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Hunter Hall achieved a 26% return for the last calendar year so I thought some might be interested to see what Peter and his team were buying and selling.

He doesn't mention it in this little missive but he has also been buying Macmahon Holdings (now owns 15% of the company) and Pima.


The Trust's best performer was Grow Force Australia Limited, a rural merchant, which rose 132%. It is (alas!) one of the Trust's smaller holdings. In terms of "total bucks delivered" the star performer for the period was Paterson Zochonis plc (maker of Cussons soap) - its shares rose by 47%. This was driven by two factors - a vigorous share buy-back programme and excellent operating results. For the year to 31 May 2001 the company reported profits up by nearly 24%. The Imperial Leather brand was revived with new packaging, an extensive advertising campaign and new product extensions such as Foamburst which are focused on (in the company's delicious phrase) "lather delivery". Net cash rose from 85m pounds to 120m pounds, despite the buy-back and capital investment.

The non-voting shares, the form in which we hold almost all our investment, are selling at three times cashflow and at zero premium to net tangible assets. Despite more than doubling over the past three years the shares continue to sell at a ridiculously low price. Paterson Zochonis plc now comprises 18% of the Trust's portfolio and is our largest holding.

Our biggest "problem stock" is PMP Ltd, the printing and magazine company, but this did well, rising 45% during the half. This rise was in response to the completion of a deal with Seven Network which ensures PMP will be given the time to repay its debts in an orderly manner. We have high hopes for PMP, and have added to our holding, which is now 6% of the Trust's assets.

The events of September 11 had two significant effects on our portfolio. One was to cause us to re-evaluate the risks inherent in the London Stock Exchange plc, which had been our largest holding. Although we remain confident about the Exchange's long term future, and are now comfortable that the business is finally being managed properly, the shares were clearly riskier than they were before September 11. In addition, the LSE's Franco-Belgic-Dutch rival, Euronext, purchased the London derivatives exchange LIFFE Holdings and this raises the competitive stakes. Accordingly, we halved our shareholding, and now have 10% of the Trust's assets invested in the Exchange. During the half-year, the shares rose 16%.

The other direct consequence of September 11 on the Trust was that it enabled us to buy a decent position in QBE Insurance Group Ltd, one of Australia's best insurance companies at attractive prices. The numbers are complex, but the simplest way to see what attracted us to QBE was that although QBE's losses from September 11 were only $250m, the market value of the company had fallen by $2.5 billion. In order to rebuild its capital base, and to take advantage of the substantial increase in premium rates, QBE raised $663m of new capital, a small part of which came from the Trust. We are confident that higher premium rates will enable QBE to earn substantial profits in coming years, profits which are not yet reflected in the share price. 14% of the Trust is invested in QBE, and the Trust is up 20% on its cost price.

Several other new names joined the portfolio during the half-year. We bought 20m shares of MYOB, the accounting software company at 50 cents. The shares subsequently rose to 73 cents as investors began to look beyond the post-GST abyss to see the quality of MYOB's business and management, and the potential of its new products.

We bought 1.5m ERG convertible notes at $8.34 (adjusted for a 50c interest coupon), which at the current $8.70 represents 5% of the portfolio. ERG provides automated ticketing services. It is highly geared, but we felt that the risks of insolvency were more than reflected in the yield to maturity of over 25%. Gearing has since been reduced by a $100m rights issue.

Smaller holdings to join the portfolio included CPI Group Ltd, Ideas International Ltd, Legalco Ltd, Minerals Corporation Ltd, and Softlaw Corporation Ltd (up 40% since we bought it). We sold out of Devine Ltd at a useful profit, and sold two-thirds of the Trust's shares in Coats Viyella plc.

The news was not all good. Stillwater Mining Company fell 37% in response to slumping platinum and palladium prices. Snackhouse plc, the UK chips manufacturer went broke, causing a $2m loss in the half-year. By far our most expensive mistake was selling out of ABC Learning Centres at $4 a share. We felt very pleased to have doubled your money in a few months. We felt less pleased when the shares quickly rose to $14. This mistake cost our unitholders $8m.

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