BRM – June 2019 monthly update

1
Monthly Update
June 2019
BRM NAV
$
0.70
SHARE PRICE
$
0.63
WARRANT PRICE
$
0.02
as at 31 May 2019
A word from the Manager
Market Overview
Against the backdrop of soft global equity markets, the ASX
200 Index returned a respectable +1.7% in A$ in May. The
market responded positively to a surprise Federal Election
victory by the Coalition which was seen as more market
friendly in comparison to the Labour Party which had been
favoured to win.
Communication Services (+7.3% in A$) led the month’s
returns by sector with Healthcare (+3.3%), Materials (+3.2%),
Real Estate (+2.8%) and Financials (+2.6%) sectors all
performing strongly.
Consumer Staples (-4.2%) and Information Technology
(-4.0%) lagged and were weighed down by stock specific
factors with some profit warnings and negative trading
updates in both sectors.
Portfolio News
Seek (+14.8% in A$) management presented at a broker
conference in May, where they highlighted the large
opportunity that Seek has to increase pricing in its core
Australian division over the next few years. This avenue for
growth has not historically been a big focus for management.
Consequently, the market took heart that Seek may have a
better ability than previously thought to offset the headwinds
to earnings growth posed by a softening domestic jobs
listing environment in Australia, in what is a relatively mature,
yet meaningful division for the company.
Aristocrat (+12.5%) reported its first half 2019 results
toward the end of May. The land based gaming business
demonstrated further evidence of growing share in key
existing markets and showed early success in expanding into
new gaming adjacencies. Aristocrat also delivered on market
expectation in its digital gaming division.
oOh! Media (+12.2%) re-affirmed full year guidance at its
AGM and further noted that ‘since Easter oOh! has seen
increased activity for postelection campaigns across multiple
oOh! Media formats.’ The Federal Election is typically
disruptive for outdoor advertising, so it is pleasing to have it
in the rear view mirror.
Resmed (+11.5%) reported third quarter (Q3) results during
the month. Having disappointed the market with its second
quarter (Q2) results in January, primarily as a consequence
of soft device sales in markets outside the US, the market
was buoyed by the positive growth in ex-US device sales in
Q3 relative to Q3 in its 2018 financial year. The comparable
growth rates of both Q2 and Q3 this year device sales were
impacted by one-off regulatory changes in France and Japan
during 2018 (which we wrote about in February). Given
the volatility across the two quarters, we do not think the
effects of all these changes are necessarily behind us. But
it is a transitory factor that should ‘work its way through the
numbers’ in the near-term. The rest of the Q3 result was
broadly as expected and it was pleasing to see Resmed
continue to take market share in its sale of masks.
Xero (+9.8%) reported a strong full year 2019 result.
Its relatively mature NZ division pleasingly showed
robust revenue growth. It reported strong subscriber
growth in the UK (a key value driver for the company),
accelerating subscriber additions internationally and
accelerating ecosystem related revenues. This was a
pleasing result overall.
It is not often that we see large cap Australian share prices
rise close to +10% in a day, yet that is what we saw with
our shareholdings in the banks on the Monday following
the Federal Election. NAB (+8.1% in the month), CBA
(+5.4%) and Westpac (+3.4%) were all strong beneficiaries
of the post election market reaction, and given their index
weighting, contributed meaningfully to the ASX200’s return
in May. With their large residential mortgage books and high
dividend yields, the banks benefited from the elimination of
Labour’s proposals to crack down on the tax deductibility of
negative gearing for property, and to remove franking credit
tax refunds which had been weighing on the housing market
and high dividend yielding equities respectively. The election
result and some subsequent policy changes by APRA
2
and
the RBA
3
provides a much needed boost to the housing
market. We remain cautious on the outlook for banks given
they still face a number of headwinds to sustainably lifting
their earnings growth rates. These headwinds include
DISCOUNT
1
8.9
%
1
Share Price Discount to NAV (including warrant price on a pro-rated basis)
2
Australian Prudential Regulation Authority.
3
Reserve Bank of Australia.

Sector Split
as at 31 May 2019
Key Details
as at 31 May 2019
FUND TYPE
Listed Investment Company
INVESTS IN
Growing Australian companies
LISTING DATE
26 October 2006
FINANCIAL YEAR END
30 June
TYPICAL PORTFOLIO SIZE
25-35 stocks
INVESTMENT CRITERIA
Long–term growth
PERFORMANCE
OBJECTIVE
Long–term growth of capital and
dividends
TAX STATUS
Portfolio Investment Entity (PIE)
MANAGER
Fisher Funds Management
Limited
MANAGEMENT
FEE RATE
1.25% of gross asset value
(reduced by 0.10% for every 1% of
underperformance relative to the
change in the NZ 90 Day Bank Bill
Index with a floor of 0.75%)
PERFORMANCE
BENCHMARK
Changes in the NZ 90 Day Bank
Bill Index + 7%
PERFORMANCE
FEE HURDLE
15% of returns in excess of
benchmark and high water mark
HIGH WATER MARK
$0.67
SHARES ON ISSUE
171m
MARKET CAPITALISATION
$108m
GEARING
None (maximum permitted 20%
of gross asset value)
11
%
INFORMATION
TECHNOLOGY
20
%
12
%

