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This article contains important information regarding your investment. As previously communicated by email, as a Responsible Entity of your investments, Copia Investment Partners (Copia) employs a panel of service providers that help facilitate the reporting for your investments with us. On 18th December 2023 ("the transition date"), Copia will be changing one of its service providers that manages the client administration and registration from Iress Managed Funds Administration (MFA) to Boardroom. This follows an extensive review by Copia to determine which provider is best able to deliver client services that is among industry best practice. As a result of this review, we have chosen BoardRoom who have a 30-year track record in managing client administration and registry services. Benefits for you: The new service will provide the following benefits: The ability to make new and additional investments online A portfolio view your investments in one central location ("InvestorServe") The ability to view and manage personal information including contact details, banking information and tax file number online Access to online statements and distribution advice Access to information on holdings including distribution details, tax and trust financial information being stored in a secure portal for future access at any time. What will change? Change to your account number Change to bank details for applications Change to email address for submitting forms Change to investor portal Investor account number Your new Boardroom investor account number will be referred to as a “unit number”.  The unit number will be in the following format: U10 + Existing Account Number. For example, if your existing account number is 10023457, your new unit number will be U1010023457. Bank details for applications From 2pm on Friday 15th December 2023, Copia’s bank details for receiving application monies will be as follows: Account Name: Boardroom Pty Ltd ITF COPIA Funds - Application A/CBSB: 332-027Account Number: 556-074-208 Email address for submitting forms From 2pm on Friday, 15th December 2023, the following email address should be used to return completed forms for processing (e.g. Application Forms, Withdrawal Forms, Change of Details Forms): copia.transactions@boardroomlimited.com.au Accessing your investment via the investor portal The new investor portal will be called “InvestorServe”. Instructions on how to access InvestorServe will be communicated to you by email. If you have any questions, please don’t hesitate to contact our Client Services Team: 9am to 5pm Melbourne business days ​ P  1800 442 129 (free call within Australia) P  +61 3 9602 3199 E  clientservices@copiapartners.com.au

Chester Asset Management are thrilled to announce that the Chester High Conviction Fund has been recognised as Money magazine’s Best Australian Shares Fund 2024, marking its second consecutive win after also securing the award in 2023. We were delighted to attend the lunch in Sydney alongside representatives from Copia Investment Partners. How the winner is chosen: "Rainmaker, publisher of Money, has been reviewing superannuation, managed funds and their investment managers for more than 20 years. To conduct the banking products assessments Rainmaker and Money teamed up with InfoChoice, one of Australia's leading financial product comparison websites. When choosing which managed funds or exchange traded products (ETP) to invest with, investors are looking not just for funds that scored the highest investment returns but also managed their investment risks. This includes an assessment of which managed funds most protect your capital." More information: About the Chester High Conviction Fund Contact us Best of the Best Awards

Chester Asset Management Co-founder and Portfolio Manager Anthony Kavanagh had the great opportunity to sit down with Jonas Dorling from Money of Mine. The conversation covered all things Chester, how the portfolio is built, the role commodities play as well as all things macro, from China to India to Australia. Click here to subscribe to the monthly report for updates on the current market outlook, Chester's performance and more.

We were pleased to be part of a panel discussion at the Lonsec 2023 Symposium, focusing on the merits of active and passive investing. The session was hosted by Brook Sweeney from Lonsec, with Rob Tucker from Chester Asset Management on the active side, and Cameron Gleeson from Betashares on the passive and smart beta side. We hope the session was informative for the audience and thank Sara Rawis and the Lonsec team for hosting a great event. Rob highlighted the challenges index strategies have in terms of the allocation to the most expensive stocks and lack of adequate industry diversification when it comes to the ASX, while also discussing the advantage of active management in terms of fundamental analysis that will support the potential for outperformance in the future. This is a key focus for the investment team managing the Chester High Conviction Fund, distributed by Copia Investment Partners.

Meteorologist. The only job where you can be wrong every day and still keep your job. — Willard Scott Meteorologists or weather people are inherently not trusted. They are extremely public figures that people rely on to make decisions every day about how the coming day/ week will prevail. It can be a tough gig. However similar to the analogy of weather people, as fund managers sometimes it can be challenging getting caught in the day to day weather patterns of the market. It is always best to zoom out and take a longer term view. Hence we took note last month when the Bureau of Meteorology (not sure if we’re still allowed to call it the BOM) officially declared La Niña over with Australia (and the world) now on watch for El Niño conditions. This could be a material longer term change. First of all, what is a La Niña and El Niño? The layman’s view is that El Niño and La Niña are opposite phases of a naturally occurring global climate cycle that effects weather patterns and hence climate globally. El Niño happens when the Pacific Ocean heats to a temperature higher than normal which can cause variability in rain patterns generally meaning drier conditions (although not guaranteed in all locations). La Niña on the other hand refers to the Pacific Ocean getting cooler than normal, almost causing the opposite effects, i.e., more rain and flooding in some areas. In Australia specifically El Niño has seen warmer conditions across the country including drier conditions in the east and in southern Australia, increasing the risk of bushfires and droughts and reduced rainfall up north. La Niña in Australia has generally been associated with cooler temperatures across most of the country and wetter conditions across northern and eastern Australia, think the recent Queensland floods. If you are asking yourself where’d my 40 degree summer’s go? The answer is we have seen 3 La Niña years in a row, only the fourth time this has occurred since 1900. 2022 was also regarded as the wettest year for Sydney on record. In North America El Niños are usually associated with wet and stormy conditions in southern states of the US but warmer and drier conditions in the northern part of the country. La Niña however generally sees drier and warmer conditions in the south and wetter and more cooler conditions in the north. Hurricanes across the Atlantic are also a key feature of La Niña periods. Although there is some debate whether we were truly in La Niña/ El Niño for some of these years the general pattern for the past 40 years is presented in the graph below with blue indicating La Niña and red indicating El Niño periods. Source: (VIEW LINK) Specifically for the past 15 years the following patterns have been observed: La Niña 2020 to 2022 El Niño 2018 to 2019 La Niña 2016 to 2018 El Niño 2014 to 2016 La Niña 2010 to 2012 El Niño 2009 to 2010 La Niña 2007 to 2009 Apart from deciding whether to continue carrying around an umbrella why is this an important observation and can it impact earnings and hence stock returns? We have summarised some company impacts below. Insurance We start with what we see as the most obvious beneficiary of an end to La Niña in insurers. Insurance Broker and Risk consultant Aon in partnership with Climalab recently presented a report titled Say Goodbye to the Big Wet and Excessive Losses. Within the report was the following graph showing insured disaster losses across Australia for the past 50 years. It simplistically shows La Niña = higher weather losses vs El Niño periods. Source: Aon Report, Say Goodbye to the Big Wet and Excessive