Barramundi – December 2019 Quarter Newsletter

Quarter Update Newsletter
30 September 2019 – 31 December 2019
»Barramundi finished the year on a positive note, gaining
+4.2% in the December quarter (gross performance).
The adjusted net asset value (Adjusted NAV) return for
the three months was +2.7%. This brought total gross
return for the calendar year 2019 to +36.3% (Adjusted
NAV return +31.9%). This is in excess of the S&P/
ASX200 Index (hedged 70% to NZD) which returned
+23.2% for the calendar year.
The Australian market finished the year on a
positive note in the December quarter
The S&P/ASX 200 Index (excluding any hedging) lagged global
indices by a few percent in returning +1% (A$) in the December
quarter. Healthcare (+14%), Energy (+6%) and Materials (+4%) led
the market higher, while Financials (-6%), Consumer Staples (-3%)
and Real Estate (-1%) were the sector laggards.
Key Portfolio News
oOH!Media (+27% in A$ over the quarter) had experienced
a torrid few months of share price performance following an
earnings downgrade in August. The magnitude of the downgrade
surprised the market. At the time, management put the earnings
softness down in part to a soft advertising market but noted
that forward bookings were showing signs of turning around.
This improving trend in forward bookings continued through the
fourth quarter. Coupled with evidently good execution by the
oOH!Media team, this was the source of the profit upgrade in
December and led to a surge in the share price.
The Australian advertising market remains relatively subdued.
However we think outdoor advertising as a category will continue
to win market share over the next few years from traditional
advertising channels (like TV). In addition, we like the rational,
competitive market structure of the outdoor advertising industry.
When the domestic Australian economic environment picks up
and the advertising cycle strengthens, oOH!Media should benefit.
Technology One (+17%), Xero (+28%) and Aristocrat (+10%)
all reported strong financial results during the quarter. In
addition to winning new customers, Technology One continues
to convert on premise customers to its cloud-based offering.
It also continues to make progress turning its lossmaking UK
division around. Xero similarly delivered strong results including
subscriber growth in key markets including Australia and the
UK. Aristocrat’s North American land-based gaming division
showed evidence of successfully expanding into adjacent gaming
markets, and the result of its digital division allayed market
concerns over its growth and earnings trajectory.
Share prices of our bank holdings were weak throughout the
last three months. Westpac (-16%), NAB (-15%) and ANZ
(which we added to the portfolio in December) reported full
year financial results in the quarter. Similar themes were evident
with all of them. Operating conditions and loan growth remain
tepid. As a sector the banks are still building up capital buffers
as required by regulators. To do so they have raised capital
either through cutting their dividends or issuing equity through
dividend reinvestment plans. Westpac went a step further and
undertook a $2.5bn equity raising in November. Shortly after
this, the anti-money laundering and counter-terrorism financing
regulator AUSTRAC began civil proceedings against Westpac
for breaching anti money laundering and counter-terrorism
regulations. (We touched on this case in December’s update). All
these factors weighed on the performance of bank share prices
in the past few months.
Although there are specific company related regulatory
challenges, for the banking sector as a whole, regulatory
certainty continues to improve. Key in this regard was the
finalisation of the Hayne Royal Commission’s report into the
sector in February 2019. And the Reserve Bank of New Zealand
also released the review of NZ banks’ regulatory capital
requirements in December. This improved regulatory certainty
and reduces some key risks for the banks as we head into 2020.
Wisetech’s (-33%) share price fell over the quarter after the
release of a couple of independent research reports which
raised perceived concerns about the company. These included
the accounting practices employed by Wisetech, the strength
of its product offering as well as its acquisition strategy. A
number of these points are not new and have been raised by
market commentators over the last few years. Management
responded (as they have before) with a comprehensive rebuttal
of these points. Wisetech also re-affirmed earnings guidance
for FY20. The logistics industry continues to increase its reliance
on software to efficiently manage the flow of goods between
countries. This provides Wisetech with a foundation to continue
growing its revenue for many years to come.
Portfolio Changes
The largest portfolio changes in the December quarter involved
our positioning in the Australian banks.
We added ANZ to our portfolio in December. We like its
strong capital position and the improving track record of its
Notable Returns for the Quarter
in Australian dollars
XERO
+28
%
OOH! MEDIA
+27
%
INGENIA
+24
%
CSL
+18
%
WISETECH
-33
%
BRM NAV
$
0.71
SHARE PRICE
$
0.72
PREMIUM
1
as at 31 December 2019
1
(1.7
%
)
¹ Share price (premium)/discount to NAV (using NAV to four decimal places)

the company. We also get the sense that the competitive
environment may be starting to get tougher for the company
based on improved results (and some hiring decisions) by a
few of its key competitors. Mostly though, we have come to
increasingly question the long-term sustainability of Aristocrat’s
business model from an Environmental, Social and Governance
perspective and hence decided to sell our shares.
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
management team. With the RBNZ clarifying its stance on
capital requirements for banks in NZ a key risk underpinning the
sector has now been removed.
Separately we reduced our position in Westpac based on
the management upheaval and uncertainty affiliated with the
AUSTRAC civil case. We also reduced our NAB position given the
uncertainty affiliated with the ongoing investigation into NAB by
AUSTRAC. NAB does not have as strong a capital position as the
likes of ANZ and CBA. We reduced our CBA positioning based
on valuation.
We also exited Aristocrat during the quarter. As we discussed in
November’s monthly update, although Aristocrat has performed
adequately, it has missed some of our expectations (especially
in the digital division) that we had when we first invested in
If you would like to receive future
newsletters electronically please email
us at enquire@barramundi.co.nz
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
20 January 2020
Company News
Dividend Paid 19 December 2019
A dividend of 1.44 cents per share was paid to Barramundi
shareholders on 19 December 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 31 December 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+18.1%+14.7%+12.7%
Adjusted NAV Return +2.7%+13.3%+11.0%
Portfolio Performance
Gross Performance Return+4.2%+16.6%+14.4%
Benchmark Index¹(0.2%)+10.6%+11.5%
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%
ANZ Banking Group3.0%
ARB Corporation3.6%
AUB Group4.2%
Brambles3.5%
Carsales7.2%
Commonwealth Bank4.0%
Credit Corp3.4%
CSL7.3%
Domino's Pizza4.0%
Ingenia Communities1.7%
Link Administration Holdings4.8%
Nanosonics2.3%
National Australia Bank2.9%
NEXTDC3.6%
Ooh! Media4.5%
PWR2.0%
ResMed4.0%
Rio Tinto1.9%
SEEK7.2%
Sonic Healthcare2.9%
Technology One2.2%
Westpac3.0%
Wise Tech Global4.0%
Xero Limited5.4%
Equity Total95.6%
Australian dollar cash3.2%
New Zealand dollar cash1.3%
Total Cash4.5%
Centrebet Rights 0.0%
Forward foreign exchange contracts(0.1%)
TOTAL100.0%
Portfolio Holdings Summary
as at 31 December 2019