethical. This is difficult because there is no fixed definition on what ethical investing is.

Some believe it’s just avoiding stocks they think are unethical (such as gambling). Others believe it is only investing in stocks proactively ethical (environmental stocks perhaps). Sometimes they just follow advice on what others believe are ethical.

The other buyers

Prudential subsidiary, M&G investments, took a 12.6 per cent stake in gold explorer Troy Resources (ASX: TRY). As we reported on Tuesday, it made up 83 per cent of its $7.6 million capital raising. The money raised puts its gold project in Guyana in good stead.

Spheria Asset Management bought a 5.97 per cent stake in lighting retailer Beacon Lighting (ASX: BLX) with $3.7 million.

It also increased its holding in A2B Australia (ASX: A2B) which was until recently Cabcharge. Spheria now holds 13.33 per cent and was joined by fellow fund manager Investors Mutual which topped up its holdings to 11.90 per cent. Both firms have poured in $9 million between them since February.

Eighteen months after appointing NRW as its mining contractor, Gascoyne Resources (ASX: GCY) welcomed it as a substantial holder with a holding of 8.58 per cent. NRW paid over $4 million in a rights issue.

Gascoyne also saw Delphi top up its existing substantial holding to 18.44 per cent after Delphi put in $6.7 million, again in the share purchase scheme.

Sellers

Australian Ethical Investment weren’t the only fund manager that sold its shares in Actinogen Medical (ASX: ACW). Fidelity did as well, although it was not a complete sell-out. It sold 15 million shares for just over $200,000 and is no longer a substantial holder – with 4.87 per cent.

This is the second biotech investment gone wrong for Fidelity in recent months. They also invested in Factor Therapeutics (ASX: FTT) before it collapsed.

While reaping $200,000 may have been better than nothing, it did fork out over three times that ($676,000 to be exact) for a similar parcel only a month earlier.

Potash producer Danakali (ASX: DNK) saw Los Angeles-based fund manager the Capital Group sell out after holding for two years. According to the substantial holder notices filed with the ASX, it first bought 16.7 million shares for $10.35 million. Then earlier this year it sold 1.69 million shares for $1.26 million and last week the remaining 15 million shares went for $8.9 million, representing a small loss.

Paradice Investment Management decreased its stake in nickel producer Western Areas (ASX: WSA) to 7.33 per cent with $3.6 million in net sales in recent months – $1.8 million of which was in May.

Regal Funds Management sold out of software stock Livetiles (ASX: LVT), netting $4.6 million, while Airlie Funds reaped $5.2 million ($3.7 million of which from last Friday) by reducing its stake in Nick Scali (ASX: NCK) to 6.26 per cent.

Ex-Strathfield chairman Val Vovanessian halved his stake in Emperor Energy (ASX: EMP) after his takeover bid failed. He now only holds 3.26 per cent.

You may recall yesterday morning we mentioned that Bubs Australia (ASX: BUB) founder Kirsty Carr had sold $5.8 million of shares to buy a house. Her holdings were under 5 per cent so she was not a substantial holder.

But that was not the biggest sale we noticed. Taurus Funds Management sold $20 million in Finders Resources (ASX: FND). But this was because the copper exploring company is being acquired.

By this stage of the process, Taurus had no choice. Once a bidder has over 90 per cent of a company they have the power to acquire the remaining holdings and this is what Eastern Field Developments did.

Diluted

Two notable dilutions occurred in Smart Marine Systems (ASX: SM8). You may remember them as the company who sell shark-monitoring systems.

Directors Craig Anderson and Hamish Jolly held over 40 per cent between them but their stakes were diluted by nearly two-thirds due to a capital raising.

Also three shareholders of Kingston Resources (ASX: KSN) were diluted despite participating in the placement. Slipstream Resources, Sandfire Resources and private investment company Farjoy.

Who are Farjoy? The family trust of barrister Tim Robertson SC.

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