Losses The recent La Niña period has led to consecutive years of flooding across the east of Australia. Aon specifically argues that “all previous triple dip La Niña’s have been a precursor to a flip in the Pacific Decadal Variability (PDV). I.e., a switch to an El Niño dominated period that has “persisted for at least a decade”. We consider the past 10 years of data across the insurers and note that although there have been recent periods that are classified as neutral or El Niño years, the dominant conditions have been that of La Niña. QBE QBE differs to Suncorp (SUN) and IAG Australia (IAG) in that it is a truly global insurance company with approximately only 25% of premiums written in the Australia Pacific region and the rest of the business split fairly evenly between North America and the rest of the world (International). Since 2017 QBE has been positioning for growth and turning around underperforming businesses. This has been somewhat accelerated by the commencement of CEO Andrew Horton in September 2021. One of the measures to improve returns and reduce volatility has been to raise the level of catastrophe (“Cat”) provisioning from USD685m in 2021, to USD962m in CY2022 and now USD1,175m. The provision vs claims of the past 10 years is presented in the graph below. Source: QBE CY2022 Results Presentation We have tabled this below to demonstrate the variability in claims across El Niño and La Niña years and what that might mean for overall claims going forward. Source: Chester Asset Management with data from QBE Annual Results reports As is evident in the table above La Niña has brought with it material damage from weather events. The 3 years most significantly impacted being 2017, 2021 and 2022. 2017 included damages from the impacts of Hurricanes Harvey, Irma Maria, as well as California Wildfires 2021 included Winter Storm Uri and Hurricane Ida 2022 included Hurricane Ian and the French storms The table above suggests to us potential for a catastrophe claims beat should ‘normal’ (if there is such a thing) El Niño conditions prevail. SUNCORP AND IAG Suncorp (SUN), if their bank sale achieves ACCC approval, is set to become a pure play insurer. SUN has ~16% market share (28% motor and 22% home) across Australia with brands such as AAMI and GIO. IAG has traditionally been regarded as the premium insurance name in Australia with historically strong performance from brands such as NRMA, CGU, RACV (JV), SGIO, etc. and ~20% market share. Both IAG and SUN have been materially impacted by Cat claims in recent years from the severe flood events. SUN’s claims from FY2014 to FY2022 are evident in the graph below. Source: Suncorp Presentation, FY2022 For comparison to QBE, we have prepared a similar table however the results don’t highlight much difference in claims between El Niño and La Niña years for the Australian insurers since 2012. In FY2015 in particular (El Niño year) there were elevated claims associated with storm events in Brisbane (November 2014) and NSW (April 2015). We also believe that El Niño conditions bring with them increased risk of bushfires. Source: Chester Asset Management with data from IAG and SUN Annual Results reports As highlighted above the dominant weather pattern over the past 15 years has been La Niña and hence despite there not being obvious evidence in the table of variances between El Niño and La Niña years, the work by Aon and Climalab supports reduced peril/ natural hazard claims for both insurers should we enter a period dominated by El Niño. Agribusiness Apart from Insurance, the Agribusiness subsector is the most impacted by weather conditions. We have tabled some of the potential impacts to select ASX Agribusiness names below. Source: Chester Asset Management, various sources In relation to Graincorp, East Coast Australia (ECA) production[1] is presented in the chart below. Source(s): Chester Asset Management, Graincorp, ABARES It is worth pointing out that the FY23 winter crop is currently forecast at 28.9Mt (vs 10 year average of 20.9Mt) and the ECA summer (sorghum) crop is estimated at 2.5Mt taking the total forecast to 31.4Mt. I.e., another strong year benefiting from La Niña rainfall. Should we enter a period of El Niño however the data suggests production materially below that of La Niña years. Construction and Development The FY2022 and now FY2023 rain and flooding events across eastern Australia has been extremely challenging for a host of industrials, namely construction and development companies. As noted above 2022 for Sydney was the wettest on record and the 2022 financial year saw almost 3 times the average rainfall of the previous 5 years. Source: Boral FY2022 Results Presentation Below for reference we have tabled the rainfall experienced in NSW in September for the past 10 years. We have used this as a guide to the degree of variability between El Niño and La Niña years. Source: Chester Asset Management, Bureau of Meteorology I.e., in the graph above La Niña years are ~30% above the 10 year average rainfall figure and El Niño years ~40% below. A sample of industrial companies we note that have recently been impacted by the weather are tabled below. Source: Chester Asset Management and various results material Mining and Utilities We have seen a host of miners impacted by wet weather in the past few months. Tabled below are a recent subset, on the east coast. These operators obviously stand to benefit from drier conditions. Source: Chester Asset Management, company results We also note that El Niño drier conditions are combated with increased energy (air-conditioner) use so an El Niño dominant period could lead to volume growth and electricity price benefits for the likes of AGL and Origin Energy. 2019, the last El Nino period in particular brought with it a spike in electricity prices with the March Quarter in Victoria averaging ~AUD200/MWh. Closing So, the question really comes down to can you trust the Weatherman? Because if you can, and we are set up for an El Niño dominated decade there could be some material benefactors within the insurance, industrial and mining sectors and conversely some areas of risk to be mindful of in Ag. Bring on long hot summers. [1] per the ABARES definition of Winter Crop + Sorghum crop relied upon by GNC

Having lived through a period of over-consumption are we now facing a consumption hangover? As the dust settles on another festive season the mind very quickly moves to the year ahead. Any portfolio manager will tell you that one’s portfolio is never far from the front of their mind. Even during this seasonally quieter period for company updates and broader news flow we at Chester approach 2023 with a healthy level of anxiety. As investors it is the sense of unease about the companies that we own that motivates us to continually review and test the assumptions that underpin our investments. A portfolio manager is forever seeking additional information that either strengthens or challenges the investment case they hold for companies. Arguably no segment of the market embodies this time of year like the retail sector. From Christmas gifts and family celebrations to new year festivities and back-to-school preparations, the importance of this period for retailers can’t be understated. As we await the annual barrage of updates over the coming weeks as companies and various industry participants offer their assessment of the all-important December-January trading period, there is no escaping the fact that 2023 offers a decidedly uncertain outlook for domestic retail. Did that really happen…? The level of disruption felt by retailers over the last three years is well understood. By necessity traditional spending patterns and behaviours went out the window as the impacts of lockdowns, store closures, travel restrictions, stimulus packages and global freight disruption all contributed to a retail environment no one could have anticipated. Personally, the reminders of this unprecedented period are all too many. From the constant emails of retailers purchased with during the pandemic to the frequent online grocery orders that continue to arrive and of course the far too many streaming services that continue to be paid for (but less frequently watched) there is no doubt consumers and retailers alike adapted to the conditions. Highlighted below (Chart 1) and notable for the extreme volatility caused by the changing Government rules through the period, the net result is that Australians spent at a very healthy rate in recent years. Buoyed by historically low interest rates and the confidence gained from record house prices, together with restrictions on things like travel and entertainment, retail consumption grew well in