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We are pleased to announce that the Chester High Conviction Fund is a finalist at the Lonsec and SuperRatings Fund of the Year Awards, for Active Australian Equity Fund of the Year. The finalist nomination coincides with the five-year anniversary for the Chester High Conviction Fund in 2022 (9 years for the strategy). Now in its 20th year, the awards recognise the best providers across the managed fund and superannuation sectors.

In this short video, Rob answers some common questions about Chester: Who is Chester? What is the Chester investment approach? What is the Chester High Conviction Strategy? What attributes are you looking for in a company?

In this AFR Fundie Q&A, Chester Asset Management’s Rob Tucker answers some crucial questions that the high conviction equity manager has about the current reporting season. Rob discusses which 30-year Australian success story now represents an ‘asymmetric payoff’ - meaning the risk is skewed to the downside rather than the upside. Rob also discusses with Alex Gluyas which stocks appear well positioned in the current inflationary and higher interest rate environment. The Q&A also includes stocks expected to surprise on the upside, as well as stocks that Rob believes the market is undervaluing, and what portfolio actions the Chester team are taking. An opinion is also provided on gold stocks, given they form an important part of the defensive sleeve in the Chester High Conviction portfolio - to help smooth out volatility. To read the Q&A, click here.

We’re pleased to announce our investment partner Chester Asset Management has been recognised as one of Financial Newswire’s Australia’s 10 most consistent fund managers (Star Manager). The Star Manager status recognises the “performance and consistency of fund managers who outperform their peers and have consequently gained a notable reputation”. Industry publisher Financial Newswire has collaborated with SQM Research to compile the list of Star Managers, drawing on 3-year track records across 500-600 funds. The Chester High Conviction Fund, distributed by Copia has been identified as one of the best-performing funds. Click here to read the article by Oksana Patron in which Rob Tucker, Managing Director explains the principals guiding the Chester team. “We have fine-tuned our portfolio construction framework over the past 21 years, and continue to learn new things every day,”

Valuation is an input into investment decision-making, and helps generate returns, if done right, consistently Valuation employs both art and science to form an accurate measure of how much an asset is worth Valuations can be absolute or relative, with each having different applications Qualitative assessment is an important ingredient for the Art of valuations Assessing how projections or valuations differ to market can provide insight and assist in determining why you believe shares are mispriced Annual reports provide information and clues to how a company may perform in the future Valuations form an important part of the investment process employed by Chester in the management of the Chester High Conviction Fund

The Chester High Conviction Fund is an Australian equity fund that seeks to outperform the S&P/ASX 300 Accumulation Index by 5% (before fees) over a rolling 3-year time frame. The fund has a concentrated portfolio of 25-40 stocks. The fund has a high-conviction approach, and invests in companies where the investment team has confidence in the high quality, predictable cash generation of the company, or where there is a strong margin of safety in the valuation.

“As the man once said the harder you work, the luckier you get” - Ted Lasso Warren Buffet was once asked how he became so successful in investing and his response was “we read hundreds and hundreds of annual reports every year”. Despite the Oracle being the most emulated investor of our time, for a host of reasons we are certain the accounts aren’t as widely read as they should be. As part of our ESG focus, we analyse remuneration reports of research library companies and compare them to that of their peers. From this exercise, we have stumbled across plenty of useful insights. The "rem" report is a well-understood area of insight. We have written in the past about information content that can be gleaned from insider transactions in Why it pays to follow the insiders. In the lead up to the FY2022 reporting season, we look at information content that can be gleaned from the account notes, particularly a less well-understood area of insight, the impairment testing note. Prior to my time in funds management, I spent four (long) years as an auditor at KPMG (2006 to 2009). In this role, I was a first-hand witness to the endless hours invested in preparing, reviewing, auditing, correcting, editing and submitting financial reports. Given that time was headlined by the GFC, there was increased audit focus on analysing a company’s cash flows and balance sheet, including testing intangibles for impairment in accordance with Australian Accounting Standard 136(1). “An entity shall assess at each reporting date whether there is any indication that an asset may be impaired and test goodwill acquired in a business combination for impairment annually…” In most cases, the above exercise was performed considering value in use, determined via discounting future cash flows based "on the most recent financial budgets/forecasts approved by management and (which) cover a maximum period of five years…” Hence in some cases in the annual report, for companies with goodwill we can infer the internal budgets of an organisation for up to five years. Below are some examples of annual report notes that provide this information. DOWNER (ASX: DOW) Starting the examples with diversified services company Downer, we found the information contained within its FY2021 accounts quite informative as it provided a three-year compound annual growth rate (CAGR) for EBIT of Cash Generating units (CGUs) that comprise the key segments. Source: Excerpt DOW FY2021 accounts (Note C7 of page 93) In August 2021, this information was particularly useful given DOW didn’t provide any formal quantitative guidance for the market and the accounts were complicated by the transition to an Urban Services business and hence included: 'Core' and 'Non-Core' operations, businesses in wind down, businesses to be sold and acquired amortisation. Below we have extrapolated these projections out to FY2024 and sampled three (sell-side) analyst reports from August 2021 to contrast internal views at the time to those of the market. Notably, these projections are likely to have changed materially since then due to 10 months of challenging performance and deteriorating labour markets, but we feel it provides some interesting comparisons, nonetheless. Source: Chester Asset Management, Various anonymous sell-side reports, DOW FY2021 annual account information. For the three key divisions we make the following observations: Transport Analyst C’s projection was almost identical to that computed from our analysis however analysts A and B were more than 15% higher. The key reason for this is potentially due to recency bias, with the Transport Division beating expectations at the FY2021 results. Fast forward six months and the Transport Division actually increased by 16% in the 1H FY22, but Analysts A and B have updated their projections for the division to $272 million and $295 million. Utilities Looking at Transport, we suspected that Analyst C may have been a fellow account note enthusiast. But Analyst C's (and B’s) projections were 9% below the EBIT implied within our analysis. The reason for this is probably also due to the recency bias given the recent declines in the division from the runoff of NBN capital contracts. Fast forward six months and the Utilities Division actually decreased by 27% in the first-half of FY22 due to a deferment of work as a result of COVID and a change in mix away from higher-margin capital projects. Notably, $20 million of FY21 EBITA has been reclassified away from Utilities, which now makes the comparison even more complicated! Including this reclassified ($20 million) of EBITA, Analyst A’s updated projection is around $100 million, Analyst B’s projection is $86 million, and Analyst C’s $87 million. Facilities The market was projecting increases in Facilities but not to the extent DOW was internally. This saw the average FY24 projection for Facilities 11% below our implied calculation This could be a function of a few things, including the impacts of COVID, the expected recovery being hard for the market to comprehend, the growth potential of Defence being underappreciated by the market or a range of other factors. Fast forward six months and the Utilities Division actually increased by 7% in the 1H FY22 and Analyst A’s updated projection is around $214 million. Analyst B’s projection is $212 million and Analyst C’s is $198 million. At the half-year, $38.6 million was reclassified towards Facilities (from Utilities and Asset Services). Ultimately, the internal budgets provide no guarantees of achievement. The first-half performance is a prime example of that, and can be prepared and/or reviewed by a management team and board that are frankly more optimistic than other teams. But we believe it provides a good place to start when making our own projections. As noted above, we think the near term environment remains challenging for DOW, particularly a labour perspective. This means higher near term earnings risk, but the longer-term view from August 2021, validated by internal budgets remains the achievement of around $500 million of EBITA from a core Urban Services portfolio. The success of these budgets (which may be pushed out by 12 months now) to us supports a share price target of more than $7. Source: Chester Asset Management, IRESS QBE INSURANCE GROUP (ASX: QBE) In trying to understand and develop projections for QBE recently, we asked ourselves a several questions around the rates of return achievable across operating and investment operations. This included “what is the appropriate long term investment return to assume for their investments portfolio?” This question was somewhat answered by management in the notes to their accounts. Source: Excerpt from QBE 2021 Accounts, Note 7 Page 140 Projected returns The key driver of an insurer’s investment returns is obviously interest rates. At 31/12/21 the duration of QBE’s portfolio was 2.1 years with 93.8% of the portfolio in fixed income assets and 6.2% in ‘risk’ assets. QBE are targeting taking risk assets to 15% which theoretically would increase returns of the portfolio, (by ~50bpts). QBE has traditionally earned a margin of ~50-100bpts above government bond rates. At the time the annual report was prepared the US 2 year bond rate was ~1.5% which has since risen to ~2.5%. Hence it reasonable to expect ~3.0-4% investment returns (assuming stable yield) in 2024+ for QBE. But what does 3.43% imply for investment returns? We have addressed that question in the table below