BRM - September 2024 Quarterly Newsletter

The Barramundi gross performance rose +7.0% in Q3, and the
adjusted NAV return was up +6.3%, both lagging the benchmark
index which returned +8.0%.
Softer economic data resulted in a number of central banks globally
cutting interest rates for the first time in years. This proved supportive
for equities.
In Australia, the Information Technology (+17% in A$), Real Estate
(+14%), Industrials (+9%) and Consumer Discretionary (+9%) sectors
led the market higher. Only Energy (-9%) and Utilities (-3%) finished
Q3 in the red.
There was a large dispersion of returns within sectors, driven largely by
company specific factors that emerged when reporting their financial
results during Q3.
Wisetech continues to widen the moat
around its business
Wisetech (+44% in A$), one of our largest positions, was the
standout performer for our portfolio in Q3. It delivered superb financial
results for FY24. Revenue and pre-tax profit grew close to 30%. It also
guided to strong revenue and profit growth again in FY25.
Wisetech’s Cargowise software product suite is becoming to freight-
forwarders what Microsoft 365 is to many businesses and consumers –
an indispensable tool required to function effectively. It now counts 14
of the largest 25 global freight-forwarders as customers. It is becoming
clear that these customers are outperforming those that don’t use
Cargowise. This bodes well for further customer wins in the future.
Wisetech is the clear leader in global logistics software. It also
continues to invest aggressively in broadening and improving its
product range for its customers. It spent over $360m in innovation
and product development in FY24 alone, adding to future growth
potential.
Wisetech’s shares do not trade cheaply (they rarely do). However, it has
a number of key characteristics that we look for in companies. Its scale
and its increasingly ubiquitous use across the logistics industry is a key
source of its wide moat. It provides a necessary service to its customers
and is less subject to economic cycles. It is well run by a passionate
founder who is well aligned with shareholders. Founder Richard
White and his team are focussed on long term, not short-term value
maximisation. It has plenty of scope for growth.
Improving outlook supportive for our
defensive and cyclical industrial portfolio
companies
Falling interest rates increased investor confidence that global
economic growth would improve. This buoyed the share prices of
fibre cement manufacturer James Hardie (+20%), and employment
advertising business SEEK (+19%). Both benefit from accelerating
economic growth.
Ansell (+24%) likewise does better in a rising economy. After a
pandemic-affected few years, FY24 has seen customer activity
returning to normal, leading Ansell to guide to earnings growth once
again in FY25. The market has also continued warming to Ansell’s
acquisition of a competitor’s protective equipment division. When
making acquisitions it makes intuitive sense to acquire ‘near the
bottom of the cycle’ when expectations are depressed. It’s harder to do
in practice. We support Ansell’s courage in completing this deal at this
point of the cycle.
Brambles (+36%), the largest pooled pallet provider globally, was
another industrial shareholding of ours which delivered a well-received
financial result. Its size advantage over competitors enables it to better
service its customer base. This provides it with pricing power when
re-negotiating customer contracts. This was evident in its financial
results where, despite substantial de-stocking of pallets by customers,
Brambles managed to grow earnings by 17% in the year. It is
producing strong cash flow and expects to sustain this as signalled by
an increase in its dividend payout rate and a US$500m share buyback.
Growing pains afflicted some of our smaller
portfolio positions during Q3
Audinate (-36%), Johns Lyng (-34%) and PWR Holdings (-16%) all
fell sharply after they reported their financial results.
With earlier stage, faster growing companies such as these, the market
can often have outsized positive or negative reactions to ‘good’ or
‘bad’ earnings results. This is because there is a tendency for the
market to extrapolate the most recent earnings trends. This has a
larger impact on the overall valuation of faster growing companies
compared to mature businesses if there is reversal in earnings growth –
even if that change is temporary.
In talking through the sources of investor disappointment with each
management team, we think that the earnings growth headwinds
facing each company will be resolved. As such we have bought more
shares in all three companies.