excess of historic rates. The challenges faced by retailers sourcing enough product to keep up with the extreme demand also saw discounting materially reduced from historic levels resulting in the expansion of gross margins as consumers became less concerned about price and very focused on availability. (See Table 1) Chart 1. Source: ABS, Macquarie At a category level some of the ASX’s largest retailers were amongst the biggest beneficiaries from the strong consumption through the period. Viewing the below chart (Chart 2) it’s easy to see why the likes of JB Hi-Fi (JBH), Harvey Norman (HVN), Wesfarmers (WES), Metcash (MTS), Nick Scali (NCK) and Adairs (ADH) all saw their sales rise significantly through the period. Throw in the likes of Super Retail Group (SUL) with their key outdoor brands Rebel, Super Cheap Auto and BCF, plus the likes of Domino’s Pizza (DMP) and Collins Foods (CKF) whose customers valued the convenience of their fast-food offerings when dining options were restricted the list of ASX retailers to benefit from the changing consumer behaviour in recent years is quite extensive. Chart 2. Source: ABS, Macquarie Of course, achieving sales remains just one part of the equation for retailers and the ability to convert sales to profits and ultimately cash flow hasn’t been without its challenges. Across these measures the performance of domestic retailers has been decidedly mixed. The huge spikes in online demand during the pandemic challenged the supply chains and fulfilment capabilities of businesses like never before. Managing inventories has remained amongst the greatest challenges for retailers as extended delivery times from overseas suppliers has increased working capital requirements at a time when customer demand has remained highly volatile. Covid winners... Where are they now? The share prices of some of the earliest pandemic ‘Winners’ certainly highlights the challenges businesses have faced over the last couple of years (Chart 3). For the likes of Kogan.com (KGN), Redbubble (RBL), City Chic (CCX) and Adore Beauty (ABY) whose IPO was perfectly timed in October 2020, their online business models (with the exception of CCX who maintain some store presence in Australia) meant they were huge early beneficiaries of the consumer move to online shopping through the pandemic. Ultimately each has struggled to manage the costs associated with their rapid business growth as they’ve attempted to invest in stock and business infrastructure at a time when forecasting customer demand has been extremely difficult. In the case of KGN’s founder Ruslan Kogan’s predictions that having introduced millions of new shoppers to his site during the initial stages of the pandemic Australia would experience a permanent step-change in online shopping behaviour this hasn’t materialised. For KGN, this bet has been both expensive and painful as high supply chain costs have been absorbed as demand has slowed and excess inventory cleared at large discounts. Chart 3. Source: Bloomberg Returning to the outlook for 2023 there is no question that the conditions for domestic retailers are more challenging now. With inflation firmly embedded and central banks jolted to belatedly commence raising interest rates in 2022 household budgets will almost certainly be under more pressure. Cost of living pressures across key housing categories (including rents, food and utilities) and social services like healthcare and education look likely to remain elevated in the near term at least. For homeowners, much has already been made about the approaching fixed rate mortgage reset horizon and it remains hard to predict how households will prioritise their spending as interest repayments rise. Savings levels remain higher than historic levels but the extent to which consumers will be prepared to further reduce their savings to continue to spend on goods and lifestyle items remains to be seen. Highlighted below (Chart 4), of the approximately 35% (~$740 billion) of household mortgages that are currently being serviced at fixed rates about two thirds are due to expire in the next 12 months and well over 80% by the end of 2024. Whilst subject to change, currently a mortgage holder would be looking at a >3% increase on their interest repayment rates. This is clearly material. Chart 4. Source: RBA, Barrenjoey Combined with the outstanding balance of variable mortgages that have already seen significant re-pricing higher since the RBA commenced the current rate hiking cycle in May 2022 it’s clear home owners are going to be allocating more of their income to servicing mortgages in the periods ahead. The below chart (Chart 5) offers an estimate of the size of increases households will face in the next couple of years as the interest repayments on their mortgages and other personal credit lines rise. Chart 5. Source: ABS, Macrobond, UBS Naturally, equity investors have already attempted to factor in the more challenging outlook for consumer stocks. Reviewing the best and worst performed ASX sectors of the last 12 months below (Chart 6) it’s clear that expectations for stocks within the ‘Discretionary’ basket in particular have been lowered as the approaching headwinds have risen. Chart 6. Source: Bloomberg Amongst the best performed ASX retailers through the pandemic affected 2021 and 2022 financial years (shaded grey below) it’s clear that some level of reversion toward historic sales and margin trends is anticipated over the next couple of years. Perhaps the most reasonable conclusion to draw from the current consensus forecasts is that the Australian consumer is expected to prove pretty resilient over the next 18 months at least. To our mind, this possibility sits amongst the more optimistic scenarios that could unfold. Table 1. Source: Bloomberg (f = Consensus forecasts) What to expect in 2023? Speaking to numerous management teams across the ASX retail landscape pre-Christmas there was a relatively unanimous expectation that Australian consumers were keen to enjoy their Christmas’ and spending was therefore likely to remain pretty healthy over the holiday period. While suggesting there were some signs shoppers were becoming a little more reluctant to transact without deeper discounts through the November ‘cyber’ sales period for the most part executives we spoke to remained cautiously optimistic. Beyond the Christmas/new year period however, most management teams recognised the likelihood that some collective ‘belt-tightening’ was probable in 2023 as the challenges highlighted earlier materialise. The scene is therefore set for potential positive earnings surprises in February if as expected consumers continued to spend throughout 2022 and profit margins remained resilient. Recognising that this appears the consensus view we’d expect the market will be more focused on the outlook with the key areas of focus likely to include: Initial sales performance in the new year, inventory levels and associated working capital and cash flow performance and finally gross margin trends and discounting behaviour. Beyond near-term trading expectations much of our recent discussions with listed retailers has centred around the extent to which the recent disruption to the sector is likely to prove permanent and how this stands to benefit or challenge their businesses. Hardly surprising, most management teams were naturally optimistic that they would emerge from the last few years in a better competitive position. The working from home movement remains topical and not surprisingly the likes of JBH, HVN and BRG are optimistic that the persistence of this trend should be an additional tailwind for their businesses as consumers continue to invest and upgrade their home offices. The belief that the pandemic only further consolidated technology as a central component of one’s lifestyle is hardly surprising. A slightly more off-centre take on the potential tailwinds more working from home would deliver a business was offered by Premier Investments (PMV) chairman Solly Lew in 2022 when he suggested people (himself included) are spending more and more time at home in their pyjamas. Recent results from the group’s best performing brand Peter Alexander suggest he may well be right. Retailers such as SUL and KMD Brands (formerly Kathmandu) whose stable of brands includes Rip Curl, are optimistic that the pandemic has supported a shift in lifestyle priorities that will see people continue to favour more time outdoors beyond the major cities, a potentially favourable trend for these companies. The importance of digital engagement with customers and the role of online in the overall retail experience will continue to remain very topical for the sector. For the many ASX