KFL – June 2022 Quarterly Newsletter

A stark divide between share prices and
underlying earnings
Stock prices have fallen sharply, but the real-time earnings picture for most
of our portfolio companies continues to hold up well.
As always, the market is forward-looking, but share prices seem to be factoring a
fairly severe economic slowdown which we may not see. The onus is shifting to the
bears to prove that a recession is imminent or already here – and, importantly, to
prove that there are sharp corporate earnings cuts to come.
In a normal market, conventional wisdom is not to buy a company until near
the end of the earnings downgrade cycle. In other words, investors should buy
companies when the second derivative improves (that is, the rate of change in the
growth rate begins improving). Say a company has a 10% earnings downgrade,
and then another 10% earnings downgrade, and then a 5% earnings downgrade;
with all else being equal, it would pay to buy around the time of the 5% earnings
downgrade.
To be clear, we expect some of the companies in our portfolio will experience
earnings downgrades as economic growth slows. However, given the yawning
gap between share prices and real-time underlying earnings, a sharp slowdown is
already at least partially priced.
Fund performance – a tough quarter for investors
Kingfish underperformed the local market in the quarter, with the gross
performance falling -12.1% and the adjusted NAV return down -12.3%. This
compares with the S&P/NZX50G index which was down -10.3%. We recognise
this is a disappointing result.
However, we're seeing more attractive opportunities emerging than we've seen in
some time.
Portfolio update – scant signs of a growth slowdown in
corporate earnings so far
We’re seeing signals across our portfolio that buck the slowdown trend. Here’s how
things are tracking across Mainfreight, Summerset, and Fisher & Paykel Healthcare.
Mainfreight shares fell during the quarter as concerns about a global economic
slowdown overshadowed the strong result it announced at the end of May. The
company is winning new customers on its superior service proposition and gaining
business from existing customers in new regions.
Mainfreight beat expectations, noting at the time of the result that year-on-year
growth continued into April and May. So we know the strong momentum from
the 6 months to March 2022 has continued. Management acknowledged the
murky outlook in May, but also had the confidence to say that, despite inflation
and recession concerns, “we remain confident of continued growth and improving
performance.”
While management is unashamedly confident in Mainfreight’s long-term prospects,
they are wary of letting investor expectations get ahead of reality.
In the Transport division, the outlook was for volumes and organic growth to see
“ongoing improvement in all regions.” We think the share price fall to recent levels
is now more reflective of a significant slowdown. It remains to be seen whether a
slowdown that justifies this pessimism will actually materialise.
We know that Mainfreight’s investment in the network and inbound enquiries from
prospective customers currently bode well. Looking back in time, our analysis
shows that, aside from the Global Financial Crisis (GFC), Mainfreight's own
execution has had more influence on its performance than the economic climate.
Even during the GFC, the New Zealand business was able to protect profits with
adept cost management, as branch managers operated like business owners to
tightly manage costs.
We think the Australian business is more mature now than it was back then and
would show similar resilience, should economic activity slow. There are now
experienced regional leaders in Europe and a strong focus on the US. In a milder
slowdown, we expect the core Transport and Warehousing businesses will still be
able to grow year-on-year.
Summerset has significantly underperformed the New Zealand Index in the year
to date as investors are concerned about the local housing market, where the
median house price is now 9% below the November peak.
The price buffer between retirement village units and local houses will help offset
the impact from a softer housing market. Retirement village units are typically
priced at a discount to local house prices. For example, in Auckland, 2-bedroom
retirement units are 30% below local house prices. That gives operators scope to
increase prices in a falling housing market. We saw this during the GFC, when
Ryman increased unit prices 4% on average while national house prices declined
7%.
The divergence between Summerset’s share price and its performance is
particularly stark. Negative sentiment has punished Summerset's valuation, with
the price-to-book ratio below 1.00 – its lowest ever. This is despite Summerset
seeing a surge in demand, with sales increasing 25% in 2021. The March 2022
quarter was its second-best ever, even as Omicron peaked in New Zealand.
Demand is supported by the “safe haven” status retirement villages attained
through the pandemic, as operators are well-versed in disease control and
prevented widespread outbreaks.
Longer-term, Summerset's growth is underpinned by an ageing population.
New Zealand's population of over 75-year-olds is forecast to increase by 40%
over the next decade – four-times the rate of overall population growth. Ryman
and Summerset’s “continuum of care” retirement village model is best placed
to support the healthcare and accommodation needs of the growing elderly
population.
While the deteriorating housing market presents a challenge to earnings, this
is more than accounted for in the price., We feel Summerset offers compelling
value, supported by a long runway for growth and excellent execution.
Fisher & Paykel Healthcare (FPH) finished the 2022 financial year below
expectations, which weighed on its share price performance.
At its Investor Day, the company announced surprise new products which
strengthen its longer-term growth runway. Two of these products, Switch and
Trace, allow anaesthesiologists to make better use of its Optiflow high flow nasal
oxygen system in this large and underpenetrated market.
The anaesthesia opportunity is estimated to be 50 million patients per year,
and a $5 billion annual sales potential. This is the same size as FPH’s hospital
respiratory support segment, which has reached around $1 billion sales annually
(and growing). The company spends over $150m annually on research and
development to continue its long-term growth trajectory.
However, the market seemed to focus short-sightedly on softer sales in the wake
of COVID. We’re excited that others in the market have given this little attention.
Of course, the opportunity to have hospitals fully utilise the large equipment base
deployed through COVID remains a high priority, and the company is bolstering
its sales force to drive greater usage.
Analyst expectations for sales in the Hospital division have been greatly
reduced after sales finished the year at a suppressed run rate. Several factors
led to weaker sales in early-2022: Omicron requires less hospital respiratory
support than earlier COVID variants, hospitals have been reducing stock from
above-average levels, seasonal flu was down in the March quarter, and elective
surgeries were slow to resume. We increased our position size during the quarter.
1
Share Price Premium to NAV (including warrant price on a pro-rated basis and using the net asset value per share, after expense, fees and tax, to four decimal places).
QUARTERLY NEWSLETTER
1 April 2022 – 30 June 2022
KFL NAV
$
1. 3 5
$
1. 5 4
Share Price
PREMIUM
1
14.0
%