In Audinate’s case, it delivered strong growth in FY24. But it guided
to a modest decline in revenue for FY25 compared to market
expectations of another year of strong growth. This stems from
some customers over-ordering networked audio chips in FY24 as the
pandemic-related supply chain constraints eased. Once this excess
inventory is sold, Audinate expects revenue to grow strongly once
more. Given uncertainty over exactly how fast this excess inventory
will take to clear, investor caution is understandable. However, the
shift from analogue to digitally networked audio signals has a long
way to run. Audinate’s technology has become the industry standard
in networked audio. It will continue to grow and benefit from this
structural shift.
Johns Lyng remediates properties damaged by ‘insurable events’ (e.g.
weather events such as floods) on behalf of insurers. Its FY24 revenues
were impacted by a period of benign weather conditions in Australia,
leading to less weather-related repair jobs. This was compounded by
poor performance by a handful of its business units in one Australian
state. This resulted in an insurer reducing the allocation of repair jobs
to Johns Lyng. Management swiftly replaced the underperforming
business partners. The insurer has since increased it allocation of
work to Johns Lyng. While disappointing, we are pleased with
management’s alacrity in addressing this issue. Johns Lyng remains
well placed to continue taking market share and growing strongly in
Australia and the US through time.
In PWR’s case, strong revenue growth of 25% was recorded in the
year. However, it is spending a significant amount in FY25 to increase
production capacity. It is also adding meaningfully to its highly skilled
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 July 2024 – 30 September 2024
$
0.6 7
Share Price
as at 30 September 2024
QUARTERLY NEWSLETTER
BRM NAVDISCOUNT
1
$
0.7 914.8
%
Warrant Price
$
0.0 3

employee base. This is all in anticipation of winning contracts from
aerospace customers – a new avenue of growth for the company. The
costs are incurred ahead of the revenue growth and hence weighs on
near term earnings growth. These steps arguably increase the scope
for PWR to keep growing strongly in the future. As such, in our view
this additional spend is a good, rather than a bad thing!
Reporting on the effects of climate change on
Barramundi
Barramundi will soon be publishing climate-related disclosures,
helping investors understand the current and future potential impact
PERFORMANCE
as at 30 September 2024
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
(1.0%)(4.7%)+11.8%
Adjusted NAV Return +6.3%+5.4%+12.2%
Portfolio Performance
Gross Performance
Return
+7.0%+7.5%+14.9%
Benchmark Index¹+8.0%+9.6%+9.0%
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
Ansell2.1%
ANZ Banking Group2.5%
AUB Group5.1%
Audinate Group1.6%
Brambles5.1%
CAR Group5.0%
Cochlear Limited2.0%
Commonwealth Bank2.9%
Credit Corp3.7%
CSL9.8%
Domino's Pizza3.0%
Fineos Corporation Holdings1.9%
James Hardies Industries Plc3.6%
Johns Lyng Group3.7%
Macquarie Group5.7%
National Australia Bank3.3%
NEXTDC3.8%
oOh! Media2.3%
PWR Holdings1.9%
REA Group1.9%
ResMed4.6%
SEEK6.4%
Wise Tech Global8.9%
Woolworths Group1.5%
Xero Limited5.6%
Equity Total97.9%
Australian cash2.4%
New Zealand cash0.5%
Total cash2.9%
Forward foreign exchange contracts (0.8%)
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 30 September 2024
COMPANY NEWS
Dividend Paid 27 September 2024
A dividend of 1.53 cents per share was paid to Barramundi
shareholders on 27 September 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
WISETECH
+44
%
BRAMBLES
+36
%
ANSELL
+24
%
JOHNS LYNG
-34
%
AUDINATE
-36
%
of climate change on their investment. The first Barramundi Climate
Statement for the 30 June 2024 financial year will be published on the
Barramundi website (barramundi.co.nz) around the end of October.
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
11 October 2024