retailers that maintain large store networks across Australia their performance over the last couple of years has largely supported their conviction in the ‘omni-channel’ retail model that offers customers maximum flexibility about how they buy from them. With recent feedback suggesting major shopping centres saw foot traffic very close to the levels experienced pre-pandemic it seems likely that predictions the pandemic would rapidly accelerate the demise of bricks and mortar retailing were misguided. The below chart (Chart 7) highlights that entering 2023 online purchases as a percentage of total retail sales has more or less returned to its recent growth trajectory. Chart 7. Source: ABS, Macquarie Amongst a number of ‘omni-retailers’ it has been noted that a positive outcome from consumers increasingly using technology to research and compare products online is that stores have become more productive in recent times. That is, shoppers are increasingly arriving at stores ready to spend because their “browsing” has already occurred online. Together with more favourable lease terms achieved through the pandemic by several retailers these factors should offer some offset to potentially more challenging retail conditions ahead. The experiences of the major supermarkets over the last couple of years sets the scene for an interesting period ahead. Despite the sales benefits enjoyed by each of Woolworths (WOW) and Coles (COL) throughout the pandemic the challenges of servicing significantly higher rates of online ordering and managing national supply chains regularly disrupted by staffing challenges and volatile customer demand has seen profit margins come under pressure. Noting the different strategies and partnerships WOW and COL are employing to service online shoppers how the respective management groups balance their considerable investment across store networks, online and customer loyalty programs, and their supply chains will be closely watched. For MTS, as a wholesaler to the grocery sector (amongst others), while their model certainly offered it some protection from the cost challenges faced by the majors over the last couple of years it remains to be seen if it can retain the incremental market share gains it enjoyed as shoppers shopped more regularly at their community stores. A potentially more value conscious shopper over coming periods would certainly open the door for Aldi to recover the market share it ceded during the pandemic as it struggled with its international sourcing, especially for its popular general merchandise offers. The role of the online ‘Marketplace’ in the retail landscape is another keen area of focus for management teams. In an increasingly crowded segment of the market the acquisitions of Catch Group (by Wesfarmers in June 2019) and MyDeal by WOW last year suggest competition will likely remain strong at a time when online shopping trends have moderated materially from pandemic peaks (Chart 7). For WES, despite their scale and expertise as one of Australia’s leading retailers, the widening losses they are now incurring in the Catch business as they invest in key eCommerce functions such as fulfilment and customer acquisition/retention suggests further pain may lie ahead in a weakening consumer environment. Interestingly, feedback suggests Amazon’s growing scale in Australia appears to be largely coming from other online players including eBay and Kogan rather than traditional players with large store networks at this stage. So where do we sit? As always, the range of possibilities for both the Australian economy and listed equities in 2023 remains wide. How the RBA responds to a slowing economy and current inflationary challenges will certainly flow through to household confidence and consumer behaviour. For Chester, the unemployment rate looms as a key variable in 2023 and something that will be closely watched. Australia’s historically low current unemployment (Chart 8) offers some optimism that should Australia manage to avoid large scale job losses the Australian consumer may prove more resilient than has been witnessed in numerous offshore markets in the past 12 months as consumer behaviour has quickly adjusted to tougher economic conditions. This would appear to offer some upside to the current consensus thinking and is certainly something we remain cognisant of. Chart 8. Source: ABS, Goldman Sachs That said, there is little doubt Australians are facing some tough choices as to what they value most as household budgets are squeezed. Having lived through a period of over-consumption the very real possibility that we are now facing a consumption hangover can’t be ignored. While acknowledging some of the anticipated challenges faced by ASX retailers in 2023 is clearly factored into current share prices Chester begins 2023 with limited direct exposure to the consumer sectors. Amongst the ASX’s ‘Discretionary’ names in particular we remain cautious that margins will come under greater pressure than is being forecast. Expectations by some management teams that at least some of margin expansion achieved over the last couple of years can be retained in a tough economic environment seem dubious. Consistent with Chester’s investment process (see appendix) that has seen the fund allocate a relatively consistent part of the portfolio to stocks most exposed to the economic cycle (specifically; ‘Cyclicals’) we currently see better opportunities elsewhere. Whilst current portfolio positions such as The Lottery Corp (TLC), News Corp (NWS) and Brambles (BXB) are clearly exposed to not only domestic consumption, but offshore too, we remain optimistic of the resilience of these businesses and their cash flows in tougher economic conditions. Appendix: https://www.chesteram.com.au/investment-process

In the latest episode of the Inside the Rope podcast, Rob Tucker joins Koda Capital Adviser & Partner David Clark for an in-depth chat about the Chester High Conviction Fund, as well as Rob’s outlook on current markets. Click here to listen.

“Ten years ago we were saying that the 15 to 20-year timeline was looking bleak. Now we’re saying, ‘Oh boy, in 5 to 10 years, things can get rough. Investment needs to increase and it needs to increase beyond what we were spending during the last boom in exploration” — Kevin Murphy SandP Global Commodity Insights Analyst, March 2022 Last month the world witnessed Lionel Messi lead Argentina to a famous World Cup victory in an air-conditioned stadium in the Qatari desert, midway through the European football season. If ever there was an endorsement that anything is possible with willpower and the right (government) support aka funding, it’s Qatar hosting the 2022 World Cup. The task seemed almost insurmountable when announced but Qatar was able to construct 7 stadiums over the course of 12 years with a reported price tag (for the entire event) of USD220bn, changing almost 100 years of football history in the process. Bill Shakly once famously quipped "football isn’t a matter of life and death... it is much more important than that". And as we sit here today, looking forward 12 years, Benchmark Minerals are estimating we need to construct over 380 lithium, nickel, cobalt and graphite mines (plus plenty more copper & rare earth mines, plus other infrastructure) to fuel the world's energy transition, requiring not billions but trillions of dollars, in an issue of similar importance to football. Refer below for a fantastic visual. Source: Benchmark Minerals Intelligence, for further info contact info@benchmarkminerals.com We don’t want to labour a point that has been well covered but it is obvious we are in a new era for mining as the energy transition theme moves from mainly a China story to a whole of world story. With this note we revisit a paper we wrote 2 years ago titled Return of the Explorer (“ROTE”) where we theorised the energy transition was one of multiple factors that could be leading to an upcycle in commodity exploration. We further expand on the premise we need more exploration with the statement we urgently need more development as the supply side of the equation is looking challenged. Notably the grey line, in the graph below isn’t a trend line but a separate data source. It shouldn't take a degree in data analytics to identify that exploration and development capex are highly symbiotic! Sources: Chester Asset Management, S&P Global Intelligence and GlobalData, refer section on Lycopodium for copy of GlobalData graph this data relates to. There are multiple ways to play this needed development boom and we explore this in five categories below. Exploration companies Single (and multi) mine development companies Development contractors Non