INDUSTRIALS
19
%
COMMUNICATION
SERVICES

HEALTHCARE
21
%

FINANCIALS
10
%
CONSUMER
DISCRETIONARY
the persistence of a low interest rate environment,
the impost of implementing the royal commission
recommendations, and rising capital intensity driven by
proposals by the RBNZ for banks to lift the capital buffers
of their NZ subsidiaries.
Link Administration (-21.5%) issued a profit warning
on the back of Brexit related softness in its UK division.
Link also highlighted increased costs related to an earlier
than anticipated implementation of new super fund
legislation in Australia which has resulted in more work
for Link and its customers. Given Link has traditionally
been regarded as having a business model with stable
and relatively predictable earnings from one year to
the next, the profit warning resulted in a large negative
reaction by the market. We think both these factors will
ultimately prove to be transitory in nature and topped up
our position on the sell-off.
2
%

REAL ESTATE
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
2
%

MATERIALS
Portfolio Changes
We increased our positioning in Domino’s during the
month. We increased our target weighting in Xero following
its earnings result and given increased confidence in
management’s execution. We also topped up our Link
shareholding post the profit warning related sell-off.
2
The Barramundi portfolio also holds cash.

May’s Biggest Movers in Australian dollar terms
Typically the Barramundi portfolio will be invested 90% or more in equities.
SEEK
+15
%
ARISTOCRAT LEISURE
+13
%
OOH! MEDIA
+12
%
LINK
ADMINISTRATION
-21
%
TECHNOLOGY ONE
-18
%
5 Largest Portfolio Positions as at 31 May 2019
CSL LIMITED
7
%
SEEK
8
%
CARSALES.COM
7
%
COMMONWEALTH
BANK OF AUSTRALIA
5
%
XERO LIMITED
5
%
The remaining portfolio is made up of another 20 stocks and cash.
Oct
2006
Oct
2007
Oct
2008
Oct
2009
Oct
2010
Oct
2011
Oct
2012
Oct
2013
Oct
2015
Oct
2016
Oct
2014
Share Price/Total Shareholder Return
$
1.00
$
1.20
$
0.8 0
$
0.60
$
0.40
Share PriceTotal Shareholder Return
$
1.80
$
0.20
$
0.00
$
1.40
Oct
2017
Oct
2018
$
1.60
Total Shareholder Return to 31 May 2019
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+3.6%+9.5%+13.9%+9.4%+9.1%
Adjusted NAV Return+2.8%+8.6%+9.1%+7.9%+9.2%
Portfolio Performance
Gross Performance Return+2.9%+9.2%+13.4%+11.0%+12.6%
Benchmark Index^+1.9%+5.5%+10.8%+10.9%+9.7%
Performance to 31 May 2019
^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 monthly update 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/
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Disclaimer: The information in this update 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 update 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 update 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.
Barramundi Limited
Private Bag 93502, Takapuna, Auckland 0740
Phone: +64 9 489 7074 | Fax: +64 9 489 7139
Email: enquire@barramundi.co.nz | www.barramundi.co.nz
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Computershare Investor Services Limited
Private Bag 92119, Auckland 1142
Phone: +64 9 488 8777 | Fax: +64 9 488 8787
Email: enquiry@computershare.co.nz | www.computershare.com/nz
About Barramundi
Barramundi is an investment
company listed on the New
Zealand Stock Exchange. The
company gives shareholders
an opportunity to invest
in a diversified portfolio of
between 25 and 35 quality
growing Australian companies
through a single, professionally
managed investment. The aim of
Barramundi is to offer investors
competitive returns through
capital growth and dividends.
Capital Management Strategies
Regular Dividends
»Quarterly distribution policy introduced in
August 2009
»Under this policy, 2% of average NAV is targeted
to be paid to shareholders quarterly
»Dividends paid by Barramundi may include
dividends received, interest income, investment
gains and/or return of capital
»Shareholders who prefer to have increased
capital rather than a regular income stream have
the opportunity to participate in the company’s
dividend reinvestment plan (DRP)
»Shares issued to DRP participants are at a 3%
discount to market price
»Barramundi became a portfolio investment entity
on 1 October 2007. As a result, dividends paid to
New Zealand tax resident shareholders have not
been subject to further tax
Share Buyback Programme
»Barramundi has a buyback programme in place
allowing it (if it elects to do so) to acquire up to 8.4m of
its shares on market in the year to 31 October 2019
»Shares bought back by the company are held as
treasury stock
» Shares held as treasury stock are available to be
re–issued for the dividend reinvestment plan and to pay
performance fees
Warrants
»On 16 October 2018, a new issue of warrants (BRMWE)
was announced
»The warrants were issued 1 November 2018 at no cost
to eligible shareholders and in the ratio of one warrant
for every four Barramundi shares held
»Exercise Price = $0.64 per warrant, to be adjusted down
for dividends declared during the period up to the
Exercise Date
»Exercise Date = 25 October 2019
»The final Exercise Price will be announced and an
Exercise Form will be posted to warrant holders in
September 2019
Management
Barramundi’s portfolio is managed
by Fisher Funds Management
Limited. Robbie Urquhart
(Senior Portfolio Manager),
Terry Tolich (Senior Investment
Analyst) and Delano Gallagher
(Investment Analyst) have prime
responsibility for managing the
Barramundi portfolio. Together
they have significant combined
experience and are very capable
of researching and investing in the
quality Australian companies that
Barramundi targets. Fisher Funds
is based in Takapuna, Auckland.
Board
The Manager has authority
delegated to it from the
Board to invest according to
the Management Agreement
and other written policies.
The Board of Barramundi
comprises independent
directors Alistair Ryan (Chair),
Carol Campbell, and Andy
Coupe; and non-independent
director Carmel Fisher.