Barramundi – September 2019 Quarter Newsletter

Quarter Update Newsletter
30 June 2019 – 30 September 2019
»»Barramundi»returned»+6.7%»gross»(in»A$),»well»ahead»
of»the»ASX200»which»returned»+2.3%»(in»A$)»in»the»
September»quarter.
Strong reporting season for Barramundi
Barramundi’s return in the quarter was largely driven by a
pleasing August ‘reporting season’ for our portfolio companies.
We touch on a few of the highlights (and lowlights) below. As
always, we are constantly working to optimise and improve the
portfolio mix of companies (and hence our return outcomes). As
discussed below, to that end we have added PWR Holdings to
the portfolio.
Retirement community owner Ingenia»Communities»(+26%»
over»the»quarter»in»A$) was our best performing company.
It benefitted as investors sought companies with defensive
characteristics following the collapse in interest rates.
Wisetech»(+25.4%) was another star performer. Its financial
result was in line with market expectations. It guided to high
recurring revenue growth for 2020. Software adoption by
logistics companies continues to rise as companies seek to
reduce their costs and improve efficiency. Wisetech’s growth
outlook looks bright for many years to come.
As widely anticipated, Dominos»(+24.9%)»result was below
guidance. However the company is off to an encouraging start
in the 2020 fiscal year. The outlook is more positive. Improved
in-store management and momentum in rolling out new stores
is driving growth in Japan. In the key European division, the
integration of acquired stores has been completed. Along with
new management initiatives, this sets the division up for future
growth. The Australian division has recently been a drag on
overall performance. Initiatives are underway to improve this
performance in the medium-term. This includes for example,
Domino’s purchasing stores from underperforming franchisees
(and operating them more efficiently).
Outdoor advertising company, oOH!»Media»(-26%) was our
worst performing company in the quarter. It downgraded
earnings guidance for the December 2019 year end. Echoing
the soft domestic economic conditions of the last year, forward
bookings for outdoor advertising spending for the September
quarter were particularly weak. This led to the earnings
downgrade. In line with tentative signs of optimism elsewhere
in the economy, the forward bookings for the December quarter
seem to have improved. Structurally, outdoor advertising as
a category continues to receive an increasing proportion of
advertising spend compared to traditional advertising channels.
So longer-term, the business is well positioned to benefit from a
pick-up in ad spending.
Like the Formula One cars that it cools, PWR
Holdings got off to a flying start in the portfolio
Leonardo DiCaprio gave a masterful performance as the
eclectic Howard Hughes in the film The Aviator. The film traces
Hughes’ life as he attempts to revolutionise aircraft design
and performance. What is less emphasised in the film is that
Hughes funded his endeavours with the profits from sales
of a patented drill bit invented by his dad. Although it was a
critical component, this drill bit did not cost much relative to
the total cost of drilling for oil. This product made the Hughes
family a fortune. We were reminded of this when we met with
management of Brisbane-based PWR»Holdings»recently.
Founded around the year 2000, PWR makes cooling parts for
motorsport teams. This includes specialist radiators for water
and engine cooling, heat exchangers and intercoolers for
turbochargers. Today, it supplies the vast majority of Formula
1 teams as well as all NASCAR and the electric car powered
Formula-E teams.
Like Hughes’ drill bit, these cooling products are critical to
car performance, yet make up a fraction of the cost of the car.
PWR’s products are not patented. But given PWR’s reputation
for excellence, motorsport teams will think twice before
switching to competing products that lack a track record in the
sport. Why take the risk, especially when cooling products are
not a large overall cost in getting the most out of a very highly
priced car?
PWR’s craftsmanship is exacting. The quality of its products
(typically customised), is high. As such, PWR sells its products at
healthy profit margins. The know-how and expertise is difficult
for potential competitors to replicate. This dynamic, coupled
with the high risk to customers of switching to a competing
supplier, protects PWR’s profitability. It acts as an economic
moat around the business and is one of the key reasons we
have bought shares in the company.
Similar to Hughes, the spirit of innovation is core to PWR’s DNA.
PWR invests heavily in research and development each year.
This ensures it stays one step ahead of technological change.
Notable Returns for the Quarter
in Australian dollars
INGENIA
+26
%
WISETECH
+25
%
DOMINO’S
+25
%
LINK
ADMINISTRATION
+17
%
OOH! MEDIA
–26
%
BRM NAV
$
0.73
SHARE PRICE
$
0.63
DISCOUNT
1
12.2
%
as at 30 September 2019
1
WARRANT PRICE
$
0.03
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
This culture and its highly regarded motorsport reputation
has opened doors for the company to supply customers in a
multitude of other arenas.
Today, PWR supplies cooling products to super car
manufacturers such as Aston Martin and Porsche. It makes
cooling products for electric vehicle manufacturers. More
recently, PWR has established an emerging technology
division. It is developing products to be used in other
industries such as aerospace. This offers the company a
significant opportunity for many years of revenue growth.
The people at PWR are passionate about their work. They
genuinely think like owners. The founder together with the
majority of the employees own more than 30% of the shares
in the company. They are motivated to turn the revenue
growth potential into reality. Pleasingly PWR has got off
If you would like to receive future
newsletters electronically please email
us at enquire@barramundi.co.nz
to a good start returning +13.9% since it was added to the
portfolio in the quarter.
In summary, this is a profitable company protected by an
economic moat. It is an innovative and growing business
run by passionate hardworking people who are aligned
with shareholders. We are excited to have added it to the
Barramundi portfolio.
Robbie»Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
18 October 2019
Company News
Dividend Paid 26 September 2019
A dividend of 1.39 cents per share was paid to Barramundi
shareholders on 26 September 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 30 September 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+2.7%+10.1%+9.9%
Adjusted NAV Return +7.6%+11.3%+10.2%
Portfolio Performance
Gross Performance Return+7.9%+14.4%+13.6%
Benchmark Index¹+3.3%+12.5%+10.0%
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 after expenses, fees and tax,
»adjusted NAV return – the return to an investor after expenses, fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock selection
and currency hedging 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 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
Ansell3.0%
ARB Corporation3.7%
Aristocrat Leisure2.6%
AUB Group4.3%
Brambles3.0%
Carsales6.8%
Commonwealth Bank5.1%
Credit Corp4.0%
CSL6.7%
Domino's Pizza4.4%
Ingenia Communities1.6%
Link Administration Holdings5.0%
Nanosonics2.8%
National Australia Bank4.2%
NEXTDC3.3%
Ooh! Media4.1%
PWR2.0%
ResMed3.8%
Rio Tinto2.1%
SEEK7.8%
Sonic Healthcare3.0%
Technology One1.8%
Westpac4.3%
Wise Tech Global4.4%
Xero Limited5.3%
Equity»Total99.1%
Australian dollar cash0.3%
New Zealand dollar cash0.5%
Total»Cash0.8%
Centrebet Rights 0.0%
Forward foreign exchange contracts0.1%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 September 2019