and performed an analysis comparing the implied investment return to that of a handful of sell side analysts. Source: Chester Asset Management, various analyst reports, IRESS There are a couple of points to make about this analysis. It was completed prior to QBE’s AGM update on 5 May 2022, in which QBE announced a 1Q22 exit total investment return of around 2% (hence we have already started to see the sell-side upgrade projected investment income) The above analysis assumes that there is no deterioration in combined operating ratio as a result of higher interest rates. For example, it could be argued that given the strong returns on equity available on investment returns, the underwriting margins are competed away What's the edge or insight on the stock? We believe the market was potentially underappreciating the earnings benefit to QBE from higher rates, and there's a good chance of substantial valuation upside. Healius (ASX: HLS) The healthcare firm Healius is not a name I've spent much time deeply analysing and although it probably offers the least variance to market from our analysis, given relatively predictable revenue streams, we still found its FY21 Goodwill (B2) note more informative than most and have presented our analysis of it below. Source: Excerpt from HLS FY2021 Accounts, Note B2 Page 91 This compared to a sample of analysts at the time: Source: Chester Asset Management, various analyst reports We can only see FY2024 as the outer year so have had to presume the revenue growth rate is reasonably consistent over the time period. The reality is probably more nuanced given the decline in PCR (polymerase chain reaction) testing from an elevated FY2021 base. Thinking about this another way, presuming industry growth rates stabilise at around 5% (pre-COVID levels) and discount back FY26 budgeted revenue ($1,627 million), this level implies FY24 budget revenue of $1,475 million, a level still 9% higher than the sample. Since this release in August 2021, we have seen a half-year result from HLS and started to get greater clarity over the path of PCR testing in Australia to help shape our view of the future. We have probably not captured all the recent downgrades as Medicare data has come through, and HLS updated the market last week. But in late May, Analyst A was projecting FY2024 Pathology revenue of AUD1,466m while analysts B and C had both lowered their projected revenue by a few percent. At the very least, HLS's Goodwill note will be one worth keeping an eye on in August. CLEANAWAY (ASX: CWY) The waste management firm Cleanaway is the original of Goodwill notes for us and it probably represents the most detailed of the impairment testing notes we see in the market, providing a wealth of useful information. It should be apparent by now, but we’ll repeat that CWY’s note uses board approved budgets. In CWY’s case, the coming years should provide a better forecast of future earnings than any external parties (including ourselves) can conjure. Source: Excerpt Cleanaway FY2021 annual report, Note 22, page 85 Analyst comparison - EBITDA Source: Chester Asset Management, CWY FY2021 Annual report, Various analyst reports As we noted below, we have compared a sample of sell-side analysts in August 2021, following the company's results to the implied EBITDA of divisions. As we note below there are a couple of issues with this: As we noted below, we have compared a sample of sell-side analysts in August 2021, following the company's results to the implied EBITDA of divisions. As we note below there are a couple of issues with this: It doesn’t include value of the recently acquired Sydney Resources Network (SRN) from Suez, Waste to energy opportunities (presumably not generating earnings in FY24), Container Deposit Schemes (CDS) or other circular economy opportunities. We have adjusted for the first of these, noting SRN delivered net revenue of $193 million and EBITDA of $77 million in CY2020, assuming this level in FY2021, compounded at the same rate as Solid Waste Services Similar to our comment for HLS the visibility on sell-side projections beyond the next 3 years is limited. Hence we assume a consistent level of compounding to compare to FY2024 levels rather than FY2026 levels Despite these issues, the analysis implies that the sell-side (particularly analyst C) sat below internal CWY projections of earnings for a business that has a history of exceeding budgets. Interestingly now though is that FY24 consensus EBITDA is at AUD741m, reasonably in line with the FY24 EBITDA implied by the above analysis. Analyst Comparison - Capex Source: Chester Asset Management, CWY FY2021 Annual report, Various analyst reports Chester has projected potential revenue for each of the segments in FY2024 including SRN, this is within 3% of FY24 consensus revenue. To segmental revenue, we have applied budgeted capex percentages. We have had to assume a percentage applied to SRN (assumed lower than Solid Waste Services) and an amount dedicated towards Corporate / Other comparable to FY2021 D&A. The analysis suggests that CWY capex spend is potentially budgeted to be higher than market projections (not even including the added spend on Waste to Energy Projects). Goodwill Headroom + Net Assets = Implied Internal valuation Source: Excerpt Cleanaway FY2021 annual report, Note 22, page 87 Source: Chester Asset Management, CWY FY2021 Annual report, IRESS The above table implies the market cap is at a premium to the value implied by the internal valuation calculation. There are a number of aspects that potentially account for this, including its failure to include the following areas of upside: SRN Assets. The acquisition of these assets was completed on 18 December 2021, but the forecasts above do not include these assets or synergies from these assets. Waste to Energy Opportunities. CWY’s first project in Western Sydney was blocked but they are still considering projects in Sydney, Brisbane, Melbourne (and elsewhere). Waste to Energy will be NPV accretive so likely provides upside to the value assessment above. However, it must be remembered that Waste to Energy earnings will also be used to replace landfill earnings (which have a finite economic life) CDS and other circular economy opportunities. There are additional Container Deposit Scheme or circular economy (recycling opportunities) not included above Some boards/management teams can be more conservative or optimistic than others, CWY may outperform budgets and the valuation could exceed that presented in the notes As noted above the market potentially underestimates the capital investment required in the business over the next five years. The market is also prepared to pay a higher multiple for the utility-like nature of the assets than that inferred by a discounted cash flow valuation Closing While having insight into a company’s internal forecasts doesn’t guarantee results against those budgets, it is a meaningful reference point for anyone looking to prepare forward projections of a company’s earnings. Hopefully, this note has inspired more people to join us in analysing the accounts in August, for that little bit of extra luck going forward. (1) Or International Accounting Standard 36, (VIEW LINK) DISCLAIMER Past performance is not a reliable indicator of future performance. Positive returns, which the Chester High Conviction Fund (the Fund) is designed to provide, are different regarding risk and investment profile to index returns. This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any specific individual. As such, before acting on any information contained in this document, individuals should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Chester High Conviction Fund. A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting chesteram.com.au or by calling 1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund. Any opinions or recommendations contained in this document are subject to change without notice and Copia is under no obligation to update or keep any information contained in this document current.

Rob Tucker, Managing Director of Chester Asset Management, shares his thoughts on three key macro questions that help shape the Chester High Conviction Australian Equity strategy. What has been the main theme driving markets in the most recent quarter? Globally, the first quarter of 2022 was overshadowed by the Russian invasion of Ukraine. Perhaps the Russians underestimated the sense of tribalism of the Ukrainian people in defending their homeland. The world has significantly changed in the past 8 weeks, as this conflict has bought into sharp focus the delicate balance between economic trading partners and autocratic leaders with ulterior motives. The overreliance of Europe (Germany in particular) on Russian energy highlights the risks surrounding a lack of self sufficiency in primary production (both food security and commodity security). The lack of short term alternatives puts much of the European population at significant risk of fuel and heating shortages come winter. Australia as a significant exporter of both food and energy is blessed with an abundance of primary production. The lucky country. This enviable position cannot be underestimated over the next decade. What are the longer term implications of countries adopting greater self-sufficiency in their economies? This shift in thinking amongst global policy makers around self sufficiency (or localisation) has been talked about for the past 2-3 years, but has significantly accelerated over the past 6 weeks. Shifting semi conductor manufacturing out of Taiwan, localising defence spending, reducing reliance on crop protection ingredients sourced from China, to ensuring rare earths are sourced from western nations, this thematic has only just started. It will play out over the next 3-5 years as many of the decisions taken this year, will really only come into play by the middle of the decade. Our most significant takeaway from the tragic events in the Ukraine, outside the humanitarian crisis is that globalisation is very much a thing of the past. Companies and consumers will willingly be paying higher prices for the security of supply rather than the lowest cost of supply, which of course only plays into the notion that the 2020’s will incur higher inflation than the preceding decades. How real is the inflation threat and how is Australia positioned? Geopolitics aside, the current narrative around inflation is well and truly the biggest dilemma for policymakers. Cost inflation is rampant and a level of demand destruction is needed to reign in inflation expectations, so much so that market expectations for US interest rates have risen from 3-4 hikes in 2022, to 8-9 hikes this year. Adding balance sheet contraction (QT) to the mix suggests that financial conditions are tightening very quickly. Credit spreads need to be watched closely for broader financial market stress, but this is not apparent yet. While the bond market has reacted to the change in interest rate expectations, we are not so sure the equity market has. It appears to us the RBA has decided to let the upcoming Federal election play out over the next 6 weeks before changing monetary policy course, whereby interest rates will be going up. The key variable obviously becomes “for how long?”. With the prospect of financial conditions getting tighter in 2022, the focus will be very much led by stock specific earnings drivers, hence the most in demand stocks will be those that have earnings, dividends or cash flow tailwinds, valuation support or very strong pricing power. Outside commodity producing tailwinds, earnings strength looks far tougher from here, while Australia looks to be a wonderful place to allocate capital from a global perspective. DISCLAIMER: Past performance is not a reliable indicator of future performance. Positive returns, which the Chester High Conviction Fund (the Fund) is designed to provide, are different regarding risk and investment profile to index returns. This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any specific individual. As such, before acting on any information contained in this document, individuals should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Chester High Conviction Fund. A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting chesteram.com.au or by calling 1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund. Any opinions or recommendations contained in this document are subject to change without notice and Copia is under no obligation to update or keep any information contained in this document current

