MLN – September Quarter Update Newsletter

1
Notable Returns for the Quarter
in local currency
The Marlin portfolio delivered a gross performance return of
5.4% in the three months to 30 September 2018, supported by a
strong US equity market and the weak New Zealand dollar.
This time last year there was a lot of press coverage of the ‘retail
apocalypse’ theme. Shopping malls were suffering from weak
customer traffic, retailers were being boarded up at record pace,
and Amazon was seen to be sounding the death knell for retailers.
However, it seems that someone forgot to tell the retailers about
this impending doom - and their shareholders haven’t seemed to
take much notice either. The chart below shows that many large
US retailers have significantly outperformed the broader US share
market over the last twelve months.
ABBOTT
LABORATORIES
+21
%
EDWARDS
LIFESCIENCES
CORP
+20
%
TJX COMPANIES
+18
%
ICON PLC
+16
%
FACEBOOK
-15
%
slowed in the June quarter. Emerging markets have been impacted
by increasing interest rates, which has weighed on markets like
Turkey and Indonesia with high external debt levels. Rising trade
tensions also weighed considerably on the Chinese market.
Marlin has benefitted from this US economic strength, given
that more than 70% of the Marlin portfolio is invested in US
companies. That said, after the significant underperformance of
emerging markets, Europe and the UK in recent years, we are
starting to see pockets of opportunity appear and are actively
researching a handful of investment ideas in these markets.
Portfolio update
Given the strong retail backdrop, it is fitting that the biggest
contributor to our performance in the quarter was US off-price
retailer TJX Companies (+18% over the quarter). TJX is the
home of the TJMaxx, Marshalls and HomeGoods retail formats
and it reported a great set of quarterly results in August, with
sales growing 12% on the prior year. Customer traffic was strong
in store, customer basket sizes ticked higher on strong apparel
demand, and TJX continued to open new stores. TJX grew
underlying earnings per share by 16% in the quarter.
Alibaba reported second quarter results that showed 33%
revenue growth in its core e-commerce business and 93%
growth in its cloud computing business. Alibaba also held its
annual investor day during the quarter, with the presentations
Quarter Update Newsletter
30 June 2018 – 30 September 2018
MLN NAV
$
1.05
WARRANT PRICE
$
0.10
DISCOUNT
1
7.8
%
as at 30 September 2018
SHARE PRICE
$
0.94
¹
Share price discount/(premium) to NAV (including warrant price on a pro-rated basis)
It hasn’t just been the share market fortunes of these
businesses that have improved, in the recent US reporting
season many of these retailers saw sales growth accelerate.
Shoppers are out and about and spending more than last year.
US retailer Walmart recently reported same store sales growth
of 4.5%, significantly above market expectations. Home Depot
(the equivalent of Bunnings) did even better with 8% same
store sales growth. The strong US consumer has been driven
by low unemployment (now at 3.9%), increasing wages, and
tax cuts that gave many US families more spending money.
The pick-up in the US economy has driven two major themes
that impacted the global investment landscape over the quarter.
Firstly, it has seen the US share market outperform the rest of
world quite considerably (see chart below), and secondly, it has
resulted in outperformance of cyclical sectors like Industrials and
Consumer Discretionary, placing less reliance on the Tech sector
for market gains.
In the third quarter the US market surged 7%, while European
markets gained 1% and emerging markets retreated, with
China down 9%. This dispersion reflects diverging economic
fundamentals, with recent data showing that Eurozone growth
Large US retailers - 1 year share price gain %
70%
60%
50%
40%
30%
20%
10%
0%
MacyTargetKrogerHome
Depot
WalmartS&P 500
Quarterly index performance
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
US
(S&P 500)
Europe
(Stoxx 600)
Emerging
Markets
(MSCI EM)
China
(MSCI China)

Performance
as at 30 September 2018
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+12.7%+14.6%+15.5%
Adjusted NAV Return +5.0%+12.7%+11.9%
Portfolio Performance
Gross Performance Return+5.4%+16.7%+15.9%
Benchmark Index¹+4.3%+13.6%+14.7%
1
Benchmark index: World Small Cap Gross Index until 30 September 2015 & S&P Large Mid
Cap/S&P Small Cap Index (hedged 50% to NZD) from 1 October 2015
Non-GAAP Financial Information
Marlin 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 after fees and tax,
»adjusted NAV return – the net return to an investor after fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock
selection and currency hedging before fees and tax, 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 Marlin Non-GAAP Financial Information
Policy. A copy of the policy is available at http://marlin.co.nz/about-marlin/marlin-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 Marlin Global 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 Marlin Global 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.
Marlin Global Limited
Private Bag 93502, Takapuna, Auckland 0740, New Zealand
Phone: +64 9 484 0365 | Fax: +64 9 489 7139
Email: enquire@marlin.co.nz | www.marlin.co.nz
2
Headquarters Company% Holding
CanadaDescartes Systems 3.0%
ChinaAlibaba Group4.7%
FranceEssilor International4.7%
GermanyAdidas4.1%
Fresenius Medical Care4.7%
Ireland Icon3.1%
United StatesAbbott Laboratories3.7%
Alphabet7.5%
Cerner Corporation4.0%
Cognizant Technology Solutions 4.1%
Core Laboratories2.0%
eBay 3.9%
Ecolab3.7%
Edwards Lifesciences 3.0%
Electronic Arts2.6%
Expedia3.5%
Facebook3.8%
Hexcel Corporation 3.7%
LKQ3.8%
Mastercard4.5%
PayPal 5.8%
Signature Bank3.9%
TJX Companies5.0%
United Parcel Service2.9%
Zoetis 2.6%
Equity Total98.3%
New Zealand dollar cash0.8%
Total foreign cash0.7%
Cash Total1.5%
Forward foreign exchange
contracts
0.2%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 September 2018
Company News
Dividend paid 28 September 2018
A dividend of 2.05 cents per share was paid to Marlin
shareholders on 28 September 2018, under the quarterly
distribution policy. Interest in Marlin’s dividend reinvestment plan
(DRP) remains high with 40% 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.
highlighting strong growth in Tmall and Taobao users, and the
ongoing popularity of Tmall for foreign brands looking to sell to
Chinese consumers. Alibaba also shed more light on a number
of its rapidly growing adjacent businesses, including its digital
payments business, AliPay, video streaming business, Youku
Tudou, and its rapidly growing food delivery unit, Ele.me. In
Alibaba we continue to see a dominant and growing ecommerce
business, with significant adjacent growth opportunities that
should support earnings growth for many years to come.
The only addition to the portfolio during the quarter was
Electronic Arts (EA). EA is one of the world’s leading video
game publishers, with hit franchises including FIFA, Madden
and Battlefield. The company operates in an industry that we
believe is positioned for sustainable revenue growth and margin
expansion. The gaming industry is transitioning from a hit
driven revenue model, based on game units sold, to more of a
recurring revenue model, where customers not only pay the up-
front cost of a game, but also spend money on in-game items,
Ashley Gardyne
Senior Portfolio Manager
Fisher Funds Management Ltd
11 October 2018
which may be cosmetic or improve game play. The result of
this transition should be growth that is more stable and higher
profit margins.
We exited branded jewellery company Pandora during the
quarter. When we first invested in Pandora we thought the
recent slowdown in its growth would prove transitory, and an
increased flow of new product launches would support sales.
However, recent results have been dragged down by slowing
growth in China and weak same store sales elsewhere in
the globe. It is becoming increasingly apparent that despite
management’s best efforts, Pandora’s profitability is unlikely to
return to previous levels.
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newsletters electronically please email
us at enquire@marlin.co.nz