energy transition commodities (sounds counterintuitive but we explain below) Production enhancing opportunities Exploration Companies (Update) In ROTE, after the drawdown in 2020 we theorised we were in the early innings of an exploration boom that could replicate previous upcycles. Under this premise we expected exploration companies such as Imdex (IMD) and ALS Limited (ALQ) to benefit with increased revenue (top-line beats) and operating leverage (margin beats). Although the path hasn’t necessarily been smooth for those names, that thesis has played out. However, 2 years into a cycle we thought might last for at least 4 years S&P are now calling for 2023 global exploration expenditure to decrease by 10-20% before recommencing its upward trajectory into 2024. Despite the weight of evidence that rapid development and exploration is needed[1], arguing with S&P’s latest analysis here might be somewhat futile[2]. The reasoning we are guessing is the US/global recession expected in 2023. That was the same explanation given to us by others when IMD and ALQ both experienced share price pullbacks in 1H CY22. We have hence included a graph of US GDP growth vs global exploration to investigate the relationship between the two. Note with only annual exploration figures we lack data points for a regression analysis but agree that the GFC and COVID did align with down years in exploration expenditure. However, the prolonged downcycle from 2013 to 2016 was in spite of a period of reasonable US GDP growth of ~2% so the relationship between exploration and GDP seems somewhat spurious. Source: Chester Asset Management with data from S&P Global Intelligence, Trading economics Outside of S&P, which we said we wouldn’t argue with, one of the more recent datapoints came with Major Drilling’s Q2 FY23 results[3]. While they acknowledged a “slight softening in activity from the junior miners” they further noted that “customer demand for CY23 looks to remain strong… (and) the growing supply shortfall in most mineral commodities continues to drive demand for … (Major’s) services”. Hence, we believe if S&P are accurate in their projection for CY2023 it would most likely be more evident in the second half. Digressing back to the football analogy with a quote from one of the game's most iconic leaders Ted Lasso "There's two buttons I never like to hit: that's panic and snooze". We feel that pausing exploration and development now would be like hitting the snooze button the day of a life changing meeting and it may require more than a few shots of strong coffee to recover from. Hence despite us finding S&P’s projection pessimistic we have aligned our global exploration model to this ~15% drop in CY23 to ~USD11bn before recovering to ~USD13bn in CY24 (CY22 levels). It is there the panic button may be hit and we expect the upcycle to continue and likely accelerate. For reference we demonstrate what this scenario, and recent trading might imply for IMD and ALQ below. IMDEX Below is IMD’s historical half year revenue, translated into USD, updated to 2H FY2022. Sources: Chester Asset Management, Imdex results announcements, S&P Global Intelligence In October 2022 IMD reported Q1 FY23 revenue of AUD106m representing growth on pcp of 22%, or 19% in constant currency. We assume that growth rate has continued into Q2 and IMD can deliver 1H revenue >AUD200m. Where revenue lands in 2H FY23 (1H CY23) is the million-dollar question but notably, per above there aren’t many instances of a negative 2H after growing double digit 1H or material drops (in AUD revenue) after double digit 1H growth (2H FY15 in USD the starkest). Furthermore IMD’s recent AGM announcements included comments that resource companies are maintaining or increasing their exploration budgets and that drilling contractors have “strong order books”, with most regions described as “strong” or steady”. This compares to the commentary accompanying the 1H FY16 results of a “Decrease in exploration expenditure in key markets”. Chester FY23 projections are presented below[4]. Source, Chester Asset Management, Imdex AGM announcement Assuming our number in 1H FY23 is close, it implies 2H consensus revenue of ~AUD170m which would represent a -17% half on half (h-o-h) decline. We project ~AUD190m revenue in the 2H and even feel that is somewhat inconsistent with AGM commentary. Hence see room for a revenue beat in FY23. We further assume with recent acquisitions and lower level of junior exposure vs market (15% vs 40%) ex Blast Dog IMD can maintain a market share slightly higher than our 2022 calculation[5] at 2.1%. This has recently proven[6] and could continue to prove too conservative an assumption due to acquisitions, mix or a range of other factors. Source: Chester Asset Management with data from S&P Global, IRESS and Imdex results announcements We have tried to reflect this USD revenue market share in projections out to FY25 noting the high degree of uncertainty in these projections. Source: Chester Asset Management To the base revenue scenario projections we further add Blast Dog revenue and show what they imply vs consensus below. Refer Blast Dog Example below for more details. Source(s): Chester Asset Management, IRESS Without being too cute with our projections, using the S&P scenario and assumed market share level we can see potential for a revenue beat in FY23, meet/miss in FY24 but a material beat in FY25, particularly if Blast Dog is successful. ALS As a refresher, exploration (‘Commodities’ division) currently only represents ~40% of ALS Limited (ALQ’s) revenue. At ALQ’s recent 1H FY23 result Commodities revenue grew at a very impressive 31%[7] with EBITDA margins expanding by 191bpts to 36.3%. It affirmed our belief of the operating leverage achievable in an upcycle. Not to take away from the strong result, it has notably been buoyed by junior miners representing ~40% of current volumes[8]. Sample volumes in Geochem were up 17% vs pcp, with organic revenue growth of 31.4%, I.e. price/mix benefit of ~14%, driven by growth in junior samples. Furthermore, Q2 sample growth slowed to 11%, following 22% in Q1. Although the market isn’t necessarily projecting growth to sustain, and ALQ appear to have picked up market share, the evolving softening in junior exploration is something to be mindful of. As has been recounted to us by industry participants there is still ample demand from intermediaries and majors as juniors slow so even if volumes are stable there may be a reversal of recent mix benefits. We have performed a similar exercise to IMD to project ALQ Commodities earnings. Based on this exercise we see potential for ALQ to exceed market expectations in FY23, however under the S&P’s 10-20% 2023 drop scenario, we believe it implies risk to FY24 before recovering to a reasonably in line FY25. Source: Chester Asset Management, ALQ results announcements Sources: Chester Asset Management, Various anonymous broker reports The Development = Alpha phase of a mining project Recently we have witnessed a host of ASX developers[9] undertake capital raisings prior to declaring commercial production. Justifications are aplenty including the need to “accelerate” and derisk developments. Hence it begs the question why invest in the ‘risky’ development phase of a project with the threat of overruns and dilutive equity raisings? The answer lies in the telling image below, essentially a Lassonde Curve[10]. Source: The Visual Capitalist What the image illustrates, is that there is actually a material derisking period during development for key mining projects that leads to share price outperformance. Bellevue Gold (BGL) a single, gold mine developer that is <12 months from production has provided an interesting backdrop to this with reference to 5 of the more successful recent single, gold mine developments. Source: BGL Macquarie Presentation, November 2022 We have tabled the key statistics of these companies below and expanded on the data to also include the share price performance of these companies 3 and 12 months post declaring production. Sources: Chester Asset Management, BGL presentation material, IRESS Conscious the BGL list represents a somewhat favourable sample, we have added to it, but focused exclusively on ASX names. Source: Chester Asset Management, BGL presentation material, IRESS As a demonstrative example rather than a complete universe this list only includes gold companies (we are supposed to be on holidays). However, we are conscious of biases inherent within this analysis including survivorship bias. We believe focusing on gold developments is worthwhile as a tried and tested commodity so reflective enough of the value add of developments. For context we have provided