BRM – March 2019 Quarterly Update Newsletter

Quarter Update Newsletter
31 December 2018 – 31 March 2019
»»Barramundi’s»gross»performance»return»for»the»quarter»
was»11.9%,»led»by»a»solid»reporting»season»for»portfolio»
companies»and»a»rebound»in»equity»markets.
»»The»Adjusted»NAV»return»for»the»quarter»was»10.9%.
»»A»great»quarter»for»Nanosonics»has»been»a»decade»in»
the»making.
»»Responsible»investing»is»core»to»our»ethos»and»lies»
behind»our»decision»to»exit»BHP.
The first three months of 2019 have seen global markets and the
ASX200 off to a strong start for the year. The ASX200 returned
+10.9% in A$ across the quarter, with all sectors, led by Information
Technology (+20.7%) and Materials (+17.8%) finishing in the green.
Given the sharp contrast between this return against the tough
December quarter of 2018, you might well ask – what has changed?
Well, there have been some key global macro developments which
have positively impacted financial markets. The US Federal Reserve
turned notably dovish in December which has resulted in falling
interest rates, and improved sentiment towards equities. There have
been positive developments in major global trade negotiations and
closer to home, signs of Chinese stimulus have helped buoy the
materials sector in Australia.
Poignantly, the iron ore industry was also an indirect beneficiary
of the collapse of a tailings dam wall at one of Brazilian miner
Vale’s mining sites in Brazil. This came with a high human and
environmental cost. However it disrupted the seaborne iron ore
market and underpinned returns in the quarter for the industry.
Also in Australia, the Royal Commission into the banking and
finance sector drew to a close with the publication of Commissioner
Hayne’s final report in February. Relative to expectations, the benign
recommendations of the report removed a key risk for the banks
and sparked a relief rally in their share prices.
All of this helped lift the ASX200 index’s returns in the quarter.
Company Focus: Nanosonics and Resmed
Through reporting season, it was pleasing to see how well our
portfolio companies are weathering what is a tepid operating
environment in Australia. In fact, with some of companies their
growth rates are showing no signs of slowing down at all.
Nowhere was this more evident than in the results and share price
performance of Nanosonics which released its results in February
and its share price returned +52% in the quarter.
The result was a good number. Revenue was up +36% and healthy
profit margin expansion was evident as the company was able to
leverage investments made in previous years.
Nanosonics provides a globally leading disinfection solution
for ultrasound probes. The company has been in our portfolio
since December 2009 and over that time has gone from being a
small firm with an emerging technology and a few customers in
Australasia to the leading global provider of ultrasound disinfection
technology. Its business partners are the who’s who of global
medical companies.
The company has executed well against a clear and consistent
strategy for years. The share price performance however, has been
volatile, with the share price up +580% since December 2009,
equating to an annualised gain of +23% pa. However, in that time
it has had one fall in price of more than 55% and on top of that had
four further declines of more than 24% with two of those falls being
more than 35%.
As history now shows these were all buying opportunities. Without
knowing the fundamentals of the company well, or if one did not
have a long-term, patient perspective, it would have been easy to
panic and sell. Doing so would have led one to miss out on the
wonderful gains that followed.
We kept this in mind when another core portfolio holding,
Resmed’s share price fell 22% after it reported its quarterly earnings
result in January. It has since recovered some of this but was still
down 8.9% across the quarter.
Resmed is a global leader in supplying products to people
that suffer from sleep-disordered breathing and it is building a
position in an adjacent respiratory disease market. It is a high
quality business with significant untapped potential in both these
markets. More recently the company has been investing in software
businesses focussed on the management and delivery of services
to patients in the out-of-hospital care setting. This software is used
by the likes of Hospice, skilled nursing providers and life plan or
aged care community operators.
In Resmed’s report, the market was disappointed by two things:
1) some weakness in the sales of sleep-disordered breathing
devices; and 2) the lack of profit contribution from Resmed’s
software businesses.
The weakness in device sales was impacted by one-off medical
funding price changes in some of its markets. This is temporary
and ultimately does not change the core economic drivers of
Notable Returns for the Quarter
in Australian dollars
NANOSONICS
+52
%
WISETECH
GLOBAL
+36
%
RIO TINTO
+32
%
TECHNOLOGY
ONE
+29
%
CREDIT CORP
GROUP
+19
%
BRM NAV
$
0.65
SHARE PRICE
$
0.57
DISCOUNT
12.2
%
1
as at 31 March 2019
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
the division. There are millions of people suffering from sleep
disordered breathing who aren’t yet being treated. What’s more,
demographic trends (ageing population and obesity) mean this
market will grow in time. As the largest supplier globally, Resmed
is in the box seat to keep growing its supply of products to meet
this demand.
Regarding the software, this avenue of investment does drag on
near term earnings. However, it adds a significant potential new
source of predictable, recurring revenue for Resmed. Linked as it
is to servicing a healthcare driven need, like the device sales, this
software revenue is not completely at the whim of economic cycles.
We invest with a long-term view. We understand that the journey,
particularly from a share price perspective can be bumpy at times as
we highlight with Nanosonics. However, with patience we think we
will be rewarded for owning high quality, growing companies. In line
with this thinking we took advantage of the fall in Resmed’s price
post the result and added to our position.
If you would like to receive future
newsletters electronically please email
us at enquire@barramundi.co.nz
Portfolio Changes
The largest change for our portfolio in the quarter involved the sale
of our BHP position in March. As we discuss in the March monthly
newsletter, we exited our BHP position because we deemed it to
be in contravention of our Responsible Investing Policy by virtue of
being a significant producer of thermal coal.
Outside of this, we reduced our position sizing in Technology One
in the quarter on valuation grounds.
Robbie»Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
18 April 2019
Company News
Dividend Paid 28 March 2019
A dividend of 1.25 cents per share was paid to Barramundi
shareholders on 28 March 2019, 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 March 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+0.3%+7.0%+7.5%
Adjusted NAV Return +10.9%+7.4%+8.0%
Portfolio Performance
Gross Performance Return+11.9%+10.9%+11.3%
Benchmark Index¹+10.6%+11.2%+8.9%
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
Ansell3.1%
ARB Corporation3.3%
Aristocrat Leisure2.4%
AUB Group3.2%
Brambles3.7%
Carsales6.8%
Commonwealth Bank5.1%
Credit Corp3.9%
CSL6.9%
Domino's Pizza3.1%
Ingenia Communities1.5%
Link Administration Holdings4.5%
Nanosonics3.0%
National Australia Bank4.0%
NEXTDC3.5%
Ooh! Media4.4%
ResMed4.3%
Rio Tinto2.5%
SEEK7.0%
Sonic Healthcare3.1%
Technology One2.2%
Westpac3.9%
Wise Tech Global3.9%
Xero Limited5.0%
Equity»Total94.3%
Australian dollar cash5.1%
New Zealand dollar cash1.1%
Total»Cash6.2%
Forward foreign exchange contracts- 0.5%
TOTAL100.0%
Portfolio Holdings Summary
as at 31 March 2019