BRM – March 2021 Quarterly Newsletter

Companies reported more positive earnings surprises in the March 2021
reporting season than at any time in the last 25 years. This supported
share prices, helping Barramundi to a +2.5% gain (gross performance,
in NZ$) in the quarter. (The Adjusted NAV return was +2.2% for the
quarter).
Australia has been spared the worst of COVID lockdowns. The share
market has risen sharply from the lows of March 2020, with the ASX 200
Index starting 2021 only a few percent shy of all-time highs.
Investors were clearly anticipating a rebound in economic activity. This
was duly delivered in the bi-annual ‘reporting season’. According to
Goldman Sachs, nearly 60% of companies that reported earnings
exceeded expectations. Companies commented on the improving
business environment as they delivered cautiously optimistic forecasts.
The good news reflects the +4.8% return for the benchmark ASX200
Index (70% hedged into NZ$) in the three months to March.
Increased profits and an improving
business environment supported
portfolio share prices
The share prices of many of our portfolio companies had risen more
strongly than the market during 2020. So, it was pleasing to see their
earnings play ‘catch up’ in reporting season. In fact over 80% of our
reporting companies delivered earnings that beat market expectations.
And the outlook while uncertain, is typically improving for them as well.
PWR Holdings which returned +27.5% in the period was chief amongst
our portfolio companies experiencing a rebound in profits. It provides
cooling products to motorsport, including teams in Formula One. PWR
benefitted from the re-arranged motorsport calendar which resulted in
additional races being compressed into the six months to December. In a
sign that its investment in innovation is bearing fruit, it won new contracts
in its nascent Emerging Technology division. This provides it with a strong
foundation for further growth in 2021.
Insurance broker, AUB Group (+20.0%) similarly delivered a strong
financial result and upgraded earnings guidance. Unaffected by COVID,
the key Australian Broking division grew profits by 60%! This was helped
by insurance premium rate increases and profit contributions from two
acquisitions. Most importantly, there was strong evidence that initiatives
put in place by CEO Mike Emmett to improve the company’s profitability
are bearing fruit.
In a reflection of the improving economy, the Australian 10yr government
bond rate has risen to 1.79% from 0.97% at the start of the year. This
has helped companies such as our bank shareholdings whose profitability
is linked to the level of interest rates.
This boosted the share prices of ANZ (+24.1%), CBA (+6.7%), NAB
(+15.0%) and Westpac (+26.0%). Their market updates revealed further
reductions in COVID related customer repayment deferrals. Bad debt
provisioning has stabilised, and may reduce in the future. This would also
bolster profit growth.
Unsurprisingly, against this backdrop, investors have increasingly switched
their focus to those companies, like the banks, that stand to benefit
most from a rebounding economy. To help fund the purchases of shares
in these businesses investors have typically sold shares in high growth
companies or companies with defensive earnings characteristics that don’t
benefit as much in the near-term from an economic recovery.
To this end, despite delivering robust financial results, share prices of
portfolio companies such as Nanosonics (-29.0%), Audinate (-13.7%),
NextDC (-14.8%) and Wisetech (-5.4%) actually fell in the period. These
are sound, growing businesses that are solving unmet human needs.
Corroborated by their recent financial results we remain optimistic about
their longer-term prospects..
We have sold our shares in ARB
Corporation
ARB Corporation (+7.9%) has been a strong beneficiary of the pandemic.
With consumers focussed on domestic travel, demand for ARB’s 4x4
accessories has skyrocketed. The increase in its share price suggests the
market views this as a permanent increase in demand. However, it is
temporary in our view. As economies open up, consumer demand in our
view will abate. We have used this opportunity to sell our shares in ARB.
“The best carbon, is that which is not
emitted at all” – Craig Scroggie (CEO,
Next DC)
In closing, we have noted with interest that businesses in Australia are
grasping the nettle on environmental matters. They’re pro-actively taking
action to improve the sustainability of their businesses. They are not
waiting for government regulations or environmentally conscious investors
to ‘push’ them into improving sustainable business practices.
Within our portfolio, Next DC CEO Craig Scroggie reminded us in a
recent call how the company is as efficient as it can be with electricity
consumption. Next DC has global industry leading power usage
effectiveness (PUE) metrics. The company has the only 5 star rated data
centres in Australia for energy efficiency. When building data centres Next
DC focuses on procuring materials and constructing its data centres in an
environmentally sound manner. Of the carbon it does produce, Next DC
offsets this through the Qantas Future Planet Programme. Next DC has
been carbon neutral for a few years.
We were also interested in a lecture delivered by Fortescue’s chairman
recently. In it he outlined his ambitions to build Australia’s first green steel
pilot plant this year. This is part of a broader vision to build domestic steel
processing capacity to convert Western Australian iron ore reserves into
steel through hydrogen powered blast furnaces.
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN AUSTRALIAN DOLLARS
PWR HOLDINGS
+27
%
WESTPAC BANK
+26
%
ANZ BANK
+24
%
AUB GROUP
+20
%
NANOSONICS
-29
%
1
¹ Share price premium to NAV (including warrant price on a pro-rated basis and using NAV to four decimal places)
1 January 2021 – 31 March 2021
Warrant Price
$
0.2 0
$
0.9 8
Share Price
BRM NAV
$
0.8 0
as at 31 March 2021
QUARTERLY NEWSLETTER
PREMIUM
1
28.0
%

We don’t own shares in Fortescue. However, this is quite a shift in rhetoric
from one of Australia’s largest mining companies!
Next DC and Fortescue are both energy intensive businesses. This is not
stopping them from shaping their businesses for an environmentally
sustainable future. Organisations should take note. It is better to pro-
actively embrace sustainability than to be dragged into the future by
customers, communities, investors and regulators.
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
15 April 2021
PERFORMANCE
as at 31 March 2021
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
+2.6%+32.6%+21.5%
Adjusted NAV Return +2.2%+17.5%+13.1%
Portfolio Performance
Gross Performance
Return
+2.5%+21.3%+16.5%
Benchmark Index¹+4.8%+10.2%+10.5%
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 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
Ansell4.0%
ANZ Banking Group5.0%
AUB Group4.5%
Audinate Group1.8%
Brambles4.2%
Carsales5.9%
Commonwealth Bank5.4%
Credit Corp3.7%
CSL8.3%
Domino's Pizza2.5%
Fineos Corporation Holdings2.7%
Nanosonics2.5%
National Australia Bank4.2%
NEXTDC3.9%
Ooh! Media1.8%
PWR Holdings2.4%
REA Group4.0%
ResMed3.9%
SEEK6.3%
Sonic Healthcare2.7%
Westpac4.9%
Wise Tech Global5.7%
Woolworths Group3.7%
Xero Limited5.0%
Equity Total99.0%
Australian cash1.1%
New Zealand cash0.5%
Total cash1.6%
Centrebet Rights0.0%
Forward foreign exchange contracts(0.6%)
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 March 2021
COMPANY NEWS
Dividend Paid 26 March 2021
A dividend of 1.58 cents per share was paid to Barramundi
shareholders on 26 March 2021, 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 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