L1 Long Short Fund Limited (LSF) Earnings Call Transcript
November 20, 2025
Earnings Call Speaker Segments
Hello and welcome to our final investor webinar for 2025. My name is Amar Naik, and I'm the Head of Research at L1 Capital. I'm joined today by L1's co-founders and co-CIOs, Mark Landau and Rafi Lamm. Thank you for joining us, guys. Today, we'll cover 5 main topics. We'll cover our perspectives on the market and what's been an eventful and very volatile year, fund performance and some of the key drivers, how we're positioned into 2026, our views on specific stocks and sectors; and finally, some of the exciting developments across the L1 Capital Group, including our merger with Platinum and the very exciting launch of our global Long Short Fund. So without further ado, let's get into it.
Let's start with the market outlook. Rafi, it's been a pretty strong year for markets across the board. What do you think has been driving that performance?
Markets have been really strong in Australia, in Europe, Asia and the U.S., of course. It's been driven by a number of factors. The big one to call out is the strong rise of AI driving mega cap stocks in the U.S. We've seen declining interest rates across the world. That's been supportive. Economic growth has been fairly resilient, particularly in the U.S. However, it's noteworthy that market leadership has been very narrow with the top 10 stocks in S&P 500 now making up more than 40% of the index.
And what's your outlook from here, Raf?
We have a constructive outlook around economic growth. In the case of the U.S., economic growth is going to be driven by the OBB Bill, which comes into play from November onwards. We see tax cuts for private individuals and massive tax incentives for corporates to invest more heavily. We see further interest rate cuts on the way, although we are fairly advanced in the cycle now. And of course, we see massive further CapEx in the AI space. On a global basis, we see similar trends emerging.
And Mark, from your perspective, is anything different from an Australian mindset? And how do you see the outlook there?
Australian market has actually performed quite nicely over 2025. We're up around 12% calendar year-to-date up to the end of October. I guess the biggest difference from my perspective versus offshore is that we've generally had pretty poor reporting season from a company earnings point of view, and our outlooks have been relatively soft. Forward earnings expectations have actually been declining for the ASX 200 for the past 3 years. So it's really been the multiple expansion that's been supporting returns, which we think of as a lower quality source of returns in terms of what would give you comfort about future share price performance. The biggest 20 stocks in the ASX 200 comprise almost 2/3 of the index, and most of these stocks are trading at quite high earnings multiples, both versus history and also compared to global peers. So in terms of the outlook, we think the index is pretty fully valued. The market today is trading on close to 20x earnings, which is definitely at the upper end of its historical range. Now keep in mind, our fund doesn't have the index, so we're still able to find lots of mispriced stocks that look really attractive, but we're being pretty selective about which stocks we go for and which ones we decide to leave to the side. In general, the best opportunities we're finding are where the market has been overly short-term focused or where they're underestimating some aspect of the growth story.
Thanks, Mark. And we've just had the L1 Family Office Summit last month. Raf, you opened it with a fireside chat with Donald Trump Jr. What stood out the most for you from that discussion?
We had a great session with Don Trump Jr. at the Summit, which was following a private session with the investment team with Don Trump Jr., where we got a very strong insight in terms of the key priorities of the Trump administration. If I was to summarize the key focus points of the Trump administration, firstly, a massive reduction in red tape to drive investment. Secondly, the OBBB bill, consistent with our thinking is likely to drive a massive increase in CapEx investment throughout the U.S. economy. And finally, a very strong focus on reducing interest rates to help drive housing activity in the U.S. economy.
Thanks, Raf. Let's move on to fund performance. Mark, the L1 Long Short Fund has had a strong year. We're up 31.4% year-to-date to the end of October. What's been driving that performance?
