BRM – December 2020 Quarterly Newsletter

As the craziest of years has drawn to a close, we tip our hats to the
outstanding people working at and running our portfolio companies.
They have adapted well to the rapidly shifting sands of the COVID-19
environment and delivered for our investors in a tumultuous year.
In the December quarter Barramundi returned +17.1% (gross
performance) compared to the benchmark index which returned +13.2%.
For the calendar year, Barramundi returned +26.3% (gross), well in
excess of the benchmark index’s +2.7%. The Adjusted NAV return for the
quarter was +15.1%.
Our investment philosophy of investing in high quality and growing
companies run by high calibre people is the bedrock of this performance.
Team Australia has been equal to the
COVID-19 challenge throughout the year
The unsettling COVID-19 outbreak in Sydney on the eve of Christmas is a
salient reminder that the pandemic is far from over.
On the whole, ‘Team Australia’ has done a superb job in combatting the
pandemic through 2020. The Federal Government, big business (especially
the major banks), financial regulators and the Reserve Bank of Australia
tackled the challenge in a competent, co-ordinated fashion. This has
ameliorated the economic damage wrought by COVID-19. Australia is
consequently on a strong footing to recover economically as vaccines are
rolled out and the global economy heads towards normalisation in 2021.
The latest salvo in this regard was the stimulatory budget handed
down by the Federal Government in October. The sum of all initiatives
is expected to result in a -$214bn fiscal deficit in FY21 (the largest on
record). Coupled with previously announced measures, UBS estimates that
this brings the total Australian fiscal stimulus response to COVID-19 to a
staggering ~17% of GDP. This is well above the 6% delivered during the
2008 financial crisis and is well above global stimulus measures.
Share markets are benefitting from rising
optimism about economic normalisation
i n 2021
This stimulus, a reduction in US election uncertainty and positive COVID
vaccine data boosted global equity markets in November. The ASX200
Index rose 10.2%, its best monthly performance in over 30 years
(according to Goldman Sachs). This drove the strong quarterly result for
the market.
Companies benefitting most from economic normalisation and that have
typically lagged in share price performance this year underpinned this
performance.
Within our portfolio our financials positions including Credit Corp
(+75.3% in A$ over the three months) and the banks, ANZ (+34.2%),
NAB (+29.1%), CBA (+29.1%) and Westpac (+16.9%) benefitted
strongly from this dynamic. The positive impact of the October budget on
the domestic economy is likely to improve the banks’ bad debt outcomes.
In line with this, the interim results reported by the banks in the period
continued to show a marked reduction in COVID-19 customer payment
deferrals.
This bodes well for bank earnings and particularly dividends in 2021.
Recognising this fact, in December the financial regulator (APRA)
announced that the banks will not have restrictions on dividend payments
in 2021. This was well received by the market.
oOH!Media (+37.2%), Audinate (+41.0%) and SEEK (+34.0%) are
companies also benefitting from optimism about economic normalisation
in 2021. oOH!Media stands to benefit from a pick-up in advertising
spend as consumer confidence returns. Demand for Audinate’s
professional audio networking equipment is expected to increase as
economies open, infrastructure spending picks up and live events (operas,
concerts, sport) resume. Recruitment advertiser SEEK also continues to
benefit from the continuing recovery in employment.
REA Group (+35.4%) similarly has had a strong few months as housing
sales activity continues to improve.
Takeover activity influenced portfolio
positioning in the December quarter
Earlier in the year, the share market volatility gave us the opportunity to
add a number of high-quality companies to the portfolio at opportune
pricing. From March to August, we added four new companies to the
portfolio. These included REA Group, the online real estate advertising
portal, supermarket operator Woolworths, Audinate and insurance
claims software provider Fineos.
Following the share market rebound during the year, there are fewer
bargains to be had. The majority of our portfolio position changes
since August have been largely limited to tweaking the sizes of existing
positions.
