BRM – June 2018 Quarter Update Newsletter

Quarter Update Newsletter
31 March 2018 – 30 June 2018
Notable Returns for the Quarter
in Australian dollars
»»Buoyant»quarter»for»Australian»equities»with»the»S&P/ASX200»
Index»(70%»hedged»to»NZD)»rising»+9.4%.»
»»The»Barramundi»portfolio»performed»strongly»over»the»
quarter,»rising»+11.5%»on»a»gross»performance»basis.
»»Three»portfolio»companies»participated»in»M&A»activity»during»
the»quarter»as»M&A»activity»picked»up»in»Australia»generally.
I was excited to join the Fisher Funds family at the start of June
as Senior Portfolio Manager responsible for Australian equities,
including the Barramundi portfolio. I have been working closely
with the Chief Investment Officer, Frank Jasper, and the Australian
equities team, Terry and Delano to get up to speed. It’s also
great to come into a firm with such a clearly defined investment
approach and one that really resonates with me. The Fisher Funds’
fundamental, ‘bottom-up’ stock picking process is underpinned by
the firm’s sound investment philosophy neatly encapsulated by the
STEEPP acronym.
Market News
The market bounced back after a softer March quarter, as
some market jitters eased and all sectors, with the exception of
communications (which was dragged down by some disappointing
performance from bellwether Telstra), finished the quarter in the
green. Consumer durables led the rebound and the sector rose
nearly 30% across the quarter. Healthcare, energy resources and
retail also performed well with each sector up around 18-25%.
As the largest constituents of the index, banks and a number of
financial companies, such as AMP, underperformed as the Royal
Commission’s investigation into the sector and various company
specific investigations continued to take their toll across the quarter.
Key Portfolio News
For the three months to 30 June, the Barramundi portfolio lifted
11.5% on a gross performance basis. Led by Wisetech (+66%),
APN»Outdoor (+35%), Xero (+35%), Domino’s»Pizza (+25%) and
CSL (+24%), Barramundi’s portfolio performance was broad based.
Domino’s continued its re-rate as the market concerns around near
term performance abated and CSL, a longstanding core position
for the portfolio, continued its strong performance of recent times
assisted through an upgrade in its earnings guidance in May.
As discussed in our previous March commentary, Wisetech’s share
price fell in the March quarter following an earnings miss, but it
rebounded strongly in the June quarter, rising +66% over the three
months. Returns were boosted by an investor strategy day, held in
early May, as well as a slight upgrade to earnings guidance. The
company continued its expansion announcing a few small, but
strategic acquisitions. As we mentioned in the March quarterly, we
continue to remain comfortable with our investment in the company,
and believe the market opportunity in front of them is significant.
M&A also played its role in this quarter’s returns, with three
companies in the Barramundi portfolio involved in significant M&A
activity.
In the retirement & community living sector, Gateway»Lifestyle»
Group received takeover bids from two offshore companies
looking to achieve scale in the retirement and community sector in
Australia. Barramundi has been invested in Gateway and Ingenia
Communities Group in this sector, as we are attracted by the
property underpinning the assets of the companies in conjunction
with their business models which are focused on providing cost
effective retirement and lifestyle community property solutions
to retirees. Additionally, the rising numbers of ‘baby boomers’
entering retirement provide a favourable structural tailwind to
the sector. On our valuation, the bid for Gateway seemed more
than fair, and consequently we have sold and exited the position.
Barramundi still continues to hold a position in Ingenia which is
supported by the race for consolidation in the sector.
M&A also played a key role in the performance of Barramundi’s
investments in the outdoor advertising sector, which is one of
the few growth areas in advertising. Outdoor advertising, which
includes digital billboards, for example, adverts at bus shelters and
mall based promotions, constitutes around 6.5% of total advertising
spend in Australia. The market continues to grow incrementally
(as a percentage of total advertising spend) assisted by amongst
other things, the digitisation of billboards. The Australian outdoor
market has historically consisted of five main players, French
listed JC Decaux, and Australian listed APN Outdoor (APO),
oOh!media (OML), QMS Media (QMS) and Adshel (a subsidiary
of listed company HT&E). Attracted by the dynamics of the sector,
Barramundi has been invested in APO and OML.
Consolidation across this sector kicked off in the June quarter
with both APO and OML making a play for HT&E owned Adshel.
This in turn resulted in JC Decaux pre-empting a deal with Adshel
(which you may know for its bus shelter advertisements in New
Zealand) by bidding for portfolio company APO. JC Decaux has
long had aspirations to ramp up its presence in Australia. However,
due to potential concerns about the competition regulator, the
ACCC, it seems JC Decaux felt it could not acquire APO if APO
had already acquired Adshel. In the end, JC Decaux has signed a
binding deal with APO, supported by APO’s board (but still subject
to ACCC clearance) and OML in turn has snapped up Adshel and
raised some equity to fund part of the purchase.
