BRM – September 2020 Quarterly Newsletter

When Auckland went into its second lockdown, one positive surprise was
how willingly my 5-year old donned his mask when out in public. Whether
it was the mask pattern, replete with superheroes, or a newfound
acquiescence to Dad’s requests (let’s hope!), I was pleased. It also had the
added benefit of dampening the verbal torrent of thoughts that seems to
constantly stream forth.
As companies reported financial results during the quarter it was similarly
notable how COVID-19 continues to reshape the business environment
in surprising (and unsurprising) ways. Barramundi’s blend of high-quality
companies enabled it to credibly navigate this haphazard environment.
This underpinned the +6.7% (gross performance) return for Barramundi,
in excess of the benchmark index which was up +0.1% in the period. The
Adjusted NAV return for the quarter was +6.4%.
The extended Victorian lockdown seems to finally have brought the
state’s COVID-19 test results under control. This has assisted with further
economic re-opening measures in Australia. The government also
announced significant new stimulus measures in the October budget.
There is some light shining through for the economy, albeit more twists
and turns undoubtedly lie ahead.
Flights are restricted, but we can drive
A surprising business trend has been the increase in expenditure in all
things auto related. This was evidenced by the +54% (in A$) rise in our
top performing company in the period, ARB Corp.
ARB Corp manufactures and sells branded 4x4 accessories. It stands to
reason that with international leisure travel off the agenda, domestic travel
will increase. ARB has also clearly benefitted from fiscal stimulus induced
consumer spending, and favourable tax policy in Australia. Nevertheless,
management have been surprised at the extent of the demand for
accessories. People have kitted out 4x4s for domestic travel en masse.
This has applied to its Australian market as well as the Middle Eastern and
European markets. ARB had reduced production as orders dried up in the
depths of March and April. It then went into production overdrive to meet
the rebounding demand for its products in what were consecutive record
months for the company in June and July.
Carsales (+18% in the quarter) has also benefitted from a surge in
demand for vehicles advertised on its domestic and international websites.
Heightened demand for domestic car travel and an aversion to public
transport has resulted in an increase in first-time car buyers and boosted
vehicle demand.
The digital future has been pulled forward
A less surprising trend during reporting season is the continued
acceleration of the structural shift to a digital economy.
Wisetech (+33%) provides one such example. It has announced the
global rollout of its Cargowise software for seven key customers in the
last nine months. This compares to 1-2 global rollouts announced per
year historically. Wisetech also confirmed that with a broad foundation to
the company well established, its era of land-grab acquisitions is largely
complete. This has been a point of contention for investors, so was well
received by the market.
In a like vein, Australia’s premier data centre owner, Next DC (+24.3%)
announced a number of further large customer contract wins in the
period. This increased demand drove an uplift in Next DC’s expenditure on
new data centres from $320-340m to $340-380m for the 2020 financial
year. The company expects this to rise further to $380-400m in 2021.
Portfolio changes: Parsing the
structural from the cyclical trends
In a case of ‘letting the winners run’, we have increased our portfolio
weightings in Next DC and Wisetech. Both are beneficiaries of favourable
structural shifts in their industries.
We have also increased our weighting in CSL, the world’s leading plasma
therapy manufacturer. CSL (+0.5% over the quarter) is one of our highest
quality companies in the portfolio. Plasma collections, particularly in its key
US market have been negatively impacted by COVID-19. Donors have not
wanted to risk catching COVID when donating blood. This has weighed
on CSL’s profitability near term. The company delivered a credible
financial result in August considering this backdrop. More recently, as the
US economy has re-opened, donors have begun to return. We expect
momentum in earnings growth to soon follow.
Conversely, we have reduced our weighting in ARB Corp. We regard
the company highly. It has a strong reputation and brand. However as
discussed, some of the factors driving the heightened demand for its
products and profitability growth are likely to be transitory.
We have reduced our weighting in pathology testing company, Sonic
Healthcare. Sonic has been a strong beneficiary of COVID-19 testing.
Swabs are processed in its labs. This boost to profitability has driven an
increase in the share price (+10.7% in the period). Elevated COVID-19
testing will be a feature of our lives for some time. But the rate of testing,
and arguably government reimbursement for processing tests, will likely
fall in the future.
