Kingfish – June 2019 Quarter Update Newsletter

1
Notable Returns in the Quarter
»»An»excellent»series»of»meetings»with»portfolio»companies»and»
competitors»in»the»US;
»»Interest»rate»sensitive»stocks»led»the»way,»not»helpful»for»our»
investment»style»but»offset»by»multiple»strong»idiosyncratic»
stories;»and
»»We»continue»to»adjust»the»portfolio»to»make»the»best»use»
of»capital.
On the Road Again
Various investing legends have long espoused the virtues of
“wearing out your shoe leather” visiting businesses first hand
to gain a more direct perspective. We share this view hence it is
a fundamental element of our active investment management
approach. It certainly makes a welcome change from reading
financial reports and hounding down unique insights from the
terrabytes of information constantly circulating the internet!
On our recent travels to the United States we met with a number of
portfolio companies and competitors. Visits relating to Mainfreight
and Fisher and Paykel Healthcare are particularly notable, and
are discussed in detail below. In addition to these we visited the
Seattle office of Pushpay, met with the head of Vista’s Movio Media
and we were fortunate to meet Ahold and Sprouts, US based
customers of a2 Milk.
We visited Mainfreight’s Los Angeles operation to meet with key
US executives. US operations are greater than a quarter of total
group revenues now and the division is growing significantly faster
than the overall group. In the recent second half 2019 fiscal result,
group operating earnings grew at 17%, (impressive in any normal
context) while US operating earnings grew at almost triple that
rate in NZD terms (+48%). The US business is tiny, relative to its
competitors and its competitors are extremely fragmented. To put
some context around this, Mainfreight’s US transport operations
are less than one twentieth of the size of the number one market
share player in the US and the number one player only has around
10% market share! After a few false starts over the past decade, we
believe that Mainfreight now have the people, the infrastructure
and the culture in place to continue this superior growth rate.
Fisher & Paykel healthcare is a high quality company. During our
visit we met with its key US executives and competitors ResMed
and Vapotherm. We spent time with medical doctors and experts
in respiratory disease/illness, and managed to stay awake at the
sleep conference we attended that showcased Fisher & Paykel
Healthcare’s and key competitor’s sleep apnea masks.
Meeting Justin Callaghan, the head of Fisher & Paykel’s US
operation, reminded us of how critical experience is in an industry
that thinks of product cycles in decades, not quarters or years.
VISTA GROUP
+24
%
AUCKLAND
INTERNATIONAL
AIRPORT
+21
%
DELEGAT
GROUP
+20
%
PUSHPAY
HOLDINGS
+20
%
PORT OF
TAURANGA
+17
%
Justin has been with Fisher & Paykel for more than 25 years and
discussing the huge total addressable market opportunity for
the fast growing nasal high flow products and the competitive
environment renewed our confidence that the key US business
is in good hands! The US market is by far the largest healthcare
market in the world and accounts for almost 50% of Fisher &
Paykel healthcare’s revenue vs Europe at circa 30% and Asia/Pacific
at circa 20%. Nasal high flow products are approximately 30%
of group revenue and are growing almost three times as fast as
group revenue. Given the huge body of clinical papers published
on nasal high flow and Fisher & Paykel’s brand Optiflow, (150-
200 papers per annum for the past couple of years vs less than
25 per annum five years ago), it is not surprising that Optiflow
is now used to some small degree in most hospitals in the US.
The huge opportunity that remains is adoption rates in those
hospitals. Fisher & Paykel treats around three million patients
annually with Optiflow and we think the total addressable market
here is 40-50 million patient set-ups globally per annum. It is worth
remembering that while Fisher & Paykel Healthcare’s Obstructive
Sleep Apnea (OSA) masks treat only one condition (OSA), Optiflow
can treat a multitude of respiratory illnesses - Chronic Obstructive
Pulmonary Disease, Chronic Bronchitis, Emphysema, Pneumonia
to name a few. While we were aware of the benefits of Optiflow
(both versus competition and versus using low flow oxygen), it was
useful to have these validated by the Pulmonary Care doctors we
spoke with. They reinforced the multitude of benefits including a
major improvement in patient comfort over competitor products,
the ability to be easily set up by respiratory therapists who are
the most common users, and importantly, that it is much less
expensive than normal non-invasive ventilation.
The Impact of Interest Rates
Another quarter and another sharp fall in interest rates which,
all else being equal, is not helpful for our style. Higher yielding,
slower growth companies that do not necessarily exhibit strong
STEEPP characteristics rallied hard during the quarter. The real
estate and utilities sectors were up 12% and 14% respectively,
significantly outperforming the broader NZ stock market.
It is a testament to the idiosyncratic stories of non-yielding
companies in our portfolio that companies like Delegat, Vista,
Infratil, Mainfreight and Pushpay were able to at least keep pace
with the heady price action in the yield stocks.
Quarter Update Newsletter
31 March 2019 – 30 June 2019
NAV
$
1.62
SHARE PRICE
$
1.44
WARRANT PRICE
$
0.13
as»at»30»June»2019
DISCOUNT
1
9.2
%
1
Share price discount/(premium) to NAV (including warrant price on a pro-rated basis).