The main facts in human life are five: birth, food, sleep, love and death, E M Forster It is one thing to run out of cars and have to wait a few extra months for your new Volvo but what happens if we run out of food? A sensationalist comment we agree and virtually unfathomable in the western world but a stark reality for billions of people globally. A recurring theme since the onset of COVID has been the robustness (and fragility) of global supply chains and with battle lines drawn there is a heightened focus on securing the world’s most strategic resources. The global dominance in semi-conductors is a well-documented motivation in China’s attempts to “unify” Taiwan but as Russian troops intensify their assault on Ukraine we and the rest of the world are asking what are Russia’s or namely Putin’s key motives? In the past few weeks, we have all seen some of the hard commodity exposures of Russia and Ukraine impacted by the current invasion. I.e., Russia produces: >10% of global oil at 11 mmbbl/d (7.8 of which is exported), ~22.5Tcf p.a. of gas (~40% of Europe’s needs), ~400Mtpa of coal (6th largest coal producer globally), 3.8Mtpa of aluminium (~6% of world production), 920ktpa of refined copper (~4% of world total), 193ktpa of refined nickel (~7% of global production), 40% of global palladium at 2.6Moz and about 90% of global neon production which is used for chip lithography. Less documented (initially at least) was the soft commodity exposures impacted by the conflict, but that has changed as wheat and corn prices have surged to record highs. Russia controls ~50Mtpa of key fertilisers: potash, phosphate and nitrogen; representing ~13% of global supply or ~25% of European supply. Combined Russia and Ukraine account for approximately 29% of global wheat exports, 20% of global corn and 80% of world sunflower exports. Prior to the conflict Ukraine supplied ~15% of global corn. It now feels very likely they will miss the key April/May planting season, putting a lot of that supply at risk. Truth is we don’t know the full extent of Putin’s motives however food security, even if not intentional, has taken on increasing significance as the conflict has ensued. By controlling Ukraine’s food supply, on top of Russia’s, and its strategic energy reserves places the Kremlin in an interesting negotiating position with the rest of Europe. Maybe pre-empting the conflict, in early February Russia announced an ammonium nitrate export ban, in order to “protect” domestic supply, putting a strain on the already tight global fertiliser market. This could significantly impact other growing regions (such as Brazil) who would be trying to increase supply to offset the loss of Ukrainian and (Russian) supply. These events are raw and it’s perhaps early to draw implications on their lasting significance, particularly for a novice on European politics such as myself, but it is abundantly clear that both companies and countries are having to rethink their global commodity and food supply chains, in addition to their defence budgets. As a reminder, at Chester, we are bottom up stock pickers, but we like to fish in pools with macro tailwinds. One of those pools we have historically gravitated to is agribusiness, or more specifically the theme of feeding the world. With the macro (omicron, inflation, interest rates and now geopolitics) increasingly challenging and our view food supply chains are becoming strategically more valuable we have found it interesting to find some opportunities in the space trading as genuine value stocks (< book and or low double digit multiples) exhibiting catalysts and blue-sky upside that any growth investor would find appealing. We present 3 examples of these below, within the overall food thematic but underpinned by strong sub-themes. Notably each of these businesses in the past 12 months have provided some form of medium-term guidance/aspirations which in an environment of truly unpredictable trading conditions support a view of potential asymmetric opportunity. Clearly execution is required to unlock the upside, and we may also be misinterpreting management statements, but trading below book value or on discounted multiples, success is certainly not being priced in. Land Productivity (reduced arable land) With a rising global population comes increased demand for food, we’ve all got to eat, but as population increases obviously there is an inverse relationship in the land available for cropping. Hence as a world we need increased land productivity and increased yields. The need for increased yields becomes even more apparent if Ukrainian production is removed from the market for an extended period of time. It comes as Yara cuts production in Europe from rising gas prices and is in conflict with many European (and global nations) trying to limit and even eradicate synthetic farm inputs. Potential exposures: Elders - ELD Incitec Pivot - IPL Nufarm – NUF (refer below) Nufarm Nufarm (NUF) is an Australian based chemical company that produces a large range of primarily off-patent crop protection products and has developed a diversified portfolio of seed technologies. Crop protection products include herbicides, phenoxies, fungicides and insecticides which are sold through the Asia Pacific (namely Australia), North America and Europe across over 3,300 registered products. In the past NUF has struggled with: a stretched balance sheet, tough weather conditions (Australian drought 2017-2019), glyphosate concerns, and a challenging European environment exacerbating the underperformance of acquisitions. However, the sale of Latin America to Sumitomo (Sep 19), strong Australia conditions (2021, 2022) and a potential environment where food security is prioritised over organic farming have potentially turned those headwinds into tailwinds. The momentum of their seed technologies business has also been evident from a range of announcements and management’s aspirational targets, discussed below. At the February 2022 Investor Day NUF highlighted they are actually exposed to 4 key global agribusiness trends, being: global nutrition, land productivity, sustainable agricultural practices and the rise of sustainable crops. We have listed NUF here as our preferred exposure to the theme of land productivity as it relates to their core business but the blue sky really sits within sustainable crops (Nuseed) which we have also discussed below. Insight Potentially a function of a good season and strong soft commodity prices, in February 2022 NUF announced Q1 FY2022 (December Quarter) revenue had grown 36%. Associated with this statement was vague guidance that NUF expects revenue and earnings growth in FY22 with the market now projecting 6% and 9% revenue and EBITDA growth. Consequently, we performed a review of NUF historic results as well as analysing competitor announcements for potential insights. Historic comparisons are somewhat challenging given changes to reporting periods for NUF and the divestment of LatAm but loosely the historic margins for NUF are tabled below and suggest outside of FY2020 a pretty steady gross margin between 26 and 30% and EBITDA margin between 11 and 13%. Source: NUF financial statements The 2 industry participants we could find that have reported December Quarter results were UPL Ltd and FMC Corporation. FMC Corporation had even issued a guidance statement for CY2022 of 7% revenue growth, 6% EBITDA growth which has somewhat assisted us in forming views around NUF’s potential FY22 earnings. Source: Chester Asset Management, NUF announcements, UPL Ltd and FMC announcements I.e., our projections are ~11% above consensus on revenue and ~7% above consensus on EBITDA but note that there are a wide range of possible outcomes in the current environment. Sustainable Crops Sustainable crops really plays into NUF’s Nuseeds business with the 2 key technologies being Carinata and Omega-3, in addition to core seeds (Sorghum, Sunflower and Canola). Both of these two technologies offer a sustainable cropping solution for a global challenge. By way of background Carinata is a biofuel feedstock grown between main crop rotations to help with the decarbonisation of the planet. It is effectively a sustainable alternative to inputs such as diesel and aviation fuel which in itself is a 57bn gallon annual market. Importantly it is a non GMO plant protein source. Nuseed’s Omega-3 Canola solution has been developed as the world’s first land based source of DHA essential ingredients, currently derived from fish oil. Hence this Omega 3 solution has the potential to relieve the pressure on our oceans and reduce the number of fish required to supply the world’s demands for Omega-3, believed to be in material deficit. The Omega-3 canola is processed into 2 oil ingredients: Aquaterra for aquafeed and Nutriterra for human nutrition. NUF estimates the market supports AUD850m EBITDA future market potential i.e., each 1% share of the deficit could be worth AUD8.5m EBITDA. The ‘aspirations’ of the Nuseeds business were recently defined at the investor day, to grow Nuseed revenues to AUD600-700m by 2026 and AUD1.5bn by 2030 at 25-30% margins. The targets for Omega-3 have been around for a while but adding Carinata into the portfolio mix is somewhat new and there are a few recent developments that we see providing validation to the commercial prospects of both technologies: Omega 3 – In addition to USDA and CAN regulatory approvals FDA has recognised Nutriterra as a safe new dietary ingredient. Commercial orders have commenced and NUF recently announced that AUD30m of sales orders had been achieved Carinata – Nuseed announced a long term commercial offtake and market agreement with none other than BP, providing funding and marketing for Carinata development Valuation We most recently re-entered NUF in October 2021 when the stock was trading at ~AUD4.50/share or ~80% of book value, which compares to our current DCF derived valuation of ~AUD6.40/share (WACC10%). There are 2 key points with our valuation that we point out a) It includes a heavily risked valuation for Nuseed, that we suspect will derisk over time b) We have discounted the whole business at the same cost of capital however we believe ultimately the Nuseed business deserves to trade at a higher multiple given the proprietary nature of technology and stronger growth potential than the core crop protection business. These 2 points are addressed in our alternative valuation scenario tabled below, based on management’s aspirational targets, (which are not guidance statements). They rely on execution, weather and the general range of other uncertainties that come with any projection. However, based on these aspirations, if NUF were to achieve these, under our assumptions there is material upside to the current share price and our risked valuation. Plant Based Protein We first wrote about this theme in 2019, with respect to Select Harvest, as Beyond Foods was coming to market (refer a different kind of protein). Today it continues to be one of the fastest growing areas within agribusiness. As of 2021 as many as 6% of US consumers classified themselves as vegan versus 1% in 2014 (1). Australian supermarkets also now offer more than 250 plant based meat products. Hence we think picking a particular brand in this trend may be challenging but taking a “pick and shovels approach” to the theme such as a nut producer or a B2B manufacturer could provide a less risky exposure. Potential exposures: GrainCorp - GNC Select Harvest – SHV (refer previous article) Synlait Milk - SM1 (refer below) Synlait Milk Background Synlait (SM1 ASX or SML NZX) is a dairy processing company located in Canterbury New Zealand that commenced life as a B2B operator, most famously as the original exclusive infant formula (IMF) manufacturer for A2 Milk (A2M). SM1 controls the supply chain with farmer relationships and processing facilities while also controlling the SAMR (China’s equivalent of the FDA) processing licences on behalf of its customers. Theses licenses are significant as customers such as A2M can’t sell Chinese label IMF into China without them and to highlight their strategic worth it’s important to note that no new SAMR manufacturing licences have been issued globally for the past 3 years. Over the recent past SM1 has purchased Dairyworks and Talbot Cheese to offer retail brands for the first time and diversify their product offering. SM1 now offers products across 4 key product lines: Ingredients (whole and skim milk powder and milk fat products), Nutritionals (predominantly infant formula and lactoferrin), Liquids (exciting opportunities in long life consumer packaged beverages and ready to feed infant formula) and Consumer Foods (manufacturing fresh milk, cheese, butter and yoghurt products) under their own or private label brands. As noted above SM1 has been the exclusive supplier of IMF for A2M in Australia, NZ and China with a contracted minimum 5 year term, while A2M has also cemented the long term arrangement with SM1 by holding a 19.9% stake in SM1. Plant Based Protein Insight: Over the past few years SM1 has been on a trajectory to diversify away from an overreliance on their key customer A2M, investing in a liquid’s facility, acquiring consumer goods businesses Talbot Cheese and Dairyworks and entering a relationship with an unnamed customer (2) to manufacture, blend and package nutrition products including plant based products at their site in Pokeno. This diversification strategy has been somewhat vindicated by the painful results of the past 2 years, exacerbated by volatility in A2M inventory management and planning. This led to a “Bull-Whip Effect” in FY21 of an unforeseen curtailment of A2M IMF production leading to unrecovered overheads and unoptimized production levels i.e., significant losses. In FY22 Management are anticipating a return to “robust profitability” from a horrible FY21 loss of NZD29m. Furthermore, SM1 has stated that “by the end of FY23, the recovery plan will have seen Synlait return to similar levels of profitability, operating cash flows, and debt ratios as the years leading into FY21”. Despite this optimistic statement SM1 seems to remain friendless. Famous last words but the worst appears behind SM1 particularly as commercial production of plant based protein for this unnamed customer ramps up later this year. The problem with this agreement however is that the customer and terms are a mystery so it has been a challenge for the market to properly recognise potential value from this agreement (SM1 clearly isn’t Nanosonics). We have looked at this agreement two ways: Commentary derived: An estimate based on the commentary around volumes and comparison of historical product margins; and ROCE approach: Profitability based on capital employed and SM1 generating an acceptable return on that capital commensurate with historic returns, targets and commentary These two approaches lead us to a guess that this customer could bring in anywhere from NZD30-60m of earnings to SM1 in FY24. It is further expected “volumes, markets and products associated with… (the) agreement will grow over time”. Source: Chester Asset Management For SM1 to be trading below book value the market is implying SM1 won’t be able to generate economic returns (> WACC) on capital employed, i.e., assets will remain underutilised. To this end we note the following comments from SM1 in anticipating high levels of utilisation from the Nutritionals business over the next 3 years, driven by: Some recovery in A2M’s IMF volumes; New volumes from SM1’s Pokeno customer; and Rebuild of SM1’s IMF business as demand emerges from large Chinese manufacturers whose market share growth exceeds their own manufacturing capacity The last point we find extremely interesting for a business that although has multiple customers has production so heavily dominated by A2M. One thing we have learned from years investing with an eye to China is that the Chinese Government follows through on its policies. Hence in 2019 when the government announced they would increase domestic IMF production from ~43% (2018) to 60%, we were cautious to share the market’s scepticism but even we have been surprised as to how quickly they now sit almost at that 60% target(3). Part of the reason for the market’s scepticism was the lack of local manufacturing capacity which obviously hasn’t hindered the progress but is now presenting potential challenges for Chinese producers, particularly if the birth rate goes the way of the Western world post COVID and stops declining! We see SM1 with its strong relationships (Bright, New Hope and other ingredients customers) as well placed (with available capacity) to potentially supply these Chinese customers. Was this image from 12 months ago a teaser to a long term B2B contract? Source: SM1 1H FY2021 Results Presentation Valuation Our assessed value of SM1 currently stands at AUD5.00/share DCF derived (WACC 10%). Chester projections imply 10x FY23 earnings, based on current share price (~AUD3.00/share). Notably net equity stood at NZD3.51/share at 31/7/21, based on net operating assets of NZD1,152m. I.e., SM1 is currently trading below book value. We see reason why SM1 can trade back towards a ~15x PE multiple as the organic cash flow de-gears the balance sheet and the market regains confidence in their diversified business. If we consider FY23 guidance as returning to a similar level of profitability as the years leading into FY21 we can develop a view as to what that might actually mean for value. Source: Chester Asset Management, IRESS I.e., if: a) SM1 is able to return to levels of profitability similar to pre FY21; b) the Pokeno customer is incremental to that profitability and c) SM1 Is able to fortify the longevity of that profitability by entering new LT customer contracts we see a case for SM1 to be valued materially higher. Pescatarian Diets This writer has for the past 12 months removed meat from their diet and experimented with pescatarianism with the encouragement from my wife. I.e., I have joined the ~3% of the population that have removed all meat from their diet bar seafood. This writer is acutely aware that living a sustainable existence would probably also extend to removing seafood from one’s diet but there are arguments that it is a more sustainable source of protein than protein derived from animal farming. Pescatarianism is also arguably seen as a healthier diet than one including meat. Potential exposures (in addition to plant based protein) Clean Seas – CSS Murray Cod - MCA Ridley – RIC (refer below) Seafarms Group – SFG Tassal - TGR Ridley Corporation Background Ridley Corporation (RIC) is Australia’s largest provider of animal nutrition solutions across both bulk stockfeeds and packaged feeds and ingredients across a wide range of monogastric, ruminant, aqua and other species. RIC operates an extensive supply chain throughout eastern and southern Australia with a total capacity of ~1.7Mtpa across 14 feedmills, two rendering sites a packaging site and a supplements facility. RIC also has a number of novel feed opportunities, of which Novacq is the most prominent. We have seen a marked improvement in the quality of RIC since 2019 that led to us making our investment in the company. In August 2019 Quentin Hildebrand was appointed CEO and MD with Mick McMahon being appointed Chairman the following year as part of a board refresh. We were familiar with Quentin and Mick as the ex COO and CEO of Inghams (ING) a company we had previously invested in. We regard Management and the board highly, sentiment echoed to us by industry contacts. When Quentin became MD of RIC it had a stretched balance sheet with net debt >AUD140m and leverage >2.5x (ND/EBITDA). Since then, however a marked improvement in working capital management and divestment of their recently constructed extrusion plant in Tasmania, Westbury has led to net debt at 31/12/21 of only AUD17m (0.2x) well below the 1-2x target. With the change of management in 2019 also came a new “Growth strategy” which management has executed on to optimise return on existing assets, achieve market growth and expand RIC's offering. Literally using a ruler to estimate the FY22 earnings we measured an AUD82m run rate in FY22 plus potentially an additional AUD9m in Project Boost earnings to flow from FY23 i.e., >AUD90m in FY23 vs ~AUD84m consensus. For 2 years this slide hasn’t really changed hence we believe Management has been extremely transparent and granular and we believe we have witnessed continued outperformance vs targets, a point we felt the market was underappreciating. We also noted over 12 months ago that the LTIs per RIC’s FY20 Remuneration report had an upper band ROFE