BRM – March 2022 Quarterly Newsletter

It has been a tough start to 2022. We’ve taken advantage of the wide
dispersion in share price movements during the quarter to make portfolio
changes. We are enthusiastic about the future for our portfolio companies.
Barramundi fell -9.4% (gross performance) during first quarter (Q1) 2022,
lagging the +2.9% return of the benchmark index. The majority of this weak
performance occurred in January. Helped by a strong earnings season from our
companies and an improvement in market sentiment, our portfolio rebounded
in March. But, it was not enough to offset the negative start to the year.
Inflation concerns and hawkish central bank rhetoric globally contributed
to interest rates rising sharply at the start of the year. These concerns were
magnified by the war breaking out in the Ukraine, which drove energy and
commodity prices higher. The 10yr Australian Government bond rate rose from
1.67% to 2.84% over the course of Q1.
These factors lifted the energy and materials sectors, along with the banks
(that benefit from rising interest rates) and led the ASX200 Index higher during
Q1. In gravitating to these sectors, investors sold companies in the high growth
information technology and healthcare sectors. This led to companies in these
sectors falling substantially during Q1. We do not have any materials or energy
companies in our portfolio and this divergence in performance across sectors
hurt our relative performance.
As discussed below, some of our portfolio companies are also facing
headwinds. But on the whole, our portfolio companies are performing well
operationally. We have sought to capitalise on this sell-off in share prices by
increasing our weighting in some of our high-quality businesses at these lower
valuations. And we were delighted to add Cochlear to the portfolio in Q1.
Periods of share market volatility and poor performance can be unsettling.
However, over longer time horizons, our investment process has stood
our investors in good stead. As always, we remain focussed on investing
in high quality, growing companies with durable competitive positions in
their industries. These businesses tend to grow their earnings under their
own steam. They’re less susceptible to boom-bust cycles that we see with
commodities, and which lie outside of any one company’s control. They
typically have pricing power which helps protect their profitability in both
inflationary and deflationary environments. These characteristics are ultimately
reflected in their share price performance.
Our portfolio companies are
performing well operationally
PWR Holdings (+10.0% in A$) was one of our best performing companies in
Q1. It reported strong growth across all its divisions in February. The company
is benefitting from the return of motor racing competitions that had previously
been suspended due to COVID. It has also started some long-awaited luxury
car contracts. And its research and development is bearing fruit with its
emerging technology division growing sales by +40% in the period.
Our bank shareholdings, Westpac (+13.5%), National Australia Bank
(+12.2%), CBA (6.6%) and ANZ (+0.3%), have also done well. Rising interest
rates should boost their interest margins, adding to profit growth. However,
the competitive environment and impact of rising rates on bad debt charges
may dampen the benefit for banks.
Despite all posting strong financial results, REA (-18.7%), Carsales (-15.6%)
and SEEK (-8.3%) all fell during Q1. SEEK grew core Australian revenues
+72% as hiring conditions rebounded from the pandemic. SEEK also raised its
full year earnings guidance. REA and Carsales likewise delivered strong results.
Carsales for example delivered revenue growth of +21.8% in the year, with
strong contribution from all key divisions.
A number of our high growth companies including Fineos (-47.7%),
Nanosonics (-36.9%) and Audinate (-24.9%) had particularly weak share
price performance in Q1. Each business has been impacted by company
specific factors. Fineos has been slower winning new customers than expected
– partly because of COVID disruptions. Supply chain disruption has impacted
availability of silicon-chips for Audinate’s products. And Nanosonics has
decided to distribute its key disinfection products into the US itself rather than
rely on a third-party distributor. This switch in distribution will negatively impact
its sales for a few months.
These factors may all persist in the near-term. But we do think they’ll eventually
fade and that the longer-term outlook for these companies is sound.
Taking advantage of investment
opportunities presented by
divergent share price performance
We like the prospects of our tech, healthcare and classified advertising
businesses. Following the share price sell-off at the start of the year, their
valuations looked attractive.
