Kingfish – September 2019 Quarter Update Newsletter

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Notable Returns in the Quarter
»»While»the»September»quarter»was»not»as»excruciating»as»a»
combined»tonsillectomy»and»adenoidectomy,»it»was»painful.»
»»In»August»alone»Kingfish»was»down»[-5%]»and»almost»all»of»
that»poor»performance»was»driven»by»a2»Milk»and»Vista
»»To»ensure»our»investment»decisions»are»not»impacted»by»
human»emotions,»we»stick»to»our»process.»We»take»a»step»
back»and»ask»ourselves:»Has»the»big»picture»thesis»changed?
Pain, taking medicine and ice-cream and jelly
How I learnt from my son that there are bumps in the road but it is
important to focus on the big picture.
A tonsillectomy is a surgical procedure to remove the tonsils. An
adenoidectomy is a surgical procedure to remove the adenoids.
Both are fairly common procedures for children, but they are
nonetheless painful. My 9 year old son Jack had both operations
recently. During the recovery period, when we woke him each night
at 2am to give him his medication, he could have easily slipped into
a quagmire of complaint and self-doubt – am I ever going to get
better? He however seemed to ride it out with a surprising lack of
complaint. It reminded me that there are always bumps in the road
on any journey but as long as you keep your eye on the bigger
picture, which in Jack’s case (in my opinion) was long-term good
health, it allows you to retain perspective. Perhaps for Jack, the
bigger picture may have simply been the copious amounts of ice-
cream and jelly and two weeks off school, but hey, whatever gets
you through the pain!
a2»Milk»guided»for»an»unexpected»retraction»in»profit»margin»
and»gave»only»vague»revenue»guidance»of»“continued»growth”.»
The company specifically called out investment in higher levels of
marketing and organisational capability. Since then, the share price
has fallen 22%.
Vista»sharply»downgraded»its»revenue»guidance»for»the»2019»
calendar»year»from»“around»20%»revenue»growth”»to»“10-
12%”. The company fell 29% on the day of the release because of:
1. The shock reduction in guidance after “around 20%” had been
reiterated as recently as the AGM in May; 2. Vista signalled it is
accelerating towards a ‘multi-tenant Software as a Service (SaaS)’
product offering which carries the sticker shock of higher up-front
investment in product. There is also uncertainty of what impact it
will have on revenues and profitability in the short-term versus the
status quo. This was not well communicated to the market.
When»stocks»react»sharply»in»an»unexpected»manner,»human»
nature»ensures»market»participants»suffer»the»full»range»of»
emotions.»Those might range from self-doubt (do I still believe
in the company?) to anger with the management (how could you
possibly do this to me?).
SUMMERSET
GROUP
+20
%
RESTAURANT
BRANDS
+18
%
RYMAN
HEALTHCARE
+13
%
PUSHPAY
HOLDINGS
-13
%
VISTA GROUP
-36
%
To»ensure»our»investment»decisions»are»not»impacted»by»these»
human»emotions,»we»stick»to»our»process. We take a step
back and ask ourselves: Has the big picture thesis changed? We
pay particular attention to any change in the width of the moat
and any change in our view on management. Do customers still
love the product? Has the medium-term earnings power of the
company changed?
The»key»metric»we»use»to»judge»whether»a2’s»customers»still»
love»their»product»in»China»is»infant»formula»market»share.»For
the 6 months ended June 2019, market share accelerated at the
fastest pace in almost two years. Revenue growth in liquid milk
in the US also accelerated from 140% for the 6 months ended
December 2018 to ~175% for the 6 months ended June 2019.
Customers still love a2 Milk’s product! The targeted investment
a2 is undertaking in both China and the US will widen a2 Milk’s
moat. If the company hadn’t materially stepped up its investment,
it could have harvested more profit in the next 1-2 years than it is
now going to. However, with the step up in investment it is likely
to harvest materially more profit in years 3-10 than it could have
otherwise. That is classic long-term thinking and it is a classic
Kingfish company. We are taking advantage of the short-term
weakness and are buying shares in a2 Milk.
Vista»continued»to»grow»market»share»to»50%»for»its»core»
cinema»product»outside»of»China.»It is multiple times the size of
its next biggest global competitor. Vista recently entered Japan,
the third largest cinema market globally, and has already landed
the largest customer in that market. Customers still love Vista’s
products and the moat around its core business is intact. We
continue to buy shares in Vista.
For»long-term»investors,»these»bumps»in»the»road»will»
inevitably»come»and»go. While we are not yet eating ice-cream
and jelly, we have removed the tonsils and adenoids and we do
see the bigger picture on the horizon.
Quarter Update Newsletter
30 June 2019 – 30 September 2019
NAV
$
1.52
SHARE PRICE
$
1.44
as»at»30»September»2019
DISCOUNT
1
5.2
%
1
Share price discount/(premium) to NAV (using NAV to four decimal places)
Sam»Dickie»
Senior Portfolio Manager
18 October 2019

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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+3.4%+12.7%+12.4%
Adjusted NAV Return(0.1%)+12.2%+13.2%
Portfolio Performance
Gross Performance Return +0.5%+14.9%+15.9%
S&P/NZX50G Index+4.0%+14.1%+15.8%

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 expenses, fees and tax,
»adjusted NAV return – the net return to an investor after expenses, fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock selection,
before expenses, 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 Airport5.1%
Delegat Group3.5%
Fisher & Paykel Healthcare13.7%
Fletcher Building1.6%
Freightways6.7%
Infratil9.2%
Mainfreight13.5%
Meridian Energy2.9%
Port of Tauranga3.8%
Pushpay Holdings1.5%
Ryman Healthcare7.4%
Summerset7.9%
The A2 Milk Company14.3%
Vista Group International5.4%
Equity»Total96.5%
New Zealand dollar cash3.5%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 September 2019
Company News
Dividend Paid 26 September 2019
A dividend of 3.23 cents per share was paid to Kingfish
shareholders on 26 September 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.
Performance
as at 30 September 2019