With confidence returning to equity markets, we have recently seen an
increase in takeover activity. With ample cheap debt funding at their
disposal, private equity and corporate suitors alike have been running the
ruler over potential listed acquisition targets.
Within our portfolio, Link Group (+49.1%) received a non-binding,
indicative proposal from a private equity consortium in October at $5.20
per share. This was later lifted to $5.40 per share and the suitors began
their due diligence. In December an indicative counter-offer at $5.65 by
another party was submitted to the Board. The potential for a protracted
bidding war resulted in the share price rising to the $5.65 indicative offer
price in December.
We capitalised on this increase in the share price bought about by this
potential bidding war and sold our shares in December. We re-invested
the proceeds by buying shares in other companies in our portfolio where
we felt the risk adjusted upside was more compelling. We note that in
early January 2021, one of the potential bidders for Link has withdrawn its
indicative takeover proposal.
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN AUSTRALIAN DOLLARS
CREDIT CORP
GROUP
+75
%
LINK
ADMINISTRATION
SERVICES
+49
%
XERO
+46
%
NANOSONICS
+41
%
AUDINATE
GROUP
+41
%
1
¹ Share price premium to NAV (including warrant price on a pro-rated basis and using NAV to four decimal places)
1 October 2020 – 31 December 2020
Warrant Price
$
0.2 0
$
0.9 7
Share Price
BRM NAV
$
0.8 0
as at 31 December 2020
QUARTERLY NEWSLETTER
PREMIUM
1
27.3
%

did well in the depths of the pandemic. Latterly the share prices of our
banks did better as economic optimism rose.
This all-weather balance to our portfolio reduces our reliance on any one
economic or pandemic related scenario. This should stand Barramundi
shareholders in good stead in the future.
All-weather portfolio well positioned
for the future
We don’t know exactly what 2021 holds in store. This takeover activity
may or may not be a persistent theme through the year. We hope that
the global vaccine effort is successful in putting us on track for economic
normalisation. However, what shape this path to normalisation takes and
the timetable is yet to be determined.
We will not second guess what might take place in the coming year.
Instead, our focus remains firmly on our investment process which is
aimed at constructing an ‘all-weather’ blend of high quality and growing
businesses.
As we have seen during 2020, different portfolio companies performed
well at different times as conditions changed. Our healthcare companies
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
15 January 2021
PERFORMANCE
as at 31 December 2020
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
+36.2%+30.3%+21.0%
Adjusted NAV Return +15.1%+15.5%+12.7%
Portfolio Performance
Gross Performance
Return
+17.1%+19.1%+16.2%
Benchmark Index¹+13.2%+6.7%+9.1%
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
Ansell3.6%
ANZ Banking Group4.5%
ARB Corporation1.3%
AUB Group3.7%
Audinate Group2.1%
Brambles4.0%
Carsales6.1%
Commonwealth Bank5.5%
Credit Corp4.6%
CSL8.4%
Domino's Pizza2.3%
Fineos Corporation Holdings2.6%
Nanosonics3.0%
National Australia Bank4.0%
NEXTDC4.3%
Ooh! Media1.7%
PWR Holdings1.8%
REA Group4.6%
ResMed3.9%
SEEK6.8%
Sonic Healthcare2.2%
Westpac4.0%
Wise Tech Global5.7%
Woolworths Group3.4%
Xero Limited5.7%
Equity Total99.8%
Australian cash0.7%
New Zealand cash0.5%
Total cash1.2%
Centrebet Rights0.0%
Forward foreign exchange contracts(1.0%)
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 December 2020
COMPANY NEWS
Dividend Paid 18 December 2020
A dividend of 1.45 cents per share was paid to Barramundi
shareholders on 18 December 2020, under the quarterly
distribution policy. Interest in Barramundi’s dividend
reinvestment plan (DRP) remains high with 37% 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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us at enquire@barramundi.co.nz