It's been really pleasing to deliver some strong performance after more modest returns in 2024. Performance has been really broad-based across different sectors and regions. Gold and copper stocks have been really strong performers for us, names like Westgold and K92 in the gold sector, along with copper names like Hudbay and Capstone. In the industrial space, Finning has been a big winner for us. They operate the Caterpillar dealerships in Canada and Chile. That stock price is up nearly 100% since May. And then long-standing positions like Imdex and Downer, they've rallied around 50% over the last 6 months or so. In the financials, U.K. banks like Lloyds have nearly doubled over the last 12 months. And then Qantas, which we were obviously copying a lot of growth for a couple of years ago, that's actually performed really nicely. It's up 100% over the last 2 years. We still think it's really compelling at these prices, and we're actually topping up our position at the moment. In the infrastructure space, names like Fraport, which was our biggest position in the fund a year ago, those shares are up 50% and we've had solid returns from Chorus as well. Just as importantly, we've avoided a lot of the high-profile stocks that had major earnings misses and the share prices collapsed recently. We weren't invested in any of these names when they had their earnings misses. Companies like CSL, James Hardie, WiseTech, Woolworths, Reis and IDP. The short books also contributed quite nicely. Names like CBA have started to fall from very overvalued levels. Over the past 12 months, the portfolio has returned 23%. Over the past 5 years, we've returned 23% per annum, which is about 10% per annum better than market. And since inception of the LSF strategy back in 2014, we've returned close to 19% per annum compared to around 8.5% for the ASX 200.
Another one that performed well for us this year is Mineral Resources, and that's one that's made headlines this year and last year quite consistently. Raf, can you talk through what gave you the confidence and conviction to substantially increase our investment when it was trading below $20 a share?
Mineral Resources is a company that I personally follow very closely over a long period of time. I've always been attracted to the very strong mining services business, which is the core of Mineral Resources. Indeed, it's grown volumes by a double-digit run rate, which has driven around 20% per annum earnings growth over the past 2 decades. However, Mineral was impacted by governance issues of very weak lithium prices, moderately weak iron ore prices, and a stretched balance sheet as a result of the huge CapEx to build the Onslow iron ore project. We saw a major opportunity to add to our position when the shares were trading at less than what we consider fair value for just the mining services business. In effect, we were getting the lithium business and the iron ore business for free at that point.
And Mark, perhaps you can touch on how you and Raf interact in a situation like this where you have a major dislocation. I know you come at the analysis and looking at investments in a different way.
Sure. Raf and I have a very similar mindset when it comes to investing, but we're obviously different people, and we've got different personalities. So we focus on different things when it comes to that analysis. For any stock to enter the portfolio, we both have to agree. So it essentially has to pass each of our hurdles, and we invest the lower weight of what each of us is comfortable with. So essentially, we both have to be on board and we both have to be across the story. We've had this process in place for 18 years at L1, and we found that it works really well from a risk management perspective. We took advantage of that overreaction in Min Res at the time when both Raf and I were going to meetings with the CEO, with the Chair, with other Board members, with the Head of the Mining Services division to make sure that we were across all of the issues the market was concerned about. From our perspective, there were 3 main issues: Onslow, the gearing and the governance. Each of those we felt was addressable. And once we both got comfortable with that, we were happy to increase the weight.
No, it hasn't been all smooth sailing this year. Can each of you touch on a position that's been frustrating you this year and how you're thinking about it now? Raf, perhaps you can start us off.
The most frustrating stock for me in the portfolio is Viva Energy. It's trading down around 25% year-to-date. It's been impacted by a number of factors at the same time, including lower refining margins, a difficult integration of multiple retail businesses together in the convenience space and finally, the impact of massive illegal tobacco sales on convenience gross margins.
What's your views on the stock at the moment, Raf? Is there a way through some of those challenges?
We think each of those challenges are likely to get incrementally better over the next year. We've already seen a pretty substantial improvement in refining margins. The integration is starting to get some traction and the government is starting to take some belated action in controlling illegal tobacco sales.
And Mark, from your standpoint?