2
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 Kingfish 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 Kingfish 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.
Kingfish Limited
Private Bag 93502, Takapuna, Auckland 0740, New Zealand
Phone: +64 9 489 7094 | Fax: +64 9 489 7139
Email: enquire@kingfish.co.nz | www.kingfish.co.nz
If you would like to receive future
newsletters electronically please email
us at enquire@kingfish.co.nz
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+10.1%+13.0%+11.6%
Adjusted NAV Return+5.3%+14.8%+13.5%
Portfolio Performance
Gross Performance Return +6.5%+17.7%+16.2%
S&P/NZX50G Index+6.7%+15.1%+15.4%

Non-GAAP Financial Information
Kingfish 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,
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 Kingfish Non-GAAP Financial Information Policy. A copy of
the policy is available at http://kingfish.co.nz/about-kingfish/kingfish-policies/
LISTED»COMPANIES
%»Holding
Auckland Int Airport5.3%
Delegat Group4.1%
Fisher & Paykel Healthcare13.4%
Fletcher Building1.7%
Freightways7.8%
Infratil9.1%
Mainfreight12.4%
Meridian Energy3.6%
Port of Tauranga3.7%
Pushpay Holdings2.0%
Restaurant Brands NZ0.8%
Ryman Healthcare5.9%
Summerset6.6%
The A2 Milk Company14.9%
Vista Group International6.0%
Equity»Total97.3%
New Zealand dollar cash2.7%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 June 2019
Company News
Dividend Paid 27 June 2019
A dividend of 3.07 cents per share was paid to Kingfish
shareholders on 27 June 2019 under the quarterly distribution
policy. Interest in Kingfish’s dividend reinvestment plan (DRP)
remains high with 43% 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.
Sam»Dickie,»Senior Portfolio Manager
18 July 2019
The Relentless Pursuit of Quality
We are always striving to maintain the highest quality investment
portfolio.
During the quarter we lowered our weightings in Fletcher
Building, Freightways and Restaurant Brands and we increased our
weightings in Mainfreight, a2 Milk, Infratil and Summerset.
Fletcher Building and Restaurant Brands were funding sources for
our increase in weightings. While Freightways has a track record of
doing mergers & acquisitions at attractive multiples, the Australian
acquisitions are diverse and project lumpiness is leading to patchy
performance. We had questioned the longer term intrinsic earning
power of the business but at current levels valuation is starting to
look more attractive, especially on a relative basis.
Mainfreight continues to exceed our top of street earnings
expectations and growth is inflecting in the US especially and
European businesses. Importantly, the returns Mainfreight is
generating on the incremental capital it is deploying is stable
at the higher growth rates. Many lament how expensive
Mainfreight looks on a simple price to earnings basis. We think
this misses the long-term offshore opportunity in the US and
Europe especially.
We received additional new support for our a2 Milk thesis as
they launched their Smart Nutrition product in the three plus
year old segment. The company continues to take market share
in China at a rapid clip.
Performance
as at 30 June 2019