BRM – December 2018 Quarterly Update Newsletter

Quarter Update Newsletter
1 October 2018 – 31 December 2018
»»A»tough»quarter»for»Australian»equities»with»the»S&P/ASX200»
Index»(70%»hedged»to»NZD)»falling»9.2%»
»»The»Barramundi»portfolio»fell»13.2%»for»the»quarter»(gross),»
resulting»in»a»total»return»of»–1.8%»on»a»gross»performance»
basis»for»the»calendar»year»2018
The December quarter can be (and was) a relatively quiet quarter
from a company news flow perspective, nestled as it is between
the data-heavy 30 June and 31 December financial reporting
periods for many of our portfolio companies. That said, share price
moves across this 2018 December quarter were anything but quiet.
In concert with the broader market (especially those companies
with a ‘growth’ bent) Barramundi portfolio companies experienced
sharp share price moves, with the majority of them finishing the
quarter in the red.
As highlighted above, looking at the return across the year as a
whole, while still negative, the picture is better. While we encourage
our investors to invest with longer-term time horizons in mind, it is
clearly not soothing for investors when markets sell-off the way the
ASX 200 did in the December quarter. We are very respectful of
the potential negative signals that the equities market is sending
us in periods such as these, and do not take the share price
movements lightly. We are also cognisant that sharp market moves
and dislocations such as these can provide us with investment
opportunity as well. When married with our tried and tested
investment process this can in turn generate strong returns for our
investors over time.
Our investment team has consequently had a busy quarter
remaining focussed, as always, on implementing our investment
process. We’ve met with the management teams of our portfolio
companies, their customers and competitors, and have vigilantly
looked to parse the risk from the opportunity in these share
price moves.
At a portfolio company level, the announcements and data points
from these calls, meetings and presentations on the whole have not
been as eventful as the share price moves would suggest.
Company Focus: AUB Group Ltd
The management team of insurance broker and risk management
solutions provider, AUB Group Ltd, was one of the executive
teams that we caught up with during what was an eventful quarter
for the company.
Meeting with executives in both their Australian and NZ divisions
reinforced our confidence in the personnel overseeing the growth
of this company. Barramundi has been an investor in AUB for about
12 years. Since then we have watched the company approximately
triple its earnings, (and the share price has responded accordingly)
via increasing the scale of its insurance broking and underwriting
agency services operations in Australia. In latter years, under CEO
Mark Searles’ stewardship, it has taken its business model across the
ditch into NZ, and has broadened its product offering, to include
people/workplace oriented risk solutions for clients. In doing so,
AUB has diversified its earnings base and reduced its reliance on the
insurance premium cycle.
AUB has achieved this growth organically and through acquisition.
We are generally cautious of companies growing through
acquisition. However, we have always taken some comfort in AUB’s
‘owner-driver’ business model. We believe this structure in which
vendors, (typically founder-owners) retain equity ownership is central
to its culture of alignment and has been key to the success of its
disciplined acquisitive-assisted expansion over more than a decade.
AUB raised over A$100m in equity during the quarter to bolster
its capacity to flex its ownership in partner-businesses and to
broaden its number of business partners across its divisions. The
company is also in the process of finding a successor for Mark
Searles who is stepping down as CEO later in 2019. While it
remains to be seen who will pick up the reins, we take comfort
from the orderly transition that is underway. Importantly, we
do not believe that a new CEO will herald a departure from
the company’s successful and well-trodden pathway of the last
decade. We expect the network of business partners to keep
increasing in coming years. We also expect collaboration across
AUB’s different divisions to increase, which, although difficult to
quantify, should in time add to shareholder value. Needless to say
we participated in AUB’s equity raising.
ASX Market News
In its worst quarter for the calendar year, the ASX200 Index returned
-8.3% in A$ across the quarter.
Led by a fall in crude oil, Energy led the declines with the sector
falling -21.3% during the quarter.
Concern over the outlook for advertising spending coupled
with competition commission concerns over a proposed merger
between two telecommunications companies dragged the
Communication Services sector -14.5% lower.
A global sell-off in higher multiple ‘growth’ companies dragged
down the Information Technology sector which fell -13.9% and also
impacted a number of the (more cyclical) Consumer Discretionary
names with that sector falling -13.8%.
Notable Returns for the Quarter
in Australian dollars
OOH MEDIA
-33
%
WISETECH
GLOBAL
-28
%
DOMINO’S PIZZA
-27
%
CARSALES.COM
-27
%
ARISTOCRAT
LEISURE
-25
%
BRM NAV
$
0.60
SHARE PRICE
$
0.58
DISCOUNT
1
2.7
%
as at 31 December 2018
1
WARRANT PRICE
$
0.01
¹ Share price discount/(premium) to NAV (including warrant price on a pro-rated basis)

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
In contrast, sectors seen as being defensive fared better with
Utilities -3.1% and Consumer Staples -3.8% outperforming
the market.
Key Portfolio News
Sonic»Healthcare (-11.2% in A$ over the quarter) raised equity in
December to complete the acquisition of a US based anatomical
pathology business. In line with Sonic’s expansion strategy,
this elevates Sonic’s beachhead in anatomical pathology in
the US into a business with reasonable scale and extends its
geographical coverage across the US, broadening its platform for
growth over the coming years.
BHP (-1.2%) completed a US$5.2bn buyback during December
and also announced a US$5.2bn special dividend. Rio»Tinto
(-0.4%) concluded the previously announced US$3.5bn sale of its
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interest in the Grasberg mine in Indonesia in December, further
bolstering its balance sheet strength.
Portfolio Changes
In addition to selectively topping up some of our positions, and
participating in the AUB and Sonic equity raisings, as discussed
last month we initiated a new position in Aristocrat»Leisure during
the quarter and increased both our Resmed and Xero positions.
Robbie»Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
18 January 2019
Company News
Dividend Paid 21 December 2018
A dividend of 1.42 cents per share was paid to Barramundi
shareholders on 21 December 2018, under the quarterly
distribution policy. Interest in Barramundi’s dividend reinvestment
plan (DRP) remains high with 36% 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 31 December 2018
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(7.2%)+6.9%+6.0%
Adjusted NAV Return (14.0%)+4.0%+4.4%
Portfolio Performance
Gross Performance Return(13.2%)+7.2%+7.6%
Benchmark Index¹(9.2%)+6.9%+6.7%
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 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 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
Ansell3.0%
ARB Corporation3.2%
Aristocrat Leisure2.4%
AUB Group3.4%
BHP Billiton3.5%
Brambles3.5%
Carsales6.7%
Commonwealth Bank5.7%
Credit Corp3.6%
CSL7.3%
Domino's Pizza2.6%
Ingenia Communities1.6%
Link Administration Holdings4.6%
Nanosonics2.5%
National Australia Bank4.2%
NEXTDC4.1%
Ooh! Media3.6%
ResMed4.0%
Rio Tinto2.2%
SEEK7.3%
Sonic Healthcare3.6%
Technology One2.5%
Westpac4.2%
Wise Tech Global4.3%
Xero Limited4.8%
Equity»Total98.4%
Australian dollar cash0.9%
New Zealand dollar cash0.9%
Total»Cash1.8%
Centrebet Rights Forward foreign exchange
contracts
(0.2%)
TOTAL100.0%
Portfolio Holdings Summary
as at 31 December 2018