For me, the most frustrating one has probably been Light & Wonder, which is one of the biggest slot machine manufacturers globally. The shares have been under quite a bit of pressure this year. Back in July, the shares were trading at about $150. And then by the end of October, they were down to about $110. From my perspective, there are basically 3 issues impacting the company. The first one is that their revenues have been quite erratic as we went through that period of disruption around tariffs and consumer discretionary spending on the back of that. Secondly, they've had some high-profile litigation in dispute with Aristocrat. And lastly, there's been massive index selling. So when the company went out of the index, there was nearly half the market cap that traded in a single day when it moved its listing from the NASDAQ to a sole listing on the ASX. But if we think forward over the next 12 to 18 months, most of these issues will actually improve. So the index rebalance is now finished. That's passed in the U.S., and we're about to see index buying on the ASX over the next few months. From a macro point of view, we're finally seeing more consistent trends that are reassuring in terms of their revenue. And then lastly, there's risk around litigation, but we think that we'll have more clarity in 2026, and we're hopeful that, that will ease some of the overhang we're seeing in the stock. Today, the shares are trading at around 14x FY '26 PE, and there's about 20% earnings growth likely for FY '27 and further growth beyond that. So we're happy to stick with it.
Let's move to the portfolio now. Rafi, given the strong run and our outlook on markets, how have you changed the portfolio positioning in terms of current thinking?
As we always do, we've taken advantage of some of the share price moves as stocks have approached our valuations. For example, in the copper space, names like Hudbay and Capstone that we've largely exited. In the online gaming space, Flutter traded up towards our valuation of around $300 in early September, and we exited the position prior to the noise around prediction markets, which caused the shares to fall around 30% more recently to about $200. And finally, CRH has been a dramatic winner for us over recent years. It's the largest U.S. construction materials company, really high-quality, well-run business. However, it traded up towards our valuation, and we exited the position with a large profit. Our net exposure to the Aussie market remains lower than usual, given we see relatively low earnings growth and generally full valuations. In Europe, although the markets have run strongly, we still see very cheap high-quality infrastructure stocks that we're focused on. In Canada, again, despite a strong run in certain parts of the market, we see fantastic opportunities remaining in the gold and copper space. And in the U.S., we've added some cyclical exposure to take advantage of the medium-term strong economic outlook.
Would you say positioning is a little bit more conservative than earlier in the year?
The fund is definitely positioned a touch more conservatively. However, we still see a very constructive outlook for the portfolio.
Mark, anything to touch on those comments?
I think the biggest thing from my perspective is that despite the fact that the market overall is trading quite fully priced, we're still seeing lots of good value opportunities. The average stock in our portfolio is on a PE of 11, and it's expected to grow earnings at about 15% per annum. We feel like we're really well positioned even if the broader macro environment was to soften. We continue to like sectors like infrastructure, gold, copper, travel and what we define as quality value names, companies with solid earnings growth and they're trading on pretty sensible multiples.
Mark, you touched on some of the themes we like at the moment there. Let's start with infrastructure. It's our largest sector weighting on a net basis in the Long Short Fund. Why is that? And why do you think our view is different to the market?