a sample of other ASX commodity developments below. Source: Chester Asset Management, BGL presentation material, IRESS Notwithstanding the biases it demonstrates to us a few interesting points: There is a genuine (alpha) opportunity to invest in companies within the development phase of a project For those select names in our sample that didn’t generate alpha the drawdown is actually quite small, even for companies that were later proven to be unsuccessful developments! The re-rate potential of development far exceeds that of production, I.e. on average there isn’t necessarily much benefit in holding these companies once into production (Lassonde Curve agrees with this) The return from this development phase can actually be greatest in riskier jurisdictions, i.e. WAF, ROX, EMR, TIE Hence we believe it worth considering factors that may make one company more successful in the development phase than another: Management development experience Contractors utilised and terms of contracting - fixed price, lump sum, etc. Development type - brownfields or greenfields? Balance sheet strength Portfolio diversification Flow sheet complexity Preparatory works including resource definition drilling and mine plan Pre-development NPV discount With increased prevalence of single mine companies and the outcome of the samples above it presents as a reminder not to ignore all companies entering the development phase of a mining cycle. Tabled at the end of this article are some of the development opportunities that exist on the ASX (mainly single mine but some multis). We have further highlighted some of the companies within our portfolio and on our watchlist we are watching more closely. In alphabetical order: ADT, AMI, BGL, CHN, COI, DEG, DVP, GMD, INR, JRV, LLL, NXG, PMT, STX/WGO. One thing we will highlight here though in relation to the lithium names is the re-emergence of direct shipping ore, also referred to as DSO. This was a feature of the last mini lithium boom of 2017/2018, when at the time MIN were the innovator shipping DSO from Wodgina accompanied by PLS shipping Pilgangoora DSO. This time around there is no shortage of companies lining up to espouse the merits of DSO. Given: the lengthy time to commercialization, the strong demand and the spare capacity available in China to process and concentrate lithium it makes complete sense that aspirants would want to access this early form of project funding. Core Lithium (CXO) were one of the first movers this boom, last month shipping 15k dmt of 1.4% DSO at a price of USD951/dmt CIF tendered via an auction that reportedly attracted 30 bidders. In addition to CXO; GL1, RDT, LLL and WIN are just some of the names we have heard from recently investigating the option of DSO. The discussion was also followed with the commentary in many cases “we see no reason lithium prices should soften in the near term”. Hence DSO remains an area we are cautiously watching as well as near term Chinese demand. Development Contractors As we pointed out in ROTE one way to play this kind of thematic is a pick and shovels approach. I.e., invest in companies leveraged to development. Tabled below are some of the key ASX names that fits this criteria. Sources: Chester Asset Management, various company announcements WORLEY PARSONS We have investigated Worley Parsons’ (WOR’s) past results for what a future boom might infer for earnings; however, it is challenging given WOR's heavy exposure to hydrocarbons which have largely seen declining development. The task is made even more complicated by multiple material acquisitions, segment reclassifications, corporate cost reclassifications, accounting changes and cost rationalization programs. Despite this we believe there is a level of operational leverage available as we enter into a boom period for sustainable developments. At the very least however WOR currently show that margins on sustainability work is undertaken at more favourable margins (35-40% higher[11]) than traditional work so theoretically benefits from mix shift as the book becomes more sustainability weighted. Source: WOR FY2022 Results Presentation There are arguments for and against the sustainability of sustainability margin premiums however we also believe there is opportunity for margin expansion (leverage) in traditional project work as demand ramps up to mitigate ‘lost’ Russian hydrocarbons. However, without making a call and assuming the margin differential is maintained and consensus revenue is reasonable[12] there is reason to expect an upward bias to market’s expectations for future margins as we show in the table below. Source: Chester Asset Management based on WOR data in FY2022 results presentation LYCOPODIUM We also completed analysis on Lycopodium’s (LYL) past results as a relative pure play in resource project developments. The graph below[13] represents a reasonable guide to global development capex and hence the environment in which LYL have operated in. If exploration does drop by 10-20% in 2023 we would expect a similar decline in development in 2023/2024 but outside of that, similar to exploration we would expect a reasonably swift recovery in development expenditure given the increasing urgency to satisfy transition demand. Based on the following graph Lycopodium has traditionally achieved 0.15-0.30% of the capex of the 20 leading miners 2010-2022, average ~0.25%. Sources: Chester Asset Management, Lycopodium historic results, GlobalData Sources: Chester Asset Management, Lycopodium historic results, GlobalData Although a small sample size the data suggests stronger margins during the upcycle of capex periods. As we demonstrated in ROTE this could provide opportunity for upside surprise on margins (as well as top-line surprise) in a development upcycle. Non-Energy Transition Commodities Capital is scarce and in a world of declining liquidity becoming scarcer. This is evident in the relative multiples the market is prepared to pay for non-energy transition (NET) commodities. The lack of capital being afforded to NET commodities has and will continue to create opportunities. At the extreme ends of the scale governments are now providing backing to select projects to assist in their development: Refer the loans program of the US Inflation reduction act (IRA) 2022[14] and the recent award of USD2.8bn in grants via the Infrastructure Bill to boost US production of EV batteries and associated minerals including up to USD220m to Syrah (SYR). Or closer to home the Australian Government's AUD1.05bn non-recourse loan to Illuka (ILU) to assist in the construction of the Eneabba Rare Earths refinery. On the alternate side of the ledger many banks including Australia’s Big 4 have ceased lending to coal miners and governments globally are imposing price caps on oil and gas, dislocating markets and stunting their development. Not covering any revelationary grounds we think this differential in costs of capital will continue to see an underinvestment in hydrocarbons and provide long term support for coal and oil and gas prices. We aren’t sure that is necessarily reflected in long term consensus oil price forecasts of USD65-70/bbl. We believe a similar phenomenon to the underinvestment in oil and gas may be occurring in precious metals, particularly the gold mining space where globally multiples have contracted, production has recently been declining, reserves depleting and grades reducing. Despite recent strength in the USD, the gold price is back around 2011 highs and yet gold miners are trading at multiples akin to trough periods like the GFC. This is despite unprecedented strength in gold miner balance sheets, record share buybacks and healthy dividends. We believe this could provide the backdrop for a strong period of gold performance and for gold miners to rerate. Sources: Chester Asset Management, Bloomberg Recovery Optimisation Given the imperative to extract more commodities than we have historically, beyond mine development there is also opportunity for resource recovery optimisation. 