BRM – March 2020 Quarterly Newsletter

Quarter Update Newsletter
1 January 2020 – 31 March 2020
Dear shareholders,
It has been an extremely eventful quarter in financial markets. Coronavirus
has had extreme ramifications for millions of businesses around the globe,
who are having to deal with the implications of government sanctioned
lockdowns. The Barramundi team is fully functional and currently working
from our respective home offices. We had detailed and well-practiced
business continuity plans in place and have access to all required research
and trading systems.
Market Update
When asked to name the greatest difficulty facing a Prime Minister,
legend has it that Harold MacMillan replied “Events, dear boy,
events.”
COVID-19 virus related events have certainly created challenges for the
world in the past quarter. As the tragic human toll has risen, government
actions to contain the virus have increased. This has created tremendous
strain on the global economy and sent equity markets lower, particularly in
March.
The ASX200 fell -23.2% (70% hedged into NZ$) over the quarter compared
to Barramundi which returned -19.6% (gross performance).
Managing a portfolio through a crisis such as this presents a range of
challenges. It also offers opportunity. Our investment team has focussed
our energies in three key areas.
Firstly, we have had regular dialogue with our portfolio company
management teams. With over 50 calls in the last few weeks alone we’ve
sought to gauge how their businesses are faring. We’ve explored the steps
they are taking to mitigate the effects of the economic shutdown. We’ve
focussed particularly on the strength of their balance sheets.
We have been impressed (again) by the calibre of our management teams.
They are calmly moving fast to adapt to this environment and are setting
their companies up well for the future.
Secondly, we have selectively increased our weightings in some of our
higher quality companies. Their share prices have fallen a lot because
near-term earnings are expected to fall. However these companies are well
placed to weather this storm and to strongly benefit when the economy
does recover.
Thirdly, as a team we have been determined not to waste this crisis. There
are a number of high quality companies that we’ve watched closely, but
have found to be too expensive in the past. In March we were given a rare
opportunity to add one such company to the portfolio, online real estate
advertising company REA Group Ltd. As this crisis evolves, we will keep an
eye out for other opportunities such as this.
Balance Sheet, Balance Sheet, Balance Sheet
“To win the game you need to stay in the game” is a mantra of our CIO,
Frank Jasper. The COVID-19 crisis has been a prescient reminder of this
sentiment.
Companies have found their revenues falling quickly in response to
activities (such as lockdowns) designed to contain the virus. Yet they still
have costs which are being incurred. Having sufficient cash to pay these
costs is paramount. In our calls with our companies we’ve therefore been
focussed on the strength of their balance sheets. How much cash do
companies have access to? Without it, they won’t be able to stay in the
game, much less win it.
Management teams of our portfolio companies have pleasingly been on
top of this. They are also doing an admirable job balancing short and long-
term needs of their businesses. As discussed below for example, Next DC
is continuing to grow and invest through this slowdown. They’re not making
short-term decisions such as cutting back on key investments that would
likely impair their long-term performance.
oOH!Media (“OML”) the leading outdoor advertising company (think
of billboards on roadsides) in Australia & NZ was our portfolio company
with the most acute need of raising cash. OML’s debt levels were fine
for most environments, but it had too much debt for a 1 in a 100 year
event. Balance sheet concerns resulted in the share price falling -70%
(in A$) in March. The company to its credit acted quickly. By the end of
March it had raised $167m in equity and substantially reduced its debt.
We participated in the equity raising. OML also improved the terms of
its existing bank debt. Amongst other initiatives it is also re-negotiating
leases on billboard sites to give it more leeway to manage through this
period of ‘hibernation’. OML is a well run albeit cyclical business. Its
longer-term competitive position remains sound. OML’s capital raising
keeps it in the game.
Credit Corp’s share price also fell sharply (-58%) in the month. As a
purchaser of debt ledgers, and with a consumer lending operation,
the market was concerned how it would fare given the deteriorating
economy. We expect its impairments to rise in this environment. However
Credit Corp has a high quality and seasoned management team. They
will continue to steward the company well through this crisis. Having
entered the crisis in a strong position relative to their competition, they
are reinforcing their relationship in this environment with their banking
partners (who they purchase debt ledgers from). This helps position them
to benefit as the economy rebounds longer-term. We have topped up our
shareholding in Credit Corp during the month.
Data Centre owner Next DC is a rare company benefitting from this
crisis. Its share price rose +13% in the month. As CEO Craig Scroggie
reiterated on a number of calls we had in the month, demand for data
centre services has risen throughout March. Companies have had to
embrace the ‘working from home’ model. This has accelerated the
structural shift from having computing data stored on servers in offices
to having it stored in the ‘cloud’ (ie: in data centres). Companies have
been scrambling to speed up this transition during the crisis to better
enable employees working remotely. This shift is structural. When
business gets back to normality, companies are not going back to office
servers. Those that still have them will likely move them to data centres
as fast as they can. Next DC is well placed to benefit from this trend.
As a generalisation, during the equity market plunge in March our
Information Technology related companies which continue to benefit
from structural growth tailwinds performed better. This includes Next
DC, Wisetech (+13%), Technology One (+2%) and Xero (-8%). Our
healthcare holdings which have defensive earnings characteristics also
Significant returns impacting the portfolio
during the quarter in Australian dollars
NEXTDC
+36
%
SEEK
-34
%
LINK GROUP
-44
%
CREDIT CORP
GROUP
-55
%
OOH! MEDIA
-78
%
BRM NAV
$
0.55
SHARE PRICE
$
0.52
DISCOUNT
1
as at 31 March 2020
1
5.8
%
¹ Share price discount to NAV (using NAV to four decimal places)