We invest in companies that we think represent both quality and value. In the case of infrastructure stocks, they're generally really high quality. They've got monopoly type assets. They've typically got a very high degree of certainty about their future cash flows. Over the past decade, we've made a number of large profitable investments in the infrastructure space where there's been a dislocation between the share price and the future operating and cash flow outlook for the business. Companies like Chorus and Atlas Arteria are a couple of prime examples. Fraport has been a really good example over the past 12 months. There was a lot of noise around Fraport 12 months ago. We built it into the largest position in the Long Short Fund because the market we thought was overly concerned about some temporary factors. There was weaker traffic growth. There were risks around major capital projects in Frankfurt and Lima that elevated debt levels and had canceled their dividend. But when we dug into the details, we saw something totally different. The weak traffic numbers weren't actually structural. They were just because of delays in Boeing delivering aircraft to Lufthansa, which we thought would be a temporary feature. Given they own regulated assets, the lower traffic number actually enables them to increase their per passenger charges, which provides a nice offset. The Lima construction risk sat with the builder for that project, not with Fraport. And lastly, we were actively monitoring the construction of Terminal 3 at Frankfurt Airport, which was their major CapEx program. We actually traveled to Germany several times over the last 2 years to confirm that the new build was tracking to plan. The company is now starting to generate real positive operating leverage as earnings are growing and the CapEx is starting to decline. And the market has gradually started to recognize this with the shares rallying more than 50% over the last year. And despite this rally, we still think the shares are really cheap and they've got a lot of upside over the next 12 to 18 months. So we think the dividends will become reinstated, and those dividends will grow strongly over the next few years. There's also a handful of other interesting opportunities, particularly in European infrastructure with high-quality names like Cellnex and Getlink that we think have a similar opportunity to Fraport.
Thanks, Mark. Rafi, let's move on to the gold and copper space. You touched on copper briefly before. Both have performed well this year. Is it time to take profits? What's your sense?
I think in the case of the copper space, we're now relatively fully valued in general. However, we still see individual opportunities where there's still severe mispricing, particularly companies with large CapEx projects that will be coming online over the next 12 to 24 months and will lead to a re-rating as they are delivered. So we remain constructive on the gold price despite the gold price being up around 50% calendar year-to-date. We think the key factors driving the gold price, such as central bank buying, large budget deficits across the world and strong retail interest, particularly in Asia, are all set to continue over the medium term. At a stock-specific level, we're backing disciplined management teams with exciting growth optionality. Many of our stocks are growing production 50% to 100% over the next 12 to 24 months. They're doing this in the context of very strong balance sheets, which enable a return of free cash flow to shareholders either through dividends or buybacks. We're still seeing valuations that reflect a much lower gold price than the current gold price today.
And your favorite position, if you had to pick one?
Favorite position today would be K92. We've recently been up to site in PNG. We've seen that the growth project is very much tracking to plan. Despite the shares roughly tripling since we invested a few years ago, we still see major upside as production grows from around 150,000 ounces of gold equivalent towards 500,000 ounces of gold equivalent over the next 2 to 3 years.
Another sector that comes up a lot is uranium. You've been very vocal and supportive of the thematic going back several years, and you still remain excited about the story. What's driving that?
We think the setup for the uranium space is exceptional. After many difficult years for the uranium spot price, we've seen massive underinvestment in new uranium mines. And today's production isn't sufficient to meet demand for reactors today. More importantly, over the next decade, we see a massive build-out of new nuclear reactors, particularly in China. This is going to result in a massive supply deficit over the coming 5 to 10 years and support a much higher uranium price.
And NexGen specifically, is it still your favorite exposure? And what's your latest views?
NexGen is definitely our favorite stock in the uranium space. It's listed in Australia, Canada and the U.S. and is the #1 undeveloped uranium project on a global basis, both in terms of size and grade. NexGen is coming up to a very important inflection point with the final stage of the approvals process playing out over the next 2 or 3 months. They have a 2-step statutory hearing process with the first hearing to take place over the coming week in Canada and a final hearing early in calendar year 2026. This should result in a formal approval of the project around the middle of calendar year 2026, at which point they're going to start the build process. When NexGen comes into production, it will ramp up towards 30 million pounds of production at very low costs in a Tier 1 jurisdiction, generating a couple of billion dollars a year of EBITDA, making it one of the 10 most profitable mines in the world across any commodity.
Let's move on to some of the key risks out there. What have you got your eyes on? What are you most wary about in markets today? Mark, if I can start with you.
