BRM – March 2023 Quarterly Newsletter

Along with share markets around the world, the benchmark ASX200 index (70%
hedged into NZ$) has started the year positively, rising +3.6% in Q1. Barramundi
pleasingly outperformed the benchmark index, with the gross performance rising
+8.3% in the period.
The unexpectedly speedy re-opening of China’s economy post-COVID buoyed
commodity markets, supporting a broad increase in mining company share prices
in Q1 (a large constituent of the Australian share market). In addition, there have
been further signs that the post-pandemic increase in inflation may have reached
its zenith and is beginning to subside. Australia’s inflation rate fell from a peak of
8.4% in December 2022 to 6.8% by March 2023. Coupled with turmoil in parts of
the global banking sector (sparked by rapidly rising interest rates), the market has
sharply reduced its expectations about how much further central banks can go in
hiking interest rates this cycle. This has seen interest rates fall from recent highs. The
Australian 10yr Government bond yield fell from 4.05% to 3.3% over Q1.
Resilient Financial Results in February
This supportive backdrop allied with resilient earnings results from a number of
our portfolio companies in February, drove a broad-based rally across our portfolio
during Q1.
oOH!media’s (+28.8% in A$) profitability has rebounded strongly over the last
year. It has benefitted from the recovery of out-of-home advertising audiences
as the impact of COVID-related restrictions fade. oOh!media’s key Road, Street
Furniture and Retail advertising assets delivered revenue for the 2022 year above
pre-COVID levels. Given oOh!media has a high proportion of fixed costs (mainly
site rentals for its advertising billboards), a large proportion of the 18% increase in
revenue for 2022 went straight through to underlying earnings which more than
quadrupled from their depressed 2021 level.
Cochlear (+16.7) similarly noted a rebound in new cochlear implants across multiple
geographies in recent months. This was helped by improving staff absenteeism
and falling COVID hospitalisations (both of which had negatively impacted surgery
capacity). In addition to this, Cochlear released its next generation of cochlear
units. This product release is expected to underpin further growth in new cochlear
installations as well as upgrades to the newer unit across the existing customer base
in 2023.
Our faster growing technology and internet companies benefitted from falling
interest rates during Q1. This is because the bulk of their cash flows are realised
many years into the future, so changing interest rates can have an amplified effect
on the discounted value of those cash flows. These companies also delivered
resilient earnings results in February.
It was notable that they have been largely successful in increasing the prices of
their services, offsetting inflationary pressures. We’ve also seen these management
teams focus strongly on cost discipline, which has also translated into improved
profitability. A mixture of these factors was evident in financial results and trading
updates for Wisetech (+28.5%), Xero (+27.3%) and online classified advertising
businesses REA Group (+25.4%), SEEK (+15.3) and Carsales (+8.9%).
That said, not all of our companies have been successful in combating rising cost
pressures in recent months.
Pizza franchise owner Domino’s (-23.7%) was caught by surprise by the full brunt
of inflationary cost pressures across food, energy and labour. Part of its efforts to
cover these cost increases, and protect franchisee profitability, included a series of
price and menu adjustments. Unfortunately, with consumers already facing ‘cost
of living’ pressures, the eventual price level saw order volumes slip, particularly for
delivery, which had previously been boosted by COVID-related orders. This adversely
impacted Domino’s sales and profit margins in its recently released financial results.
These results are a function of a very unusual operating environment. The
management team are aware of this and addressing their errors around pricing, and
we think it will resolve this weak performance in time.
Australian Banks Reap the Benefit of
‘Unquestionably Strong’ Banking Regulation
As a function of inadequately managing the sharply rising interest rate environment
of the last year, coupled with a loss of confidence from their customers, two US
banks were seized by regulators during Q1. This led to increased volatility and share
price weakness across global banks and financials. A key US bank index of share
prices fell -17.3% in the period.
Partly reflecting this negative sentiment towards financials, the share prices of our
four major Australian bank shareholdings fell in Q1. However, they outperformed
many global peers. CBA (-2.1%), ANZ (-3.0%), Westpac (-7.2%) and NAB’s
(-7.8%) share prices were negatively impacted by the release of CBA’s financial
result in February, in which it intimated that its net interest margin (a sign of
profitability) may have peaked in October 2022. Investors seemed to conclude
that future Australian bank profit growth will be harder to achieve in a softening
economic environment. This was a key driver of some of the weakness in the
Australian bank share prices in Q1 rather than because of any meaningful concerns
on behalf of investors about the companies themselves.