target of >30% which we calculated would require >AUD80m earnings by FY2022, a number well north of consensus at the time. This along with our views on management execution has led us to hold an above consensus view on earnings. Pescatarian Insight Although we appreciate that RIC is a play on all forms of protein and we see the core business as underappreciated we are also attracted to the upside from their Novacq opportunity. Given the risks evident in investing in aquaculture (TGR and HUO have both almost gone bankrupt in the past) we see Novacq as a novel "picks and shovels" way to play the pescatarian thematic. By way of background Novacq is a microbial biomass ingredient produced from the use of a carbon waste stream. Novacq was originally developed by the CSIRO in the late 90s and since 2009 RIC has worked with the CSIRO to evaluate the commercial product of Novacq. Essentially it is helping prawns grow bigger (~30%), more sustainably (with less nitrogen discharge), faster and cheaper (with reduced wild fish products in their diets) and with an increased survival rate. Novacq is still early into its commercial life and its book value was notably written down to zero by management in 2020, but note it has in the past been a key pillar to the RIC story and still represents meaningful upside to the investment case. Despite the FY2020 impairment, in FY2021 RIC tripled production of Novacq from their Thailand site at Chanthaburi and have the business on a pathway to break-even in FY22, after delivering an ~AUD2m loss in the 1H. Notably all 15 Australian prawn customers of RIC have Novacq included in their diet which we see as very strong validation for the product. Although it is suggested Novacq could be used in diets of species beyond prawns, RIC has previously estimated the total feed market for prawns/shrimp in excess of 6Mt (4) which we now estimate may have grown closer to 8.4Mtpa now, with Ridley licenced in all regions bar China and Vietnam (3rd Party Licenced) to sell the product. This represents ~half of global supply requirements. It is our belief RIC aren’t targeting the whole of this market but rather the early stage lifecycle for prawns, equivalent to maybe 1/6 of the market so ~700ktpa TAM. It is our understanding the Chanthaburi facility in Thailand has current capacity of 30ktpa of Novacq output which could potentially produce 100ktpa of feed at expected Novacq inclusion rates. The facility was originally envisioned to be expandable to 140kt of capacity or 467kt of finished feed capacity (4). We see it likely RIC partner with 3rd parties to assist in the global penetration of Novacq rather than go it alone. Valuation At the time of our initial investment in RIC it was trading at ~15x P/E and since that time has delivered: An improved balance sheet and cash flow conversion, through improved working capital, profitability and the divestment of Westbury; Growth through strong execution of the 3 year strategy; Further opportunities for growth including project boost; and Commercial sales of Novacq demonstrating customer acceptance of the product. Hence, despite ~30% increase since our initial entry RIC has actually de-rated to ~14x. Our assessed value of RIC currently stands at ~AUD2.40/share and is based on a DCF of the core business (~AUD2.30/share) plus nominal upside for Novacq. We could go into detail around our core valuation but thought it more interesting to present a potential upside scenario for Novacq. Unlike SM1’s plant based protein customer and NUF’s Nuseeds business we don’t have commentary with which to base our valuation assessment on however we have trawled through historic releases and formed our own guesstimates to arrive at what we deem a plausible scenario. Given the highly subjective nature of this however we risk it heavily. Source: Chester Asset Management, IRESS, Various RIC announcements We further note that although we see this as meaningful blue sky for RIC we are attracted to the valuation appeal of the core business alone and did/ do not see Novacq as a core part of the investment thesis but an area of prospective future upside. Closing In these unprecedented times we spare a thought for those genuinely struggling without access to the liberties we are blessed with. We deeply appreciate the value there is in global food supply chains. (1) View link (2) We do know from announcements the customer is a “Global category leader in the Asia Pacific region for spray dried and consumer packaged nutritional powder products including plant based proteins. We believe the customer to be Nestle or Danone (3) View link (4) View link DISCLAIMER: Past performance is not a reliable indicator of future performance. Positive returns, which the Chester High Conviction Fund (the Fund) is designed to provide, are different regarding risk and investment profile to index returns. This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any specific individual. As such, before acting on any information contained in this document, individuals should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Chester High Conviction Fund. A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting chesteram.com.au or by calling 1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund. Any opinions or recommendations contained in this document are subject to change without notice and Copia is under no obligation to update or keep any information contained in this document current

A company trading at a discount to book value with tailwinds in key end markets: Is that something you might be interested in? In our last public note, we commented that we were going down the Marvel track with a couple of consecutive sequels. Weeks later we observed another Livewire contributor emulate one of our publication franchises and we thought, "Why not embrace the Marvel moniker?". So here is our Origin story. I was fortunate to commence a career in financial markets over 10 years ago(1) with an Adelaide based firm called Core Energy. It was there that I tuned my skills in financial modelling, report writing, business acumen and conference etiquette (2), advising clients on energy markets and energy companies. One of those companies was Origin Energy (ASX: ORG) – so I deeply appreciate how complex it can be to maintain a detailed model and live valuation of the company. Truth be told, it was the analysis of ORG that brought the founding Chester team together back in 2010. Over 10 years on, we were once again drawn to the company. For those who haven’t heard our pitch, at Chester, we are style agnostic investors that invest within a portfolio construction framework that includes "predictables," "cyclicals" and "defensives". Despite half of the business being a utility (predictable) and half an E&P company, we classify ORG as cyclical. For stocks that we define as cyclical, our dominant assessment lens is value (3). True value buyers love when the share price is below book value, but often that book value is stale and impairments see it eroded over time. Below we explain that ORG is in somewhat of a unique position in that literally all of its assets have recently been "marked to market", which has helped solidify our conviction around value. We formalised that view in mid-October 2021 by updating our internal ORG valuation and comparing it to that of the sell-side (the street) book value, and comparable market values (where appropriate). Since then, we have seen a transaction announced in APLNG (at above-market) and seen the street upgrade valuations. The summary of that comparison is tabled below with supporting notes on each of the key assets following. Valuation comparison Sources: Chester Asset management and various anonymous broker reports October 2021 APLNG In October 2021, ORG owned an effective 37.5% interest in the 9Mtpa APLNG CSG to LNG project in QLD. Our analysis at the time revealed limited variability between the street’s APLNG valuations, likely a consequence of management’s granularity around: forward costs expected production levels, break-even costs, etc. and the street using fairly consistent assumptions to value the asset(4). Additionally, APLNG was impaired in FY2020 so the book value approximately equalled ORG’s latest view of valuation then, however since that time(5): Oil prices have increased from around US$40/bbl to more than US$70/bbl, slightly offset by an increase in the AUD/USD foreign exchange rate (from 0.69 to over 0.70) APLNG has demonstrated improved well productivity, at Talinga and Orana in particular Project breakeven costs have improved (19% FY21 versus FY20) Obviously, numerous swing factors exist but we specifically note the following key negative and positive: Tri Star reversionary rights. Per 30/6/2021 relates to 20% of 2P reserves for which 45% would revert. ORG share of 2P = 4,252PJ, hence reversion relates to 850PJ (20% x 4,252PJ) of which 45% would potentially revert (340PJ). Within the Chester valuation, we have included a risked contingent liability of AUD340m (~AUD1/GJ) to account for some of this risk. Infrastructure monetisation. There are mixed reports as to the willingness of JV parties to entertain a sale and leaseback of APLNG infrastructure but there are transactions in the marketplace to support a potential value uplift. If we think about the EV of APLNG as ~AUD10.5bn and then accept our FY2021 EBITDA assessment of around $1.75 billion APLNG is effectively being valued at 6x EV/EBITDA. APA is on around 12x EV/EBITDA so we would think any deal would be around that mark (10-12x EBITDA). Gross PP&E in APLNG is around $31 billion(6) with more than 50% of that in the downstream. So, if we assume $15 billion of booked PP&E was ‘liberated’ the uplift could essentially be between $5 billion and $7 billion (ORG share 37.5% = AUD1,875m to AUD2,626). I.e. AUD1-1.50/share Sale of APLNG interest After our assessment, ORG announced the sale of a 10% APLNG stake to EIG for AUD2.12bn, taking ORG’s interest to 27.5%(7). On 9/12/2021 ORG announced ConocoPhillips had exercised their pre-emptive rights for the stake. A comparison of the sale price to our value assessment in October is tabled below. Source: Chester asset management and ORG announcement 25/10/2021 Some thoughts from the transaction: Valuation Premium. With a highly levered balance sheet and market ESG concerns, you could be forgiven for thinking that anywhere from 80-100% of NAV would be a good result for ORG. But the sale price was 6% above the street’s valuation of APLNG, 4.5% above Chester’s and 21.7% above book value. That is, it would add 25 cents a share (ignoring transaction costs) against the street or 81 cents a share to book value Upgrade. ORG had previously indicated more than $1 billion of cash flow from APLNG for FY2022 at 37.5%. That guidance is unchanged and by simple maths, if we assumed the cash flow was split evenly across the two halves, that implies guidance of around $1,200 million (at 37.5% for the full year). Reversionary rights. Anyone acquiring a stake in APLNG has to gain comfort with the position on Tri-Star’s reversionary rights. The