2 key areas that stand to benefit are: Recycling. Neometals (NMT) is the key name here we believe that stands to benefit from transition metal recycling but at this stage we are unsure of the business model they will eventually utilize. Sims Metal (SGM) may also benefit however we are unsure of their ultimate exposure to energy transition metals. Technology providers. There are a host of technologies eloquently referred to as ‘precision mining’ tools which have the benefit of extracting more metal with less waste. Forms of precision mining include but are not limited to: Ore sorting technology, Autonomous trucks (SVW), Novel assay services (C79), Orebody intelligence and mining optimisation (RUL, ORI, IMD, PRN), Blasting solutions (ORI, IMD). BLASTING SOLUTIONS - BLAST DOG (IMD) EXAMPLE For those uninitiated Blast Dog is a commodity agnostic, semi-autonomously deployed blast-hole sensing and measurement technology providing real time orebody knowledge for logging material properties and blast hole characteristics. It can facilitate improved blast designs and optimize explosive costs. It also enables IMD to enter the mining production space, providing revenue away from purely exploration, enhancing the visibility and reducing the cyclicality of future earnings. When we first invested in IMD in late 2019 part of our thesis was the material upside from new technologies: Corevibe, Xtracta, Maghammer and Blast Dog. Over the past 3 years the lack of progress with this new tech has disappointed with these technologies, ex Blast Dog now largely written off. On face value 3 of the 4 technologies ceasing would presumably mean the majority of future upside diminishing but the reality is[15] Blast Dog was by far the most material and accounted for ~2/3 of our upside assessment. In contrast recent Blast Dog progress has hence been pleasing and we found the latest AGM updates encouraging, in which IMD reported an acceleration of Blast Dog’s roll-out at Iron Bridge. Additionally, the fact there are now 6 commercial prototypes planned for FY23 (and multiple more opportunities in the pipeline) highlights momentum with the technology. Source: IMD FY2022 AGM Presentation, October 2022 Although yet to claim Blast Dog a guaranteed slam dunk, these updates arguably point to higher probability of commercial success and partial derisking of the success case in our valuation. Source(s): Chester Asset Management, Imdex announcements Closing Whether the projected dip in exploration expenditure eventuates in 2023, analysis is clear that the world is nearing an inflection point in the development of energy transition metals. We trust this has provided some insights into the opportunities available from this potential boom and hope despite S&P’s forecast, 2023 can be a year of development for us all and our football teams. Appendix – ASX Explorers / Resource Delineation and Development Plays Sources: Chester Asset Management, various company announcements [1] As S&P’s own analyst, Kevin Murphy per the introductory quote stated not less than 12 months prior [2] We do point out though that the gold price has rallied over 10% since S&P’s analysis which may be one reason to reconsider the expected decline [3] Quarter ending October 31 [4] FY22 Q3 and Q4 are estimates, Currency assumes ~spot for the remainder of the year [5] But we may be wrong on IMD revenue and global exploration spend here. [6] In 2020 and 2021 market share appears to have increased 20bpts and 10bpts respectively [7] In Constant Currency [8] vs IMD ~15% of volumes being from Juniors [9] BGL, JRV, MCR, RED, MCR, PNR, TUL, STA (April 2022) [10] Which is reused from ROTE [11] Based on measuring graphs in WOR FY2022 Results material, assumes graphs are to scale [12] To which we see upward bias [13] Which we have relied on for the data in the first graph but [14] (VIEW LINK) [15] from an investigation of TAM, customer proposition and potential price

Chester Asset Management are honoured to announce that the Chester High Conviction Fund has won Money magazine's Best Australian Shares Fund 2023 at this year's Best of the Best Awards. We were delighted to attend the lunch in Sydney alongside representatives from Copia Investment Partners. How the winner is chosen: "Rainmaker, publisher of Money, has been reviewing superannuation, managed funds and their investment managers for more than 20 years. To conduct the banking products assessments Rainmaker and Money teamed up with InfoChoice, one of Australia's leading financial product comparison websites. When choosing which managed funds or exchange traded products (ETP) to invest with, investors are looking not just for funds that scored the highest investment returns but also managed their investment risks. This includes an assessment of which managed funds most protect your capital." More information: About the Chester High Conviction Fund Contact us Best of the Best Awards

Portfolio Manager Anthony Kavanagh discusses one of Chester Asset Management’s highest conviction stocks, and why it represents an exciting opportunity for the Australian equity fund manager. It’s a company that has two streams, one being generic crop protection and the other a seed business with two new products going to market that have significant growth potential. It’s proven to be an Australian success story and one part of this business in particular presents strong upside potential for the Chester High Conviction Fund.

"The best place to hide something is in plain sight" Edgar Allan Poe We have spent countless hours these past few years hunting for asymmetric opportunities. We have uncovered these in many forms but 2 common sources have been: Companies trading below book value (ORG, NUF, ASB, SM1) and Companies with underappreciated/hidden property value (Ramsay, Casinos, Aged Care, Energy, Agribusiness, etc) Source: Old El Paso Commercial Meme, the Internet In a recent review of Real Estate Investment Trusts (REITs) we were struck with the thought that the most obvious example of underappreciated property value might actually be hiding within a property stock, trading at less than book value. We detail this company below. I preface this work with a disclaimer that along with my love of food, movies and mining, I love property but am a generalist on the topic and hence have (potentially crudely) attempted to generalise this note. Background to Stockland As we know it today Stockland (SGP) is a stapled security and represents a combination of passive income streams within a trust: Retail ‘Town Centres’, Office ‘Workplaces’, Industrial ‘Logistics’ and Retirement / Land lease communities; and development income streams within a corporation: Residential is mainly master planned communities (MPC), Commercial Developments and Land lease communities. Stockland is regarded as one of Australia’s most recognised brands and develops on average 6,000 lots p.a. sold within MPCs. In June 2021 SGP announced the appointment of a new CEO, Tarun Gupta whose appointment has coincided with a refinement in the company’s strategy. This refinement in strategy includes a reallocation in sector capital and a refocus on targeted returns. This has seen SGP divest its Retirement Living business and acquire Halcyon a land lease communities business, as well as enter into multiple (capital) partnerships to accelerate SGP’s development pipeline. A summary of these targeted measures is presented in the images below. Source: Stockland Investor Update, November 2021 We are cognisant of the rising interest rate environment and implications it may have on Australia’s property market and hence SGP’s earnings (predominantly the development earnings) but the argument presented herein is both an absolute and relative valuation argument vs REIT 'peers'. Underappreciated Land Value For those that have never looked at REITs, simplistically the majority of a REIT’s value[1] is marked to market at each reporting date via external valuations predicated on the capitalisation of recurring income streams, i.e., cap rates, which adjust according to market conditions including changes in yields. This is true of SGP’s trust assets. The component of most REITs that isn’t as simple is the development portfolio[2] which is often recorded at cost. As noted above SGP is a combination of a trust and a corporation[3] and is somewhat unique in the weight of the business towards development. Lend Lease (LLC) and Mirvac (MGR) are possibly the only 2 other ASX property stocks that are development heavy. With the uniqueness of SGP’s development pipeline vs REIT ‘peers’ it is understandable that its upside value is potentially being overlooked. If we consider the net tangible asset (NTA) or book value of SGP, notably the landbank is recorded at cost and being approximately 10 years old the land recognized on SGP’s balance sheet grossly understates its market value. This clearly begs the question how much the land is actually worth which we have attempted to answer below. Source: SGP FY2022 Results Presentation Annexure On our first attempt at estimating land value, we considered what is being reported by SGP, being a AUD3.5bn cost base for the ~10 years old landbank (refer image above). From review of prior announcements and company discussions however we have discovered that the AUD3.5bn of book value at cost included development and other costs, interest capitalised, etc. Hence we