We have also increased our weighting in pallet manufacturer Brambles
and have added selectively to positions including Seek, Credit Corp, and
Wisetech.
To help fund this we have exited our shareholdings in Rio Tinto and
retirement accommodation provider Ingenia. We also reduced our weighting
in Dominos Pizza Enterprises, ARB Corporation and Link Group.
Every crisis breeds opportunity
We have been following REA Group Ltd for a long time. It is Australia’s
dominant online real estate advertising business. Almost all real estate agents
across the country advertise houses for sale on the site.
REA’s near-term earnings will be impacted as the economy enters
hibernation. However the long-term prospects and REA’s competitive
positioning remains really strong. People will resume buying and selling
houses at some point in the future. When they do, REA stands to benefit.
REA has a strong balance sheet enabling it to weather the storm. The
drop in REA’s share price in March offered us a rare opportunity to buy
shares in the company at a reasonable valuation.
We are excited to have added it to our portfolio.
held up better including Resmed (+1%) and CSL (-4%).
In contrast, our financial markets related businesses which are more
directly impacted by deteriorating economies generated some of the
poorer returns in the portfolio. This includes Credit Corp, and our bank
shareholdings in NAB (-34%), ANZ (-32%), Westpac (-30%) and CBA
(-24%). As we touch on below, we have used this share price weakness to
increase our weightings in some of these companies.
Portfolio Changes
We initially decreased our weighting in Seek (an online employment
advertising company) in February before the market fell as our concerns
about the COVID-19 economic fallout rose.
As the crisis unfolded in March we began re-weighting some of our positions.
Share prices of most of our portfolio companies fell sharply in the month.
This has given us the opportunity to add to our higher quality company
shareholdings at materially lower valuations. We have helped fund these
changes by reducing our weightings in companies that have narrower
competitive advantages and/or that do not offer the same return potential.
These changes strengthen the overall mix of the portfolio.
To this end we increased our weightings in the Australian banks, ANZ,
CBA, NAB and Westpac in the middle of March. The banks valuations
have fallen as low as they have been since the recession in the early 1990s.
The banks enter this crisis with the strongest balance sheets they’ve had in
decades and are well positioned to weather the storm.
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
20 April 2020
Performance
as at 31 March 2020
3 Months
3 Years

(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(25.8%)+4.1%+4.8%
Adjusted NAV Return (20.0%)+3.9%+4.4%
Portfolio Performance
Gross Performance Return(19.6%)+7.1%+7.5%
Benchmark Index¹(23.2%)(0.8%)+4.8%
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/
Company% Holding
Ansell2.8%
ANZ Banking Group4.0%
ARB Corporation3.0%
AUB Group3.2%
Brambles3.7%
Carsales6.3%
Commonwealth Bank7.1%
Credit Corp4.1%
CSL8.4%
Domino's Pizza2.6%
Link Administration Holdings2.1%
Nanosonics2.6%
National Australia Bank3.5%
NEXTDC3.7%
Ooh! Media2.6%
PWR2.0%
REA Group4.3%
ResMed4.0%
SEEK6.2%
Sonic Healthcare2.9%
Technology One2.0%
Westpac3.9%
Wise Tech Global4.3%
Xero Limited5.4%
Equity Total94.7%
Australian dollar cash4.0%
New Zealand dollar cash0.8%
Total Cash4.8%
Centrebet Rights 0.0%
Forward foreign exchange contracts0.5%
TOTAL100.0%
Portfolio Holdings Summary
as at 31 March 2020
Company News
Dividend Paid 27 March 2020
A dividend of 1.45 cents per share was paid to Barramundi shareholders
on 27 March 2020, 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.
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.
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
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