premium to (street) NAV is a good sign, particularly given reversion is about to get tested in court EIG. EIG was previously a substantial shareholder in Senex Energy (ASX: SXY). The company has also been reported as underbidders on stakes in the QCLNG infrastructure sell down. We suspect the premium reflects some confidence of EIG to monetise assets via a sale and leaseback within the APLNG JV Optionality. ORG noted the capital injection provides flexibility to deliver returns to shareholders and pay down debt while allowing ORG to accelerate investment in growth opportunities. Is there an acquisition lined up? Pre-emption. Pre-emption provides us greater comfort that EIG’s offer wasn’t just a one-off bid from a cashed-up suitor but reflective of reasonable market value Beetaloo and Other E&P assets The bulk of ORG’s upstream assets were called Lattice Energy and were divested to Beach Energy (ASX: BPT) in 2017. The remaining assets, as evident in the table above are often overlooked by the market, except for perhaps ORG’s 77.5% interest in the Beetaloo project, which consists of potentially four stacked unconventional plays within 18,500 sqkms. To date 6.6Tcf of contingent resource has been booked related to just the Velkerri B (dry) shale gas play. ORG’s JV partner, Falcon Oil and Gas is actually listed so we can perform an implied valuation based on their market cap. Source: Chester Asset Management, IRESS and broker reports The market only really considers Beetaloo of what’s left partly because ORG wrote down it’s Poseidon asset(8) in 2017. But as Santos proved with Barossa those assets can have value in the right part of the cycle and Asian LNG prices have recently topped USD30/mmbtu. We add an addition AUD50m+ for Poseidon (+ ORG’s Canning basin interests) but note upside risk to this as we see Poseidon as potential Darwin LNG feed, reminding that ORG did pay Karoon USD600m in 2014 for its stake in the asset. The difference noted between us and the street’s/book value, for ORG’s E&P assets is ~AUD350m (~AUD0.20/share), again it’s not huge but it adds up. Octopus Energy For those unfamiliar with Octopus Energy, it is a UK based, global retailer of gas and electricity that specialises in renewable energy. The company operates an energy tech platform (Kraken) which is built around a scalable, cloud based architecture specifically for the energy sector. Kraken has been licensed to support over 25 million accounts worldwide (including ORG’s retail base) with plans to exceed 100 million accounts by 2027. ORG currently owns 20% of the business. We recently heard from Octopus Energy’s founder Greg Jackson and simplistically it sounds like Octopus (through Kraken) are taking existing energy markets from a ‘taxi-like’ state with fixed pricing and limited visibility for customers to an ‘uber-like’ model where the grid is becoming: more flexible, with customers able to access variable pricing; more distributed, with rooftop solar, storage batteries and other generation; and more transparent, allowing greater information flow of data. For the historians amongst us on an interesting side note, the founding company of the oil and gas sector, Standard Oil was often famously depicted as a sprawling, grasping octopus. We are unsure if Greg made the link when founding and naming the company but we appreciate the full circle nature of the symbolism. Per above we did note a variance in street valuations of ORG’s Octopus Energy interest, with some analysts completely ignoring it. We admit to finding this somewhat unusual given the recent transaction by Generation Investment Management (GIM) providing a ‘mark-to-market’ value for Octopus Energy to ~AUD5.5bn, meaning ORG’s stake is worth ~AUD1,100m, refer table below. The sample of us vs the sell side in October showed a difference of ~AUD500m in average valuations (AUD0.33/share), ~6% of the current share price. The difference to book is even more pronounced at ~AUD690m (AUD0.39/share). And just as we finish writing we are reading of Canada Pension Plan Investment Board taking a 6% stake in Octopus for USD300m, implying a further AUD0.15/share increase to ORG's stake per the GIM transaction. Source: Chester Asset Management and various announcements Although we don’t model Octopus separately we would imagine given: the current growth trajectory, material interest in the company and SaaS nature of Kraken the valuation could continue to grow. We have assumed an upside case of AUD500m beyond our base case valuation within the waterfall chart below. Source: Origin Energy FY2021 Results Presentation Energy Markets (EM) In the preceding paragraphs we have presented over AUD0.70/share of incremental mark to market value to the street’s (October) ORG valuations and over AUD1.30/share to book values, but the biggest swing factor in valuation is Energy Markets (EM). The market generally values EM using an earnings capitalisation approach (which ignores what point of the cycle we are in). We have observed some analysts realise the risk in doing this and progress to an average capitalisation of the next 3 years. This still potentially understates the true value of all components of the business, as it is capitalising the trough year of FY2022 (~AUD525m EBITDA at guidance midpoint) within the valuation, which compares with FY19 and FY20 EM EBITDA of AUD1,574m and AUD1,459m and earnings guidance in FY2023 of ~AUD725m. What we do know is that ORG impaired both the PP&E in generation and EM Goodwill during FY21 such that: Generation closing book value was AUD2,793m at 30/6/2021 EM Goodwill was written down to AUD3,812m at 30/6/2021. This was on top of net book value of remaining EM assets of AUD932m taking the written down non Generation assets to AUD4,744m (AUD932m + AUD3,812m). The total of these two (Generation + EM Other) is AUD7,537m(9) This is well above the average sell side valuation of the division, sampled at AUD6,209m i.e., AUD0.75/share (~15% of current share price). We have essentially tried to address this difference by performing 2 separate exercises: A valuation of EM’s subcomponents, with where possible reference to market transactions A detailed analysis of the earnings movements year to year (Earnings bridge) A warning that we may offend some detailed readers with this crude exercise by trying to simplify what can be relatively complex(10)/ opaque subsectors of EM. EM VALUATION EXERCISE Generation Source: Origin Energy FY2021 Annual Report As is evident in the list of generators, beyond Eraring, ORG’s fleet is predominantly OCGT and CCGT(11) assets. Valuation of these assets is complex as ORG provide limited details, but historically we have modelled each of these generators separately. One of the key challenges in performing any valuation is this peaking generation provides insurance against price spikes in the NEM to the cap of AUD15,000/MWh which can save the company millions of dollars but projecting when and the value of the cost of that insurance can be complex. Hence beyond our DCF we have considered book value (AUD2,793m), replacement cost and comparable market transactions as a valuation cross check. The most notable current (replacement cost) is the proposed, Federal Government backed Kurri Kurri, 660MW OCGT project which has a proposed price tag of AUD600m (AUD0.9m/MW). This price tag is actually below other quoted OCGT plants of ~AUD1.1m/MW and CCGT of AUD1.4m but notably is the most recent cost of a new plant we can find. Given ORG’s peaking fleet is quite aged we view the Smithfield transaction from May 2019 as a more reasonable comparison. This deal saw Infigen acquire the Smithfield OCGT plant 109MW for AUD60m (AUD0.55/MW). ORG's internal generation is 3,167MW, ex Eraring, which would equate to ~AUD1,740m at AUD0.55m/MW. This is reasonably in line with our valuation of ORG’s non Eraring Generation fleet. To that we need to add Eraring an valuation, which we derive by assuming AUD60/MWh NSW electricity price from FY2025 onwards, generating a margin of ~AUD10/MWh on ~12TWhpa which gets us to ~AUD400m for Eraring. Hence our generation valuation (~AUD2.1bn) is below ORG book value, with the upside to our valuation vs book value (AUD700m) captured in the waterfall graph below. As a side note, adding ~AUD5/MWh, i.e., assumed AUD65/MWh real long term in NSW increases our Eraring value by ~AUD400m so represents a key area of sensitivity in our valuation. Retail We model each of ORG’s electricity and gas businesses separately including cost to serve. For more detail on the earnings of the subcomponents refer ‘Earnings Review’ below. We do note that there has been increasing desire for service providers to bundle packages, to avoid regulation requirements and amortise the cost to serve across a greater denominator with both ORG and AGL offering white label broadband, and Telstra offering energy services and pay TV. Intervention by Governments makes it harder to earn super profits in the space but the question remains what is a reasonable profit and what does that mean for the valuation of retail assets? There are many inputs into our valuation but the key variable we employ is long term EBITDA margins of ~5%. To our valuation we have performed a cross check based on comparable market transactions for energy retailers. By way of reference lower quality retail customers have historically transacted at AUD400-500/customer(12) but stronger more attractive books have transacted at >AUD1,000/customer. ORG itself paid ~AUD1,300/customer for Integral and Country Energy back in 2010. In November 2021 Shell and ICG group paid AUD729m for Powershop’s 185k customers and energy infrastructure (~300MW renewable capacity). This would be a relevant comparable transaction but annoyingly we don’t have the split in value between the infrastructure and retail assets. If we make some general assumptions like ~AUD1.8/MW of renewable capacity implied by the Infigen takevoer, ICG could be paying ~AUD540m for the energy infrastructure and Shell could be paying AUD189m ~AUD1,000/customer for the retail book. In a cleaner comparison, in June 2021 Mercury acquired Trustpower’s retail business of 416k customers for NZD441m (~AUD1,000/customer). The drawback for this comparable however is that it is NZ, but NZ retailers do have similar profitability per customer as Australia. ORG had 3.855m gas and electricity customer accounts at 30/6/2021 (4.266m if we include LPG and Broadband). At AUD1,000/customer that equates to AUD3,855m, compared to our net retail valuation of ~AUD3.2bn I.e., Chester retail valuation (electricity + gas) equates to AUD830/customer. Hence we are comfortable with our retail valuation(s) and see upside (>AUD600m) if we were to assume valuation towards AUD1,000/customer. C&I including merchant electricity and gas operations C&I we rely on our DCF valuation but notably there isn’t much visibility to valuation. Further challenged since ERM power was acquired by Shell we have lost public visibility into margins available in C&I or ‘Business’. We assume longer term ~2% EBITDA margins in this part of the business plus the impact of