BRM – March 2024 Quarterly Newsletter

Robust earnings growth from our technology companies, and a
resilient global economy underpinned the performance of the
Barramundi portfolio which produced gross performance of +8.6%
in Q1. The Adjusted NAV return for the quarter was +7.6%. This
compares to the benchmark index which rose 6.0%.
Devoid of macro-economic shocks, Q1 saw further stabilisation
of macro-economic indicators. The Australian 10yr Government
bond yield ended March at 3.96%, in line with where it started the
year. The March reading pointed to a 3.7% unemployment rate in
Australia – relatively well contained. Unsurprisingly the Reserve Bank
of Australia (RBA) left interest rates unchanged at 4.35% with the
debate shifting squarely to the timing of the first rate cut rather than
‘whether’ the RBA will increase interest rates again this cycle.
Against this stable backdrop, earnings reported by companies were
the predominant driver of share prices in Q1. A small handful of
our portfolio companies including Domino’s (-25% in A$ in Q1) and
Nanosonics (-38%) fell on disappointing earnings updates. This was
more than offset by strong earnings growth and positive outlooks
from a number of our technology and internet related businesses.
These companies are well positioned to benefit from the continued
growth in demand for software solutions and the increased adoption
of artificial intelligence (AI) by businesses globally.
We have consequently increased our weighting in companies such as
Wisetech (+25%) and Xero (+19%).
The stable economic environment also supported our bank
shareholdings with ANZ (+13%), NAB (+13%) and CBA (+10%),
with all rising strongly in the period. The banks are benefitting from
a favourable interest rate backdrop, coupled with a benign economic
environment which is keeping bad debts in check.
A tough period for Domino’s and
Nanosonics
Our portfolio laggards were impacted by company rather than
market specific factors. The respective management teams are
working hard to address this weak performance.
Nanosonics reported 1H24 revenues that fell -4% compared to the
prior corresponding period. This was related to lower-than-expected
Trophon unit replacements in its key North American market. This
slowdown is attributed to ongoing capital budgetary pressures
in the US hospital system. This led to hospitals deferring medical
equipment purchases. Encouragingly, Nanosonics saw some of those
customers replace their units in January. Management nevertheless
remains cautious on seeing a full recovery in the run rate of Trophon
replacements in the near term.
Domino’s poor earnings result was a consequence of soft trading
conditions in particularly two key markets for the company, Japan,
and France. The weakness of the Japanese division was put down
to poor execution by the Domino’s team. In talking to management,
we have taken some comfort from the steps they’ve taken to
remediate this. We expect better performance from this division
in the next 12 months. Weakness in the French division reflects a
challenging and competitive operating environment for fast food
operators, exacerbated by local challenges with the company’s French
management team. Domino’s has taken steps to address these
shortcomings, albeit any meaningful recovery is likely to take time.
We are spending time with Domino’s European management team in
May to explore these challenges with them in more depth.
Domino’s has been successful at prosecuting its ‘high volume, great
value’ franchised growth strategy in multiple countries over many
years. Indeed, the ANZ and German divisions have registered strong
growth in same store sales in recent months. Successfully addressing
the operational challenges in both Japan and France could drive
meaningful longer-term earnings upside for the company.
Robust earnings growth evidence of the
wide economic moats underpinning our
tech investments
Our technology and internet investments had a particularly pleasing
Q1.
Wisetech’s revenue grew 32% in 1H24. This reflects the increased
use of its core Cargowise software platform amongst its core
freight forwarder customer base. In signs that its economic moat
continues to widen, Wisetech signed three more customers up to
global rollouts of Cargowise including with another top 25 freight
forwarder, Sinotrans. Wisetech now counts 13 of the top 25 global
freight forwarders as customers. Wisetech highlighted how these
companies are performing substantially better than peers that do not
use its software. This bodes well for additional customer contracts in
the future.
