Glennon’s Portfolio Shift and RRCPS Reset Signal Caution Amid Small-Cap Market Challenges

Strong Financial Performance Amid Market Challenges

Glennon Small Companies Limited (ASX – GC1) has delivered a standout financial year ending 30 June 2025, posting a net profit after tax of $4.34 million, a remarkable 232.75% increase over the prior year. This surge was driven by a portfolio return of 24.96%, significantly outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index, which gained 12.70% over the same period.

The company’s investment strategy, which has shifted focus from micro and nano-cap stocks to larger, more liquid small-cap companies, has clearly paid dividends. This repositioning reflects broader market trends where liquidity constraints and the rise of private equity funding have limited opportunities in the smallest listed companies.

Key Portfolio Contributors and Detractors

Among the portfolio’s top performers were Superloop Ltd., which returned 87.54%, Pro Medicus Ltd. with an 80.95% gain, Technology One Ltd. soaring 122.11%, and HUB24 Ltd. delivering 92.89%. These companies benefited from strong operational momentum, international expansion, and robust recurring revenues.

Conversely, investments in Metgasco Ltd. and Sequoia Financial Group detracted from performance. Metgasco faced operational setbacks but remains a strategic focus with increased debt funding of over $3 million to support its Vali and Odin gas field projects. Glennon’s Executive Chairman Michael Glennon also took on the role of Interim Chairman at Metgasco, signaling a hands-on approach to unlocking value.

Capital Management and Dividend Policy

The company declared a final unfranked ordinary dividend of 2 cents per share, payable on 30 September 2025, alongside an unfranked dividend of 34 cents per Resettable Redeemable Convertible Preference Share (RRCPS). Shareholders have the option to reinvest dividends via a Dividend Reinvestment Plan (DRP) at a 3% discount, reflecting management’s commitment to capital flexibility.

Notably, the Board reset the terms of the RRCPS effective 1 October 2024, increasing the annual dividend rate from 5.6% to 6.8% and lowering the conversion price from $0.86 to $0.55. This adjustment aims to enhance the attractiveness of the preference shares while managing the company’s capital structure prudently.

Outlook and Strategic Positioning

Despite the strong results, the Board maintains a cautious outlook on the small-cap market, citing limited earnings visibility and ongoing macroeconomic uncertainties. The Reserve Bank of Australia’s decision to hold interest rates underscores inflationary pressures that could impact market sentiment.

Glennon Small Companies continues to prioritize investments in quality companies with strong cash flows and balance sheets, leveraging active management to navigate a complex environment. The company’s net tangible asset backing improved to $0.8088 per share before tax, up from $0.7007 the previous year, signaling enhanced shareholder value.

Audited by Pitcher Partners Sydney, the financial statements received an unqualified opinion, affirming the robustness of the company’s financial reporting and governance practices.