existing books particularly the margin on the APLNG gas contract, refer to Gas GM in Earnings review below. LPG Origin supplies LPG and propane to residential and business customers across Australia and the Pacific. We value the LPG business as relatively steady, continuing to generate ~AUD90m p.a. On 7-8x EBITDA we see the LPG business being worth ~AUD600-700m which represents the core of our ‘Other’ valuation. Solar and Energy Services + Future Energy Within Solar and Energy Services ORG provides installation of batteries and solar systems to both business and residential customers as well as ongoing support. Plus, the supply of electricity and gas to apartment tenants through embedded networks and hot water. Future Energy is ORG’s business unit that focuses on developing and commercialising new technologies and products in a changing energy environment. Included within operations are ORG’s virtual power plant of connected services, 159MW from 79k at 30/6/2021 of which 56k were from the Spike program. We value the combination of these business at ~AUD300-400m EM – EARNINGS REVIEW If we assume 7-8x EBITDA as the appropriate multiple(13) under a capitalised earnings approach FY2024 earnings and beyond would need to increase AUD250-300m on FY23 to justify the ORG book value and Chester Valuation (AUD7,537 / 7.5 = ~AUD1,000m vs FY2023 guidance of ~AUD725m). Kraken is set to deliver a further AUD100-150m in operating cost savings (with the bulk of that in FY24) leaving a further AUD150-200m to be achieved. With the closure of coal plants like Liddel we could see a >AUD10/MWh increase in base NSW electricity prices(14) noting Victorian prices averaged ~AUD30/MWh higher following the 3 years post Hazelwood closure. This is as contentious an argument as monetary inflation and we have come across both electricity price deflationists (renewable SRMC ~0) and electricity price inflationistas. Putting that argument to one side through, from our sell side sample the average for what we can see is a AUD200m(15) increase in EM earnings from FY23 to FY24, which isn't necessarily captured within valuations I.e., we can see why valuations would need to rise by AUD0.50-AUD1.00/share as FY2023 and FY2024 earnings are capitalised rather than FY2022 and FY2023. We have performed an exercise below demonstrating how we can see EM EBITDA back above AUD900m p.a. by FY2024. Source: Chester Asset Management Source: Chester Asset Management and various other sources Cash / Net Debt + Corporate Net Debt is a function of our earnings and cash flow projections. Corporate Costs is an after tax valuation of the ongoing cost of corporate overheads for which we value at ~(AUD650m). Notably to compare apples with apples we arbitrarily took the average across our sample of AUD700m and isolated that for the analysts that didn’t account for it separately. Closing At this time of year when everyone is trying to make unknowable predictions about the year ahead, in a highly uncertain macro environment, we are focusing on individual stock stories and emphasising why we have conviction in the value of assets we are investing in. We trust the above has helped provide clarity as to why we were comfortable acquiring ORG in the low 4’s with a view to a base case valuation of ~AUD6.50/share. Source: Chester Asset Management It’s also worth pointing out that if we marked to market ORG’s assets that have recently transacted: APLNG, Beetaloo and Octopus and added them to the book value of remaining assets we get AUD7.12/share(16). Happy holidays and hopefully there’s some coal leftover for ORG after Santa’s visits. References (1) This writer is ignoring the painful 4 years he spent as an auditor (2) (VIEW LINK) (3) Of the 3 lenses we consider, Quality and Edge being the other two (4) USD60-65/bbl brent price LT and a WACC of ~10%. (5) For those unfamiliar with the accounting treatment, you don’t write back these improvements (6) At 30 June 2021 (7) (VIEW LINK) (8) 40% interest in Browse Basin field – previously reported as 7.6Tcf of gas and liquids (9) i.e., ORG’s internal updated view of Energy Markets EV, supported by their auditors at 30/6/2021 using a discount rate of 9.6-9.8% pre-tax (10) In doing so, for simplicity we have chosen to spend little time on RECs (11) OCGT = Open Cycle Gas Turbine and CCGT= Combined Cycle Gas turbine (12) AGL’s takeover of Australian Power and gas being notably around this mark (13) ~Historical AGL multiple prior to its issues) and the ~average the street is capitalising ORG EM EBITDA at (14) Note this was written in October and we have started to witness coal and gas price increases putting upward pressure on the wholesale electricity price (15) AUD986m – AUD778m (16) AUD5.57/share + AUD0.81/share + AUD0.20/share + AUD0.39/share + AUD0.15/share = AUD7.12/share

“In the race of life, always back self-interest – at least you know it’s trying” – Jack Lang Anyone who has listened to my colleague Rob Tucker in the past 12 months would most likely have heard the above quote and hopefully appreciates a key part of our research effort and ongoing portfolio (+watchlist) management is monitoring insider activity. It is something we constantly review in real time but every 12 months we take a helicopter view and provide some thoughts on emerging patterns. September is an interesting time to perform this exercise, as it seems to have heightened activity for insider dealing with windows open following August reporting season. It also seems to be the season where insider dealing hits the headlines, last year for the comprehensive management selling of A2 milk (A2M) and dealings of then Cleanaway (CWY) MD Vik Bansal, this year due to share sales by Nuix (NXL) insiders and Vaughan Bowen. Conscious that we appear to be going down the Marvel track with another sequel (I promise we’ve got an original piece coming) but frankly we love franchises, they make great business and in a world of increased uncertainty the information content from insider dealing is enhanced. Hence for the very reason described in the quote above it remains one of our favourite screens. As noted in our publication last year, Why it Pays to follow the Insiders, empirical studies have shown the significant alpha created from following insider activity but for us it is much more than that. Before ESG was investing du jour we’d been reviewing remuneration reports and insider activity as it goes to the heart of the governance of an organization. Herein we provide an update on some of our 2020 observations and provide some fresh areas of interest in 2021. For those that are time poor we’ve chosen to present our 2021 observations first, with an update to our 2020 observations following. 2021 Observations The table below highlights the Top 10 share sales and purchases of the ~ASX300 in FY2021 and top 5 in FY2022 to date. As a reminder and for those wanting to perform their own analysis we note this data is sourced by Chester (company by company) from MarketIndex.com.au (rather than Bloomberg) and engineered into the following tables. Source: Chester Asset Management with data sourced from MarketIndex.com.au Sources: Chester Asset Management with data sourced from MarketIndex.com.au In addition to the list above we try to highlight some recent observations / examples of 2021 Chester decision making from insider activity. Technology – Ignore the signals? 6 of the top 10 in FY2021 and 4 of the 5 companies in FY2022 to date are in the technology space. In addition, we noticed on Friday last week (24/9/2021) Craig Scroggie, MD of NextDC (NXT) had sold AUD21.7m worth of stock. We present this comment here merely as an observation as we appreciate that a number of these firms are founder led (a trait we are extremely attracted to) and those founders have material portions of their wealth tied up in these firms that they may understandably be trying to diversify from. Notably the 3 biggest outliers to performance from the FY2020 sell list were technology companies so we suggest the strength of the signal may be a bit weaker when it comes to identifying sells from the tech space. Pokie permabull or big green flag? Endeavour Group (EDV) is a name we need to update our database for but for us is a bit like our UMG comment of 12 months prior in that it is a business that recently demerged from its parent entity, being Woolworths (WOW) and has experienced material insider activity. UMG’s buying was material in number of transactions and although we note 6 separate instances of buying in EDV this month, it is the quantum of buying by Bruce Mathieson (Snr) at >AUD50m that has captured our attention, in a similar vein to Twiggy’s FMG buying in FY2020. EV material companies – Let’s not forget the cycles We are big proponents of the EV trade and structurally bullish the play but some of our preferred exposures in the space have seen material insider dealing of late that we find hard to ignore, for a sector that has had its fair share of past cycles. Pilbara Minerals (PLS) saw the MD Ken Brisden sell half his stock over 2 months ago, a week after sales by 2 other directors. 2 months later corporate ‘insider’ Mineral Resources (MIN) also sold its stake in the business. Lynas Corporation (LYC) has also seen recent selling by the MD Amanda Lacaze. On a separate but somewhat related note we have seen a company (we have really liked) complete a partial divestment of their key project and seen the market (sell side analysts) misinterpret the economic structure of the deal such that they are inflating the implied look through of the deal by double! That’s material and it shouldn’t have been hard to work out but in this lithium bull market some people are believing what they want to believe. Conversely there are other EV related exposures where we have seen material insider buying like Jervois Global (JRV) where at least 3 directors participated in the recent entitlement offer related to the acquisition of Freeport Cobalt. But overall, we suggest some caution on the valuation of some of the EV related exposures at present. The ‘Book Deal Trade’ We have seen a ‘trade’ somewhat repeated in markets of late we are coining the ‘Book Deal trade’, or BDT for short. The first of these we witnessed recently was ex Regis Resources (RRL) MD Mark Clark. We are conscious he wasn’t the first MD to do this but it has been noticeable that this trade was repeated by a string of other successful gold MD’s. Why we have coined it the ‘Book Deal trade’ is the historic precedent of either the Australian Cricket Captain or POTUS to financially leverage their brand power post retirement in signing a book deal, that instantly becomes a best seller. These MDs had specifically identified companies/ assets when chief of their prior organisation and upon retirement joined that company as a Director with an accompanying placement. It is almost the purest form of legal insider dealing we can think of. Source: Chester Asset Management with data sourced from IRESS In the table above we have highlighted that these BDTs have all achieved stunning day 1 results. These are some of our favourite