nice to see neppy in someones top 10

Duo plan a hearty meal at bear's picnic

Christopher Webb
January 26, 2008

AFTER significantly beating the overall market in calendar 2007, Contango MicroCap twins David Stevens and Stephen Babidge look to be rubbing their hands with glee at the prospect of buying stocks at severely discounted prices.

The total shareholder return of the investment portfolio for the year, according to the company, was 55%, against the All Ordinaries accumulation index's 18% gain, while for the December quarter, Contango's portfolio was up 7.3%, compared with a 1.7% fall for the index.

But it hasn't been a one-way street for Contango shareholders. Late last year they put up $1.75 a share in a one-for-two rights issue, and last week they saw their scrip crunched as low as $1.23 but not to worry, the shares closed the week at $1.54.

Meanwhile, Stevens and Babidge have been sitting on the issue proceeds - $67 million - and adopting a cautious approach in view of the sharp deterioration in global equity markets since December.

"Some attractive stocks are being sold down aggressively by the market and this is creating some buying opportunities," they said in their latest investment missive issued the other day.

"Investor sentiment is currently very bearish, suggesting that much of the bad news has already been factored into share prices. Markets will remain volatile in coming months as positive announcements from the Fed and the US authorities are counter-balanced by weak economic data out of the US and announcements of large write-downs by investment banks."

Contango has achieved its results by investing in sometimes out-of-the-way industrial stocks, and resource counters.

"We remain positive on the outlook for companies exposed to resource and infrastructure construction; the energy and mining sectors; and commercial service businesses including IT companies," they said.

The Contango portfolio's top 10 stocks, accounting for 24% of its value, were Mineral Resources, Mount Gibson Iron, Ausenco, Western Plains, Neptune Marine, Platinum Australia, Northern Energy, Austin Engineering, Midwest Corporation, Jabiru Metals and Coote Industrial.

"The companies that we have included in Contango's share portfolio have good growth prospects and are attractively priced. Although there is likely to be further volatility in the months ahead, we remain confident about the medium-term outlook for Contango's investments," Stevens and Babidge said