needed to refine the true cost of land we were considering, refer below. Source: SGP FY2022 Account Statements, note 6 Inventories page 126 I.e., Of the AUD3.5bn of book value, AUD2,737m of that is ‘cost of acquisition’. Per the accounts that includes legal, valuation and stamp duty costs which we have assumed at ~7.5%, hence our estimated raw acquisition cost (AUD2,546m below) is adjusted for these estimated costs. Furthermore, the average age of SGP’s landbank, although stated at 10 years, is being inflated by project Aura on the Sunshine Coast, which was effectively purchased as part of SGP’s acquisition of Foster’s Lensworth Group in 2004 (for AUD846m)[4]. Ex Aura the average age of the landbank is actually closer to 8 years. The image below which shows select land value movements across Australia since FY2011 highlights the material uplift in land seen over the past 10 years which we have utilised in our analysis. Source: Stockland FY2022 Results Presentation, page 29 Below we have tabled our estimate of what this might mean for the current value of SGP’s landbank, relying on the average move per city (representative of the respective state), presuming[5] that the landbank was acquired on average 8 years ago. We further note that it is important to realise that SGP make acquisitions with a through-cycle acquisition price assumption (3.5% p.a.) embedded into the acquisition to justify the price paid for the land, hence we need to adjust for this. In addition there are also liabilities (of ~AUD1.4bn) that offset this gross value of land on SGP's balance sheet that reflect cost to complete provisions and deferred payments, some of which are revenue based and adjust with land price movements. I.e. there are definitely some complexities in calculating what the land is really worth! Source: Chester Asset Management with sources referred to in Notes above * On Aura, it was reported Terry Snow’s Capital Property Group (CPG) invested ~AUD175m (AUD150-200m) for 50% of the project at a reported 30% premium[6]. Hence we presume book value for the remaining 50% is recorded at ~AUD135m (AUD175m/1.4). From a similar exercise to that above we estimate this land is now worth ~AUD270m vs AUD205m implied by the ~50% (75%x70%) factored above so we add an extra AUD65m. NTA The first point to make about SGP trading at a discount to book value is that this is the case for almost all REITs. Hence for comparison below we present our REITs database, removing fund managers (CHC, CNI, GMG and HMC) and included SGP at the adjusted NTA calculated above. Furthermore, this table excludes retirement living operators/developers (LIC and INA) and property developer LLC. Source: Chester Asset Management, with data from IRESS and company accounts, as at 15 September 2022 The comparison table above highlights that when adjusting SGP NTA for a more appropriate view of land value we observe a 32% discount to NTA vs the REIT average of 22%. I.e., If our estimate of SGP’s land value is correct SGP has ~15% upside just to trade at the average of the REIT’s index (AUD4.00/share). Or put another way SGP is currently trading at <0.7x our estimate of adjusted NTA. Property Developer Premium Above we noted that SGP on an adjusted basis trades at a material discount to the average of REIT peers[7]. Arguably, as has historically been the case, developers should trade at a greater premium[8] to NTA than pure REITs. This is because the NTA doesn’t capture the value of future development earnings (outside of the land value being realised). Hence why LIC has traded at >3x NTA, INA 1.5x and LLC has traditionally traded at an ~30-50% premium. SGP itself currently trades at an ~20% discount to its reported NTA vs a long term average premium of 10-15%. We could have left it there and said SGP has >35% to trade back to its historic premium to NTA but why make it easy? Instead we have performed an additional exercise to the land adjustment above to consider ‘development value’. The challenge in doing so though is in defining what is the development profit, particularly when we believe land value is being grossly understated. If we were to count development profits on top of adjusted NTA we would effectively be counting the land uplift twice. In the table below we have attempted to isolate the profit attributable to the land mark-to-market and the residual development profit and quantify this value. For simplicity (and somewhat materiality) we have only included development upside for standard residential lots (i.e., excluded any development upside for land lease and commercial portfolios). Source: Chester Asset Management with sources referred to in Notes above This compares to the NAV/share reported in IRESS for each of these companies below. Source: Chester Asset Management, with data from IRESS and company accounts, as at 15 September 2022 Notably Rural Funds Group (RFF) present in their accounts adjusted NAV per unit which adjusts the book value of water entitlements to an independent valuation rather than at cost. Unlike SGP RFF trades reasonably in line with this adjusted NAV. The discount of REITs is ~21% to their NAV. Assuming this average discount applied to SGP the comparable price would be ~AUD4.90/share, +40% to where SGP is trading. I.e., SGP is trading at ~0.55x this adjusted NAV. Cap Rates above peers We appreciate comparing the cap rate of one property play to another doesn’t necessarily account for differences in asset quality but per Chester analysis in aggregate SGP have cap rates above the average of the REIT peer group: Retail 0.78% higher than peers, Office in line. and Industrial ~0.23% lower than peers. Assuming this is just conservatism and not due to lower quality assets than peers SGP’s investment properties should trade at a lower discount than peers (i.e., <21% discount). Source: Chester Asset Management, with data from company accounts Gearing more conservative than peers With the sale of Retirement, divestments and capital partnering deals SGP’s pro-forma gearing is actually 500bpts better than last reported at ~18%. Given this is below SGP’s targeted gearing of 20-30% the company may re-gear but SGP is also looking to scale further via the use of 3rd party capital to obtain better operating leverage and generate recurring fee income. For comparative purposes below we have tabled how SGP’s balance sheet compares to peers. Source: Chester Asset Management, with data from company accounts As is evident in the table above vs peers SGP has: a lower level of gearing; a higher level of hedging; longer dated maturity; and also, a higher starting debt cost, which we see as a positive as there is less of a future headwind from debt repricing. Higher Yield It is worth pointing out the difference in dividend yield vs peers. We had heard the bear argument that with the sale of the Retirement business SGP is entering a tax paying position that the market wasn’t on top of. This came through at the FY22 results with FY23 FFO guidance inclusive of tax payable at 5-10%. With Development targeted to represent ~40% of profits this would mean as a stapled security the normalised forward tax rate would increase from ~7.5% to ~12% (30% x 40%) which should now be in consensus. We further note the dividend could be franked to ~33% so the gross dividend would be higher than this vs REITs (Trusts) that pay unfranked distributions. Source: Chester Asset Management, with data from IRESS as at 15 September 2022 Developers should be paying a lower dividend so it doesn’t really make sense that the SGP dividend, despite now incorporating tax payments (and hence potentially franking) is still materially above that of pure REITs (except if the buyside are anticipating material downgrades to consensus). Closing You could argue that development profits will dry up in the near term and the market may need to adjust FY23 to FY25 earnings expectations for the recession/property market downturn but we still see a pretty asymmetric opportunity for SGP on a valuation basis. We have tried to represent this in the graph below that if we were to adjust land on SGP’s balance sheet for its hidden value we see upside to at least AUD4.00/share at the absolute minimum (to reflect the average REIT discount) and upside beyond that dependant on how much additional value to include for SGP’s development pipeline(s). Source: Chester Asset Management, refer note above for detail [1] And we are ignoring Funds Management REITS here [2] Which is generally a nominal component of asset value [3] Which houses SGP’s development portfolio [4] (VIEW LINK) [5] with the exception of Aura which we have factored in below [6] (VIEW LINK) [7] Non-Fund Manager REITs [8] Or lower discount (to NTA)