The Spheria Emerging Companies Ltd (ASX: SEC) share price is edging higher on Wednesday after the release of its May investment update.

What happened in May?

During the month of May, Spheria Emerging Companies recorded a solid return but continued to underperform its benchmark.

The fund manager reported a 7.2% gain in May, compared to a 10.6% gain by the S&P/ASX Small Ordinaries Accumulation Index. This means its return over the last 12 months is now a negative 12.7%, whereas the index is down 2.9%.

What is Spheria invested in?

A number of companies contributed to its 7.2% gain last month. Positive performers in the fund included retailer Beacon Lighting Group Ltd (ASX: BLX), appliance manufacturer Breville Group Ltd (ASX: BRG), fashion retailer City Chic Collective Ltd (ASX: CCX), and telco Superloop Ltd (ASX: SLC).

Management commented: “These stocks continued their recovery over May post the selloff in March. Superloop is benefitting from increased data demand and a much greater focus on cash flow generation with a moderating capex profile.”

The fund manager also notes that Breville “appears to have continued to trade well through the shutdown period as consumers purchase small home appliances.” It took part in its $101 million capital raising during the month.

That wasn’t the only capital raising it took part in. It also added to its position in Blackmores Limited (ASX: BKL) by participating in its $117 million capital raising. This could be an indication that it remains optimistic on its prospects.

The detractors.

The biggest factor in its underperformance in May was not necessarily what it owned, but what it didn’t own.

Spheria notes that there were a few names in the gold space which it doesn’t own, including Saracen Mineral Holdings Limited (ASX: SAR) and Regis Resources Limited (ASX: RRL), which contributed strongly to the S&P/ASX Small Ordinaries Accumulation Index’s gain.

Though, one share in the portfolio that did weigh on its performance was Village Roadshow Ltd (ASX: VRL). It declined 10% during May on the back of a revised takeover offer from BGH Capital.

Where will the future gains come from?

Spheria appears optimistic on the future and notes that “the prospects for a reasonable economic recovery are real.”

In suspects that this could ultimately lead to a rotation into cyclical sectors which offer value for money.

“Whilst high growth concept stocks particularly in the fintech space have led the recovery so far, there remains the prospect of a strong rotation into cyclical sectors which offer far greater relative valuation appeal. Sectors which include building materials, consumer discretionary and media,” the fund manager explained.

It concluded: “The re-emergence of private equity and corporates on the acquisition path is also likely. With our focus on strongly cash generative businesses with modest gearing we should be the beneficiary of some of this activity looking forward.”

More reading

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• 5 things to watch on the ASX 200 on Wednesday
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Beacon Lighting Group Ltd (ASX: BLX) share price is beaming today after the retailer announced bumper second-half sales growth.

At the time of writing, Beacon Lighting shares have surged 22.61% to $1.22, taking the company’s year-to-date share price movement back into positive territory (albeit marginally).

What did Beacon Lighting announce?

This morning, Beacon Lighting delivered a business update. This is the first time investors have heard from the company since the release of its first-half FY20 results back in February.

In today’s release, Beacon revealed that its stores have been able to trade throughout the COVID-19 pandemic. This has helped the company to achieve strong sales growth in the second half of FY20.

Accordingly, for the period 30 December 2019 to 14 June 2020, Beacon delivered total sales growth of 15.5% and comparable sales growth of 16.9% over the corresponding period in 2H19. Meanwhile, the company’s online channel reported bumper growth of 77.7%.

As for year-to-date results (1 July 2019 to 14 June 2020), Beacon has achieved total sales growth of 7.1%, comparable sales growth of 6.4%, and online sales growth of 47.8% over the corresponding period in FY19.

The company attributed this uplift in sales to changes in consumer behaviour in the wake of COVID-19.

Further developments and profit guidance

On 9 December 2019, Beacon disclosed it had sold its Brisbane distribution centre to Charter Hall for $28 million under a sale and leaseback arrangement.

This morning, Beacon revealed that the sale realised a cash flow profit before tax of $13.5 million. Given the sale and leaseback accounting rules, the company realised a profit before tax of $7.8 million which will contribute to its FY20 statutory results.

At the end of last year, the company also announced the closure of Beacon Energy Solutions. The retailer disclosed today that the cost to close the business will be approximately $5 million, exceeding original forecasts of between $3.4 million and $3.9 million.

Excluding the impact of the distribution centre sale, the Beacon Energy Solutions closure and lease accounting changes, the company’s FY20 underlying net profit after tax (NPAT) is expected to exceed the $16.5 million result achieved in FY19.

More reading

• Here’s where this ASX fund manager sees value for investors
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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