I think most people are talking tariffs, and that's been the main headline for 2025. But from my perspective, it's actually a relatively minor issue for global equities overall. It's definitely going to impact certain stocks and sectors, but I don't think it's going to derail global growth. From my perspective, I'm much more concerned about long-term bond yields in the U.S., the 10-year and the 30-year bond yield being the key ones. They're relatively high at the moment, if you look at them compared to the last decade. And we're also in a period where credit spreads are really tight, which to us indicates a period where risk awareness is quite low. I'd be much more concerned if we started to see a meaningful move higher in bond yields or a significant widening in credit spreads. Some of the other risks that we're watching closely is the weak trend for consumer spending and also a bit of a softening in employment market, which we're seeing both in Australia and in the U.S. And we're also keeping a close eye on inflation given the flow-on impact for central bank's future interest rate decisions.
Rafi, anything to add from your perspective?
Maybe just one thing. Obviously, the starting point in terms of valuations is very high now, and the market leadership has been very narrow, particularly focused on anything AI related. If we see any weakness in AI data or forward expectations for AI, that could have major ripple effects through the strongest performing parts of the market.
Now moving to the L1 Group and some of the exciting changes that have happened recently. Starting on the fund side, the Global Long Short Fund, or GLSF for short, has officially launched. Mark, you said it's the most excited you've been about a new strategy in your career. I don't think you use those words lately. Why are you so excited and why the launch now?
GLSF spent a long time in the making. We've spent the last 6 or 7 years building out our global research capability. We've invested over $100 million, both personally and via L1 into the GLSF strategy, which is by far the largest investment we've ever made in a new fund at L1. It should hopefully give people a sense of how excited we are about that fund and also how committed we are long term to its succeeding, and we're also planning to significantly increase our personal investment in GLSF over time. We incubated the fund on the 1st of January this year. And pleasingly, the fund is up more than 45% up to the end of October, which is more than double the return of the MSCI World Index. Performance has also been really broad-based. There's been 40 individual positions that have each contributed more than 1% to returns this year. So it tells us that the process is working really well. We've had contributions from multiple geographies and sectors and the broader investment team also contributing really well. And as a reminder, none of our returns have come from one-off gains like IPOs or placements.
And how should investors think about it compared to the existing Long Short Fund?
GLSF shares exactly the same DNA as LSF. It's the same portfolio managers, the same team, the same investment process that we've already been running for 11 years. The fund has an absolute return focus with a quality value investment style. And for the first time, we can invest globally in an unconstrained manner. As a reminder, LSF has a 30% limit on international exposure, whereas GLSF will have a completely unconstrained mandate to invest globally.
Raf, it seems investors have responded positively to the launch. Can you share anything so far?
Yes, sure. Feedback has been unbelievably positive so far. We've got really strong interest both from domestic investors and offshore clients. It's early days, but we're very encouraged by how the fund is performing and how well it complements our existing strategies.
Rafi, the merger with Platinum Asset Management has just been completed. What was the motivation behind the deal?
Platinum is one of the great brands in Australian funds management over recent decades and it was an exciting opportunity to merge with them. The deal also provided us with a substantial balance sheet to enable us to accelerate future growth opportunities across the L1 business.
Some investors might wonder whether this means you'll have less time for investing. How do you both see your day-to-day changing now that the merger and leadership transition are complete?
Since we closed the Platinum deal at the start of October, Raf and I have stepped down as Managing Directors of L1 so that we can be totally focused on managing the Long Short Fund and Global Long Short Fund portfolios. We're very conscious of not getting distracted, so we won't be spending time on the Platinum integration at all. This will be done by our new L1 Group CEO, Julian Russell, along with Joel Arber, who heads up operations. Raf and I will also not be on the L1 Group Board. We want to be totally focused on the portfolio and believe that this is the best thing for our investors and also the best thing for us personally, given that's what we enjoy doing the most.
Mark, Raf, thank you very much for sharing those insights. And to all our investors, thank you for your continued support. It's been a very strong year of returns and a transformational year for the L1 Group, and we're very excited about what lies ahead. If you'd like to learn more about any of our strategies or discuss your investment, please reach out to our Investor Services team. Thank you.
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