as at 30 June 2022
Sam Dickie
Senior Portfolio Manager
15 July 2022
1
Warrant Price
$
0.0 1

2
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 Kingfish 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 Kingfish 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.
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(10.7%)+12.8%+14.3%
Adjusted NAV Return(12.3%)+4.4%+9.4%
Portfolio Performance
Gross Performance Return (12.1%)+6.5%+11.8%
S&P/NZX50G Index(10.3%)+1.2%+7.4%

Non-GAAP Financial Information
Kingfish 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 net return to an investor after expenses, fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock selection,
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 Kingfish Non-GAAP Financial Information Policy. A copy of the
policy is available at http://kingfish.co.nz/about-kingfish/kingfish-policies/
LISTED COMPANIES% Holding
Auckland Intl Airport8.7%
Contact Energy2.0%
Delegat Group2.9%
EBOS Group1.5%
Fisher & Paykel Healthcare15.2%
Freightways3.2%
Infratil16.9%
Mainfreight18.5%
Meridian Energy1.1%
Port of Tauranga2.4%
Pushpay Holdings1.7%
Ryman Healthcare3.8%
Summerset9.7%
The a2 Milk Company5.5%
Vista Group International4.0%
Equity Total97.1%
New Zealand dollar cash2.9%
TOTAL100.0%
PORTFOLIO HOLDINGS SUMMARY
as at 30 June 2022
COMPANY NEWS
Dividend Paid 23 June 2022
A dividend of 3.16 cents per share was paid to Kingfish shareholders on 23 June 2022 under the quarterly distribution policy. Interest in Kingfish’s
dividend reinvestment plan (DRP) remains high with 41% 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.
PERFORMANCE
as at 30 June 2022
Kingfish Limited
Private Bag 93502, Takapuna, Auckland 0740, New Zealand
Phone: +64 9 489 7094 | Fax: +64 9 489 7139
Email: enquire@kingfish.co.nz | www.kingfish.co.nz
If you would like to receive future
newsletters electronically please email
us at enquire@kingfish.co.nz
SIGNIFICANT RETURNS
IMPACTING THE PORTFOLIO
DURING THE QUARTER
FREIGHTWAYS
- 26
%
DELEGAT GROUP
- 21
%
SUMMERSET
GROUP
- 18
%
FISHER & PAYKEL
HEALTHCARE
-17
%
MAINFREIGHT
-17
%
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.