The major Australian banks have been viewed as a relatively safe haven compared
to international banks – hence helping their outperformance compared to peers.
This is because they have benefitted from having strong oversight from APRA, the
bank regulator in Australia. In the years following the 2008 financial crisis APRA
meaningfully tightened bank regulation in Australia. It required Australian banks
to hold significantly more capital buffers than international peers. ‘Unquestionably
strong’ was its mantra. APRA required the banks to have significant liquidity buffers.
The banks also had to effectively hedge their interest rate risk, protecting them from
being caught out by rapidly rising interest rates. APRA’s regulation has also applied
to all banks – there are no exemptions or different rules for large or small banks. In
addition to this, the Australian banks also benefit from having very broad, stable
deposit bases across millions of customers. Again, this provides a good bulwark
against a potential loss of confidence across their customer bases.
Our Portfolio Companies Have Done Well
Navigating a Complex Economic Environment
Management teams have typically struck a cautious tone when discussing their
earnings outlook for the rest of 2023.
Cost pressures will continue to weigh on profitability for a while. Consumers have
yet to feel the full impact of central bank interest rate hikes in recent months.
Many Australian households roll off (low) fixed rate mortgages onto meaningfully
higher mortgage rates over the rest of 2023. This is likely to impact spending and
consumption. How much, remains to be seen.
On the positive side, employment levels remain close to record highs. Rising inbound
migration into Australia and rebounding international tourism will support the
domestic economy. And the rebound in China’s economic activity is also likely to
help global growth.
Overall, we think our portfolio companies remain well positioned to navigate this
environment. Many of our companies provide goods and services that businesses
or consumers need rather than because they are discretionary items. Run by high
quality management teams, we think they are well placed to keep growing their
earnings over coming years as the remaining vestiges of pandemic related disruption
are wrung out of the global economy.
1
¹ Share price discount to NAV (including warrant price on a pro-rated basis and using the net asset value per share, after expenses, fees and tax, to four decimal places).
1 January 2023 – 31 March 2023
$
0.6 9
Share Price
Warrant Price
$
0.0 0
as at 31 March 2023
QUARTERLY NEWSLETTER
BRM NAVDISCOUNT
1
$
0.6 90.04
%
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
14 April 2023

PERFORMANCE
as at 31 March 2023
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
(0.9%)+21.4%+14.5%
Adjusted NAV Return +7.6%+18.5%+11.5%
Portfolio Performance
Gross Performance
Return
+8.3%+21.1%+14.5%
Benchmark Index¹+3.6%+17.4%+9.1%
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 percentage change in the adjusted NAV value,
»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% Holdings
Ansell2.1%
ANZ Banking Group2.1%
AUB Group5.3%
Audinate Group2.0%
Brambles4.4%
Carsales5.4%
Cochlear2.1%
Commonwealth Bank4.5%
Credit Corp3.5%
CSL9.3%
Domino's Pizza4.2%
Fineos Corporation Holdings1.4%
James Hardie Industries2.8%
Macquarie Group4.0%
Nanosonics2.1%
National Australia Bank2.9%
NEXTDC4.0%
Ooh! Media3.3%
PWR Holdings2.0%
REA Group5.1%
ResMed4.0%
SEEK4.6%
Westpac2.5%
WiseTech Global6.9%
Woolworths Group2.8%
Xero Limited4.4%
Equity Total97.7%
Australian cash0.6%
New Zealand cash0.4%
Total cash1.0%
Forward foreign exchange contracts1.3%
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 March 2023
COMPANY NEWS
Dividend Paid 24 March 2023
A dividend of 1.36 cents per share was paid to Barramundi
shareholders on 24 March 2023, 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
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. If shareholders have not previously self-certified,
they will receive 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
OOH! MEDIA
+29
%
WISETECH
+28
%
XERO
+27
%
REA GROUP
+25
%
DOMINO’S
-24
%