In contrast, our financials companies, having performed relatively better, were
closer to fair value in our view. They also intrinsically have less scope to grow
earnings relative to these tech/online and healthcare companies.
We therefore reduced our weighting in the banks. With the benefits from
COVID testing beginning to recede alongside the pandemic, we also reduced
our Sonic Healthcare weighting.
We used the money from these sales to add to the likes of CSL, Nanosonics,
Xero, SEEK, REA Group, Next DC, Fineos, oOH!Media and Domino’s.
Cochlear is a great new addition
to our portfolio
The share market volatility resulted in Cochlear’s share price falling
approximately 30% from recent highs. This provided us with a great
opportunity to add a high-quality business to our portfolio in Q1.
Cochlear supplies implants and devices to over 60% of all people globally
who are treated for profound hearing loss. It has a dominant market position.
Cochlear is solving a significant unmet need that is expected to continue to
underpin the long-term growth of the business. Testing for severe hearing loss
at birth is well established in developed markets. But testing is still nascent
in developing markets. This offers Cochlear opportunity to grow. Also, it is
estimated that less than 3% of adults that would benefit from a Cochlear
Implant have received one. An increasing number of studies also suggest that
severe hearing loss in adults exacerbates the onset of dementia and other
illnesses. So, the adult market is another large untapped opportunity for
Cochlear.
1
¹ Share price premium to NAV (using the net asset value per share, after expenses, fees and tax, to four decimal places)
1 January 2022 – 31 March 2022
$
0.8 8
Share Price
BRM NAV
$
0.7 6
as at 31 March 2022
QUARTERLY NEWSLETTER
PREMIUM
1
16.4
%
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
19 April 2022

PERFORMANCE
as at 31 March 2022
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
(8.3%)+29.1%+18.9%
Adjusted NAV Return (9.4%)+16.9%+13.5%
Portfolio Performance
Gross Performance
Return
(9.4%)+19.8%+16.6%
Benchmark Index¹+2.9%+11.3%+9.5%
1
Benchmark Index: S&P/ASX 200 Index (hedged 70% to NZD)
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
Ansell3.1%
ANZ Banking Group3.0%
AUB Group3.8%
Audinate Group1.6%
Brambles4.4%
Carsales6.3%
Cochlear2.4%
Commonwealth Bank4.9%
Credit Corp3.2%
CSL9.6%
Domino's Pizza3.1%
Fineos Corporation Holdings2.5%
Macquarie Group2.8%
Nanosonics2.4%
National Australia Bank3.5%
NEXTDC4.8%
Ooh! Media3.1%
PWR Holdings2.5%
REA Group4.1%
ResMed4.1%
SEEK5.2%
Sonic Healthcare1.4%
Westpac3.1%
Wise Tech Global6.4%
Woolworths Group3.1%
Xero Limited4.6%
Equity Total99.0%
Australian cash0.6%
New Zealand cash0.3%
Total cash0.9%
Centrebet Rights0.0%
Forward foreign exchange contracts0.1%
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 March 2022
COMPANY NEWS
Dividend Paid 25 March 2022
A dividend of 1.68 cents per share was paid to Barramundi
shareholders on 25 March 2022, 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 a 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
FOREIGN TAX COMPLIANCE ACT (FATCA) AND COMMON
REPORTING STANDARD (CRS)
As a result of the New Zealand Government agreeing to participate in the exchange of information with other jurisdictions under
the Foreign Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), Financial Institutions are required to undertake
due diligence to determine the account holders’ jurisdiction of tax residence. All shareholders will have received a Tax Residency
Self-Certification form from Computershare depending on when they first purchased their securities. Please ensure you complete
and return this important document if you have not already done so. For more information please visit the IRD website: https://
www.ird.govt.nz/international-tax/exchange-of-information/crs/registration-and-reporting or contact Computershare if you are
unsure of whether you have completed your form.
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN AUSTRALIAN DOLLARS
FINEOS CORP
-48
%
NANOSONICS
-37
%
XERO
-27
%
AUDINATE
GROUP
-25
%
DOMINO’S
PIZZA
-25
%