We also reduced our weighting in CBA during the period following a re-
rating in its share price.
New portfolio additions: Adding
structural winners to the portfolio
We added two new companies to the portfolio during the quarter,
Audinate and Fineos. Both are beneficiaries of the structural shift to the
digital economy.
Audinate’s proprietary technology (known as Dante) has been established
as the global technology standard for digital professional audio
networking systems globally. Sound system products (speakers, amplifiers,
mixers) that are enabled by Dante technology can distribute digital audio
signals across networks of audio equipment in many different settings.
These include in corporate offices, houses of worship, transport systems
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN AUSTRALIAN DOLLARS
ARB GROUP LTD
+54
%
WISETECH
GLOBAL
+33
%
OOH!MEDIA
+33
%
NEXTDC
+24
%
CARSALES.COM
+18
%
1
¹ Share price premium to NAV (using NAV to four decimal places)
1 July 2020 – 30 September 2020
BRM NAV
$
0.7 1
$
0.7 6
Share Price
PREMIUM
1
7.3
%
as at 30 September 2020
QUARTERLY NEWSLETTER

switching from legacy mainframe-centric systems to digital products like
those offered by Fineos.
We have followed Fineos closely since it listed on the stock market in
2019. We have been impressed by management’s track record since
then. They have successfully won new customer contracts, broadened the
company’s reach within existing customers and have converted customers
from using the on-premise version of Fineos’ software to the cloud-based
version.
With the strength of Fineos’ best in class software and its runway for
growth abetted by management’s track record, we were pleased to add
the company to our portfolio.
such as Sydney trains, as well as venues such as the Boston Convention
and Exhibition centre and Minneapolis baseball stadium, Target Field.
Audinate’s technology is underpinning a global structural shift from
expensive analogue to far cheaper digital audio networked systems. This
shift is at an early stage, underpinning years of growth ahead.
We have taken advantage of the recent share price weakness precipitated
by a short-term cyclical headwind to revenue growth to add Audinate to
our portfolio.
Fineos is led by founder (and majority shareholder) Michael Kelly. It is a
leading provider of policy administration systems software to insurance
companies operating in the Life, Accident & Health (LA&H) insurance
industry. Its key Claims product helps insurance companies efficiently
process associated health insurance related claims.
Fineos counts some of the leading insurers in the USA, Australia and ACC
in NZ amongst its client base. The LA&H industry is in the early stages of
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
16 October 2020
PERFORMANCE
as at 30 September 2020
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
+12.2%+20.7%+13.8%
Adjusted NAV Return +6.4%+14.0%+11.5%
Portfolio Performance
Gross Performance
Return
+6.7%+17.1%+14.8%
Benchmark Index¹+0.1%+5.1%+7.7%
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 combines the share price performance, the warrant price
performance, the net value of converting any warrants into shares, and the dividends paid to
shareholders. It assumes all dividends are reinvested in the company’s dividend reinvestment plan, and
that shareholders exercise their warrants, (if they were in the money), at warrant expiry date.
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
Ansell2.7%
ANZ Banking Group3.9%
ARB Corporation2.2%
AUB Group4.7%
Audinate Group1.7%
Brambles4.0%
Carsales6.5%
Commonwealth Bank4.8%
Credit Corp3.5%
CSL8.6%
Domino's Pizza2.4%
Fineos Corporation Holdings1.8%
Link Administration Holdings1.7%
Nanosonics2.5%
National Australia Bank3.6%
NEXTDC4.2%
Ooh! Media2.2%
PWR Holdings2.2%
REA Group3.9%
ResMed4.0%
SEEK6.1%
Sonic Healthcare2.7%
Westpac4.0%
Wise Tech Global5.3%
Woolworths Group3.0%
Xero6.2%
Equity Total98.4%
Australian cash0.5%
New Zealand cash0.5%
Total cash1.0%
Centrebet Rights0.0%
Forward foreign exchange contracts0.6%
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 30 September 2020
COMPANY NEWS
Dividend Paid 25 September 2020
A dividend of 1.34 cents per share was paid to Barramundi
shareholders on 25 September 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
If you would like to receive future
newsletters electronically please email
us at enquire@barramundi.co.nz