MLN – March 2019 Quarterly Update Newsletter

1
Notable Returns for the Quarter
in local currency
When I was writing the last quarterly newsletter, we had just
witnessed the biggest quarterly drop in global markets in seven
years. Market sentiment was very negative and we talked about
how we were trying to capitalise on some of the opportunities this
was creating. Without much change in the fundamental economic
backdrop the first quarter of 2019 was the polar opposite, with US
stocks registering their best quarterly gains in almost a decade.
Against this backdrop, Marlin’s gross performance was 17.7%
in the first quarter, compared with our global benchmark which
gained 11.6%. The Adjusted NAV for the quarter was up 16.3%.
Markets have responded to an accommodative Federal Reserve,
which signalled an end to rate hikes, and apparent progress in
the US-China trade negotiations. Sentiment has shifted quickly as
evidenced by the market for Initial Public Offerings also springing
back to life, with the recent $24 billion IPO of ride sharing company
Lyft, and talk of potential IPOs by Uber, Airbnb and Pinterest.
While the bipolar nature of markets can cause concern among
investors, it also creates attractive investment opportunities from
time-to-time. Some of the changes we made to the portfolio
and discussed following the drop in markets last quarter have
contributed significantly to performance this quarter. These include
the acquisition of Chinese technology giant, Tencent Holdings,
and the increase in our holdings in MasterCard, TJX Companies,
Alibaba and PayPal.
This market strength has come despite global economic growth
slowing in recent quarters, and valuations are again looking
elevated relative to growth prospects. As valuations climb and
we move further through the economic cycle, we have been
looking to add to our holdings of more defensive businesses.
As an example, we recently added to our position in healthcare
company Fresenius Medical Care and added Dollar General to
the portfolio.
New Portfolio Addition: Dollar General
Dollar General is the largest dollar store chain in the US and it
sells a range of everyday household items like food and cleaning
products, as well as toys, stationary, and basic apparel. Dollar
General has been a real success story in US retail, stringing
together 29 years of same-store-sales growth. The company’s low
price points and value proposition support its business in difficult
economic environments, with sales growth actually accelerating in
the last two recessions as consumers traded down.
Dollar General has a talented management team, strong track
record, and a scale advantage over its competitors. It offers
both value and convenience – near Wal-Mart prices, but without
having to drive halfway across town to get them. Its stores offer
DESCARTES
SYSTEMS
+36
%
ALIBABA
+31
%
EBAY INC
+28
%
ELECTRONIC
ARTS
+27
%
FACEBOOK
+25
%
an attractive proposition to a growing cohort of US households
that are financially stretched and are not well served by traditional
retailers. Even though unemployment is near record lows in the
US, inequality is a significant social issue and 80% of households
are living paycheck-to-paycheck. This is because stagnant wages
in many occupations over the last forty years, combined with rising
healthcare and living costs, have squeezed household budgets.
Dollar General has provided a great service for these lower
socioeconomic households, and as a result it has created a loyal
customer base.
There are currently 15,000 Dollar General stores across the US
and it is rolling out approximately 1,000 new stores every year.
We believe the company should continue to deliver low double-
digit earnings growth as the company expands its store base at
attractive returns, takes market share, and repurchases shares.
The addition of Dollar General to the portfolio has been funded
by trimming some of our more cyclical holdings, including Hexcel,
Descartes and Alibaba. While we have started to make some
changes to improve the defensiveness of the portfolio, these
changes are at the margin and we typically avoid making decisions
due to macroeconomic views. Our strategy for outperforming
the market over the long run simply involves finding the right
businesses and holding them for the long-term.
Portfolio developments
Edwards Lifesciences
A good example of a business that has delivered significant
value over the long-term is Edwards Lifesciences, which recently
delivered some significant news and saw its share price gain
25% during the quarter. Edwards is the leading manufacturer
of replacement heart valves for patients with aortic stenosis, a
potentially fatal condition affecting millions of people globally.
Edwards pioneered a new type of valve that is implanted with a
catheter (without open-heart surgery) and often allows patients to
leave hospital the next day. This is obviously preferable from the
patient’s perspective, but it can also save hospitals money due
to shorter patient visits and fewer complications. While initially
restricted to the most ill patients, Edwards had a vision of this
Quarter Update Newsletter
31 December 2018 – 31 March 2019
MLN NAV
$
0.98
WARRANT PRICE
$
0.05
DISCOUNT
13.6
%
1
as at 31 March 2019
SHARE PRICE
$
0.83
¹
Share price discount/(premium) to NAV (including warrant price on a pro-rated basis)

Performance
as at 31 March 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+2.4%+10.8%+10.7%
Adjusted NAV Return +16.3%+13.4%+9.7%
Portfolio Performance
Gross Performance Return+17.7%+17.5%+13.5%
Benchmark Index¹+11.6%+11.3%+12.2%
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 2.0%
ChinaAlibaba Group5.5%
Tencent Holdings3.6%
FranceEssilor International2.6%
GermanyAdidas3.2%
Fresenius Medical Care4.5%
Ireland Icon2.8%
United StatesAbbott Laboratories3.2%
Alphabet7.8%
Cerner Corporation3.4%
Cognizant Technology Solutions 4.0%
Core Laboratories1.8%
Dollar General4.1%
Ecolab3.9%
Edwards Lifesciences 2.6%
Electronic Arts3.8%
Expedia2.6%
Facebook4.5%
Hexcel Corporation 2.9%
LKQ3.5%
Mastercard5.5%
PayPal 6.9%
Signature Bank4.0%
TJX Companies5.2%
United Parcel Service2.5%
Zoetis 2.5%
Equity Total98.9%
New Zealand dollar cash0.7%
Total foreign cash0.4%
Cash Total1.1%
TOTAL100.0%
Portfolio Holdings Summary
as at 31 March 2019
Company News
Dividend paid 28 March 2019
A dividend of 1.80 cents per share was paid to Marlin
shareholders on 28 March 2019, 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.
becoming the standard of care for all patients. This vision came
closer to reality last month following the conclusion of a clinical
trial that demonstrates this minimally invasive technique is superior
to surgery for all patients, and opens up a new patient group and
avenue for growth.
Edwards is a great example of the type of company we are looking
for. It is market leader in a sector with many years of growth
ahead, and by investing more in research & development than
its competitors is continually extending its growth runway and
strengthening its competitive position. Beyond its products for the
aortic valve, Edwards continues to develop new devices to repair
the tricuspid and mitral heart valves, which are still largely treated
through open-heart surgery. We also like that management is heavily
invested in the company’s long-term vision, with CEO Michael
Mussallem holding over US$170 million worth of Edwards shares.
Ashley Gardyne
Senior Portfolio Manager
Fisher Funds Management Ltd
18 April 2019
The first quarter of 2019 was a good one for Marlin, however
with slowing global growth and the recent rebound in equity
market valuations, it is again becoming challenging to find
attractive new investment ideas. We continue to turn over
plenty of rocks as we look for new investments, and remain
comfortable with the businesses we do have in the portfolio
and their long-term prospects.
If you would like to receive future
newsletters electronically please email
us at enquire@marlin.co.nz