Xero held its (well received) inaugural investor day a year after
CEO Sukhinder Singh Cassidy began with the company. Xero has
sharpened its focus as an organisation. It is targeting three key
products (core accounting, payments, and payroll solutions) in three
key growth markets (US, UK and Australia) for businesses with 1-20
employees. It is more confident in investing in the US market given
the substantial progress in product development that has been
achieved in a short space of time under Diya Jolly, Xero’s new head
of product. Xero has also begun integrating AI based tools into its
product suite in the form of JAX (Just Ask Xero). JAX is expected
to significantly improve productivity for customers when it is
commercially released after its testing phase.
NextDC’s (+30%) share price benefitted from the rapid rise in
demand for data centre capacity as AI functionality continues to be
developed for businesses. Reflecting this, in the last year NextDC
has signed additional deals with leading cloud computing platforms.
It grew its contract book by +76%. This has helped the company
deliver strong revenue growth of +31% in 1H24.
Our internet classified advertising investments in CAR Group (+17%)
and REA Group (+3%) also performed well as they delivered
solid earnings growth. This was aided by strong price increases
(reflective of their broad economic moats) and good cost control
by the management teams. Employment advertising company
SEEK (-6%) also delivered a credible result, although near term
concerns about rising unemployment weighed on its share price
performance. Pleasingly, SEEK completed a major unification of its
underlying software platform across its ANZ and Asian divisions
ahead of time and on budget. This increases its flexibility to speedily
roll out innovations developed in one geographic market into other
jurisdictions in which it is present. This bodes well for future growth.
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 2024 – 31 March 2024
$
0.7 3
Share Price
as at 31 March 2024
QUARTERLY NEWSLETTER
BRM NAVDISCOUNT
1
$
0.8 06.0
%
Warrant Price
$
0.0 7

Portfolio changes
During Q1 we increased our weightings in Wisetech as we’ve seen
further evidence of the economic moat widening for the company.
We also increased our weighting in Xero as the new management
team looks increasingly settled and focussed on delivering the next
leg of growth for the company.
We have trimmed our weightings in REA, SEEK, NextDC and
Audinate on valuation grounds and also reduced our weighting in
Resmed following its share price rebound. We have increased our
PERFORMANCE
as at 31 March 2024
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
+3.8%(0.3%)+16.5%
Adjusted NAV Return +7.6%+9.9%+14.6%
Portfolio Performance
Gross Performance
Return
+8.6%+12.3%+17.4%
Benchmark Index¹+6.0%+10.2%+9.9%
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
barramundi.co.nz/about-barramundi/barramundi-policies.
Company% Holdings
Ansell1.9%
ANZ Banking Group2.4%
AUB Group4.8%
Audinate Group0.9%
Brambles4.1%
CAR Group5.2%
Commonwealth Bank4.7%
Credit Corp4.0%
CSL10.4%
Domino's Pizza3.8%
Fineos Corporation Holdings2.3%
James Hardies Industries Plc3.2%
Johns Lyng Group3.2%
Macquarie Group4.9%
Nanosonics1.4%
National Australia Bank3.1%
NEXTDC3.9%
oOh! Media3.2%
PWR Holdings2.1%
REA Group2.9%
ResMed4.9%
SEEK4.3%
WiseTech Global8.0%
Woolworths Group1.5%
Xero Limited5.0%
Equity Total96.1%
Australian cash4.5%
New Zealand cash0.4%
Total cash4.9%
Forward foreign exchange contracts (1.0%)
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 March 2024
COMPANY NEWS
Dividend Paid 28 March 2024
A dividend of 1.45 cents per share was paid to Barramundi
shareholders on 28 March 2024, 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
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN AUSTRALIAN DOLLARS
NEXTDC
+30
%
AUDINATE
GROUP
+29
%
WISETECH
+25
%
DOMINO’S
PIZZA
-25
%
NANOSONICS
-38
%
weighting in Johns Lyng and Ansell also on valuation grounds. We
note that in Ansell’s case, there are increasing signs that the worst of
the pandemic-related earnings disruption is now behind it.
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
12 April 2024