ASX:CLG
Close The Loop Ltd
Investment Summary
The fund managers believe Close the Loop Ltd (CLG) is a compelling investment opportunity, underpinned by its strategic focus on the circular economy and strong execution in both organic and acquisitive growth. In their opinion, CLG’s FY23 performance was transformational, marked notably by the acquisition of ISP Tek Services and Captive Trade Corp, which significantly enhanced the group’s earnings and scale. These acquisitions were made on attractive valuation metrics and have proven highly accretive, with early financial contributions exceeding expectations. The fund managers are particularly impressed with the operational capabilities of management and the company’s ability to exceed both internal and market forecasts. In their view, CLG’s conservative pro-forma guidance for FY24 understates the company’s earnings potential, especially given strong Q1 results and management confidence in outperforming guidance. A key concern around customer concentration with HP has also been meaningfully addressed, with the renegotiation of a rolling contract into a multi-year exclusive agreement—an important de-risking milestone. Looking forward, the fund managers see substantial growth potential through geographic expansion, onboarding of additional OEM partners, and scaling of refurbishment capabilities. In their view, CLG remains undervalued relative to its earnings profile, offering attractive upside for long-term investors.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Manager
Cerutty Macro Fund
Date
31 Aug 2023
Price
$0.45
Medium
Monthly Report
Commentary
Cerutty Macro Fund continues to hold Close the Loop Ltd (CLG) as a core position, reaffirming its confidence in the company's role within the circular economy. The fund notes that FY23 was a transformational year for CLG, marked by the acquisitions of ISP Tek Services and Captive Trade Corp—an electronics refurbishment and trading business based in Texas. These acquisitions were completed on highly attractive terms, including a run-rate ~4.8x PE multiple, and were fully accretive to earnings per share. Although consolidated for only the final two months of the financial year, the new segment delivered a net profit contribution of $5.4 million, representing a 32% increase on the prior corresponding period. Cerutty Macro Fund highlighted that the company’s full-year results exceeded both its own expectations and broader market forecasts, supporting the fund’s continued conviction in CLG’s long-term growth potential.
Cerutty Macro Fund
Date
30 Nov 2023
Price
$0.34
Medium
Monthly Report
Commentary
Cerutty Macro Fund continues to hold Close the Loop Ltd (CLG) as a core position, reaffirming its conviction following recent developments that strengthen the long-term investment thesis. A longstanding portfolio holding, CLG operates in the circular economy space, recovering, refurbishing, and reusing electronic consumables across a global footprint of 260,000 collection sites. The acquisition of U.S.-based ISP Tek Services in early 2023 marked a step-change for the business, positioning the group to deliver approximately $200 million in revenue and $43 million in EBITDA on a pro-forma basis. Cerutty Macro Fund notes that these forecasts are conservatively based on no growth, a view the fund does not share—highlighting a ~35% increase in NPAT from the new business in just two months of FY23 contribution. Management’s confidence in exceeding FY24 guidance, alongside a strong Q1 and potential upside from Christmas trade, supports the possibility of a full-year upgrade. While initial investor concern centred on ISP’s reliance on HP (~80% of revenue), the recent renegotiation of this relationship into an exclusive three-year contract across key product lines is viewed by the fund as a key de-risking milestone. Cerutty Macro Fund sees further upside potential through geographic expansion, OEM diversification, and broadening of refurbishment services.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.