WISETECH
+66
%
APN OUTDOOR
+35
%
XERO
+35
%
DOMINO’S
PIZZA
+25
%
CSL
+24
%
BRM NAV
$
0.71
SHARE PRICE
$
0.60
DISCOUNT
15.2
%
as at 30 June 2018
1

2
Barramundi Limited
Private Bag 93 502, Takapuna, Auckland 0740, New Zealand
Phone: +64 9 489 7074 | Fax: +64 9 489 7139
Email: enquire@barramundi.co.nz | www.barramundi.co.nz
Our view is that both moves are constructive for the future
performance of the outdoor sector with an improved competitive
structure likely post completion of these transactions. While
both deals are being reviewed by the ACCC, there is low overlap
between the specific outdoor markets that JC Decaux and APO
as well as OML and Adshel operate in, so we suspect there is a
reasonable chance both deals receive clearance. We participated
in the OML equity raising for the Adshel acquisition.
Outside of these M&A related changes to the portfolio, we
added to the Credit»Corp (CCP) position in June. A negative
investment report on CCP published in social media raised a
number of perceived (largely accounting related) concerns which
put the company’s share price under pressure. This elicited a
comprehensive rebuttal from the company which at the same
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time re-affirmed earnings guidance for the June year end. While
CCP’s business faces the same sector risks as its competitors,
as alluded to in the March quarterly, CCP has a high quality
management team led for many years by Thomas Beregi.
We think the company will continue to be prudently and well
managed as it continues to expand domestically and abroad in
the US. We took advantage of the share price weakness
following the publication of the investment report and added to
the Barramundi position.
Robbie»Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
18 July 2018
Company News
Dividend Paid 29 June 2018
A dividend of 1.33 cents per share was paid to Barramundi
shareholders on 29 June 2018, under the quarterly distribution
policy. Interest in Barramundi’s dividend reinvestment plan (DRP)
remains high with 37% of shareholders participating in the plan.
Shares issued to DRP participants are at a 3% discount to market
price. If you would like to participate in the DRP, please contact
our share registrar, Computershare on 09 488 8777.
Performance
as at 30 June 2018
3 Months
3 Years
(annualised)
5 Years
(annualised)
Corporate Performance
Total Shareholder Return+5.8%+5.5%+7.0%
Adjusted NAV Return+10.9%+10.2%+6.5%
Manager Performance
Gross Performance Return+11.5%+13.5%+9.8%
Benchmark Index¹+9.4%+10.8%+9.6%
1
Benchmark Index: S&P/ASX Small Ords Industrial Gross Index until 30 September 2015 & S&P/
ASX 200 Index (hedged 70% to NZD) from 1 October 2015
Non-GAAP Financial Information
Barramundi uses non-GAAP measures, including adjusted net asset value, adjusted NAV return, gross
performance return and total shareholder return. The rationale for using such non-GAAP measures
is as follows:
»adjusted net asset value – the underlying value of the investment portfolio adjusted for capital
allocation decisions,
»adjusted NAV return – the return to an investor after fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock selection
and hedging of currency movements, and
»total shareholder return – the return to an investor who reinvests their dividends, and if in the
money, exercises their warrants at warrant maturity date for additional shares.
All references to adjusted net asset value, adjusted NAV return, gross performance return and total
shareholder return in this newsletter are to such non-GAAP measures. The calculations applied to
non-GAAP measures are described in the Barramundi Non-GAAP Financial Information Policy. A
copy of the policy is available at http://barramundi.co.nz/about-barramundi/barramundi-policies/
Disclaimer: The information in this newsletter has been prepared as at the date noted on the
front page. The information has been prepared as a general summary of the matters covered
only, and it is by necessity brief. The information and opinions are based upon sources which
are believed to be reliable, but Barramundi Limited and its officers and directors make no
representation as to its accuracy or completeness. The newsletter is not intended to constitute
professional or investment advice and should not be relied upon in making any investment
decisions. Professional financial advice from an authorised financial adviser should be taken
before making an investment. To the extent that the newsletter contains data relating to the
historical performance of Barramundi Limited or its portfolio companies, please note that
fund performance can and will vary and that future results may have no correlation with results
historically achieved.
COMPANY
% Holding
Ansell
3.6%
APN Outdoor1.4%
ARB Corporation4.3%
AUB Group3.1%
BHP Billiton3.1%
Brambles4.3%
Carsales.com6.5%
Commonwealth Bank4.6%
Credit Corp3.9%
CSL7.1%
Domino's Pizza3.3%
Ingenia Communities1.6%
Link Administration Holdings3.4%
Nanosonics3.0%
National Australia Bank4.5%
NEXTDC3.6%
Ooh! Media3.7%
Ramsay Health Care3.2%
ResMed3.6%
Rio Tinto2.0%
SEEK7.1%
Sonic Healthcare3.0%
Technology One1.7%
Westpac2.8%
Wisetech Global3.1%
Xero Limited3.3%
Equity»Total94.8%
Australian dollar cash4.9%
New Zealand dollar cash0.8%
Total»Cash5.7%
Centrebet Rights 0.0%
Forward foreign exchange contracts-0.5%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 June 2018