MDs in the gold space and we have enjoyed tremendous success investing alongside of them so are more than understanding of the share price responses. A successful strategy is clearly knowing which companies are about to sign a ‘book deal’ and investing in them but it can be challenging to ‘chase’ these initial pops. However, the subsequent follow-through in Capricorn Metals (CMM) and Venturex (VXR) suggest buying in even after the initial rise has still generated strong returns. Limiting this to just gold MDs does ignore some of the other executives who have achieved comparable success in prior roles. The most obvious being tech entrepreneur Bevan Slattery who has enjoyed similar market responses to his investments into the likes of Rent.com.au (RNT) and Pointerra (3DP). We are extremely interested in one BDT that hasn’t generated the same types of returns (as yet) but has similar potential to the ‘gold edition’ of the club: It is a project that has been around for years and enjoyed a level of scepticism from parts of the market but has enormous upside The new MD is highly regarded He is accompanying his appointment with a placement of AUD 2m of shares (~4x his new base salary) Unlike the other additions maybe because his appointment followed a large capital raise there is still ‘surplus’ stock floating around but we are somewhat surprised to see the pull-back in price to date. For those that haven’t yet guessed we are talking about Seafarms Group (SFG) who recently appointed the ex Inghams (ING) and Skilled group MD Mick McMahon as their new leader. As an added kicker to this BDT, Mick was joined by his prior CFO from ING Ian Brennan who is also investing AUD500k into the company. The kitchen knives of this insider deal? The Chairman Ian Trahar invested AUD20m in the recent placement and converted loans totalling AUD15.2m he had with the company into equity. Consumer Staples – A hive of activity We have noted above (and below) observations related to A2M, UMG, EDV and SFG. We see a lot of activity in Consumer Staples, and maybe because there’s greater cyclicality in agribusiness the signal strength on this activity feels greater than the ‘secular growth’ of the technology space so worth considering. Although we think a host of companies in the space are enjoying a second consecutive season of near perfect conditions and hence set up for a strong FY2022 including Elders (ELD) we make note of the recent activity of MD Mark Allison who has sold over AUD7m of stock within the last 12 months. As a side note we believe he has done an outstanding job with his part in turning around that business. Conversely a name we think is going through a transformational turnaround of its own that we feel remains underappreciated is Ridley Corporation (RIC) where we have witnessed 4 instances of Director buys in FY2021 including over AUD400k by Chairman Mick McMahon. In a similar vein TGR has attracted some buying from insiders including director James Fazzino who continues to buy in almost every available window. The FMG 180 Although past the cut-off date for our data, we note that on Friday (23/9/21) it was announced Fortescue (FMG) MD Elizabeth Gaines had sold AUD9.4m worth of stock in on-market trades. Material in itself and a significant portion ~2/3 of her non LTIP shareholding. As noted below, in previous versions of our annual screen Twiggy’s buying has often placed FMG in the Top 10 buy lists. Maybe time for Twiggy to wade back in? The ultimate insider trade? At Chester we are avid voyeurs of financial Twitter (FinTwit) and we were quite intrigued by the debate earlier this month around news Federal Reserve (Fed) regional presidents Robert Kaplan and Eric Rosengren would sell all of their stocks by September 30, refer article here. The argument posited being that QE has had a very positive impact on markets and as the Fed talks of potentially talking about tapering if it did actually action that talk it could have a detrimental impact on the stock market. I’m trying to keep this note short so suggest anyone wanting to jump down that rabbit hole does so at their own leisure but we are intrigued by this thought that it could possibly be the ultimate insider trade. We certainly hope not. 2020 Observations Update The tables below represents the same information as above but for FY2020. Notably there are a few similarities to the FY2021 list in that there appears a disproportionate level of sells from the technology space and a higher level of buying in the resources space. Source: Chester Asset Management with data sourced from MarketIndex.com.au 60% of the time it works every time If we start off with the sells, the 2 bookends are notable in highlighting that insider activity can be both an extremely useful red flag and a deceptive indicator to follow. In the case of Phoslock Environmental Technologies (PET) allegations of fraud followed <12 months after the initial director sales so were worth paying attention to. In the case of Kogan (KGN) however the stock price appreciated >250% in the 12 months following the initial director sale. Demonstrating the screen is useful as part of a decision making process but challenged as a standalone decision trigger. Sources: Chester Asset Management with data sourced from IRESS Although not specifically on this, or the FY2021, list due to the data only capturing ASX director selling we had noted the material disposals of multiple A2M insiders in August 2020 as something that left us ‘cautious on the outlook for the company’. It was clearly one of those red flag rather than false flag moments with the shares down >60% in the 12 months following those sales. Be like Twiggy The variance of alpha across buys from FY2020 presented a similar set of results to the sells, highlighting the intricacies of insider activity as a screen. It’s more an art than a science but clearly we would all love to have Andrew (Twiggy) Forrest’s trading prowess (and financial resources)! Sources: Chester Asset Management with data sourced from IRESS Above we have noted one of the material insider trades we correctly identified in 2020 but it would be remiss of us not to mention a couple of others we had identified as potential buys from activity in FY2020 being OceanaGold (OGC) and United Malt Group (UMG). Both are yet to work out but have seen ongoing insider buying in 2021 and remain holdings of the fund. Founder-Led Firms Breaking somewhat from the tradition of past notes we are linking to a Livewire article we read on the weekend, never send a suit to do a founder’s job. Although as discussed in our previous note, where we covered a number of reasons for Founder-led firms outperforming, we wouldn’t want to be seen to be copying other articles, as has happened to us in the past, so refer you to the linked article above. It was almost apt that after publishing our note last year two of the highest attributors to the fund and some of the more successful IPOs in FY2021 were founder-led firms. Where possible we continue to favour founder-led firms and watch with envy across some of the founder-led firms we haven’t been invested in. Closing Despite mixed success in predicting alpha from the 2020 cohort, insider dealing remains as important a screen as ever. Remain alert, remain flexible and remain curious. Good luck and hopefully there’s a book deal in the future for us all to look forward to.

The most recent COVID inspired emergency response has seen 20 years of US central bank debt accumulation double in 12 months. It is very unclear how this ever gets repaid. We have arrived at a juncture of financial repression, for governments themselves can not afford materially higher interest rates, but are effectively forced to run budget deficits, for the greater good. The control of the supply of money is changing from central banks to governments as they grapple with the moral hazard of looking after their citizens’ way of life. The consequence of this appears to be that short term interest rates will not reflect inflation expectations and any sign of significant asset price volatility will see the effective capping of long term interest rates. This line of thinking outlines the playbook for a decoupling of inflation and interest rates for the first time since the 1940s. This is actually a necessary policy setting to have any chance of governments solving the current debt crisis. The pathway to this outcome may not be smooth, but essentially this is the most probable scenario, given so many others (materially higher interest rates, austerity or even sovereign debt default) are far more unpalatable, with far greater social consequences. Hence we see a problematic period ahead whereby central banks are facing the prospect of slowing economic growth, while grappling with meaningful inflation for the first time in almost 40 years. The inflation issue appears to be far stickier than most pundits had expected at the start of the year, and looks set to continue into 2022. This challenge of unwinding the easy monetary policy settings suggests to us that uncertainty will create more volatility, and with that the desire to own a portfolio of stocks that can insulate the portfolio from significant drawdowns, while still offering strong valuation support. We’ve made changes to our portfolio in the past quarter to find companies that will trade in a non-correlated manner to the broader market. We’re looking at a few key areas including: Real assets – We believe inflation will drive real asset valuations higher. Valuation margin of safety – We’re not overpaying for long-duration assets or concept stocks. Instead, we’re focused on the near-term. Pricing power – We’re considering how long companies will be able to hold their prices stable before being forced to pass on inflation costs to consumers. Gold – There is extreme value emerging in gold equities, as it’s the most unloved sector across global equities right now. The current trends in markets are bringing the focus back on our core philosophies: backing ourselves when it comes to unappreciated assets, maintaining a high active share and investing in companies with strong, predictable cash flows. We seek to continue to deliver a portfolio that generates stronger alpha, with lower beta than the market.\ Disclaimer: Past performance is not a reliable indicator of future performance. Positive returns, which the Chester High Conviction Fund (the Fund) is designed to provide, are different regarding risk and investment profile to index returns. This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any specific individual. As such, before acting on any information contained in this document, individuals should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Chester High Conviction Fund. A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting chesteram.com.au or by calling 1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund. Any opinions or recommendations contained in this document are subject to change without notice and Copia is under no obligation to update or keep any information contained in this document current