BRM – June 2022 Quarterly Newsletter

The fall in global share markets intensified in Q2 of 2022. Barramundi’s gross
performance was down -14.2%, while the adjusted NAV return was down
-14.1%. This compared to the benchmark ASX index which fell -11.2%.
Inflation concerns were once again a key factor in this sell-off. This led the
Reserve Bank of Australia (RBA) to step up its tightening of monetary policy. The
RBA increased interest rates by 0.5% in early June and more are on the way.
This propelled the ten year Australian Government bond rate to a high of 4.2%
in June (from 2.84% in March).
This precipitated a sharp sell-off in share prices. Investors feared that this sharp
increase in interest rates will crimp economic growth and potentially lead to an
economic recession.
Our investments in fast growing software providers Fineos (-38.6% in A$),
Wisetech (-25.9%) and Xero (-25.1%) were hit hard by these sharply rising
interest rates. There wasn’t negative company specific news driving their
performance. The increase in interest rates was, however, a key contributor.
Because these are fast growing businesses, the majority of their cash flows will
be realised years into the future. Rising interest rates have an amplified effect
on the discounted value of these longer dated cash flows.
Our financials caught the recessionary flu, with ANZ (-18%), Macquarie
(-17.5%), Westpac (-17.5%), CBA (-14.6%) and NAB (-13.3%) also falling
sharply. This was despite the banks delivering credible earnings results in the
period. Macquarie posted an all-time high profit when it released its full year
results in May.
In spite of all this pessimism, we are seeing some positive signs that reinforce
our optimistic view about the medium-term future.
Great investment opportunities
are presenting themselves – for
patient investors
Share markets tend to be forward looking. The broad sell-off in share prices
that we are observing today, is reflective of the expectation that hard economic
times lie ahead. The market is applying this assessment to all companies.
But not all companies will be affected in the same way by these economic
woes. And herein lies the opportunity for active investors like us.
Sales of companies providing essential products or services to their customers
for example are likely to be less impacted by those that sell discretionary
products. If, in addition to this, these companies have strong durable
competitive positions in their industries, all the better. This gives them pricing
power and an ability to combat the ravages of inflation.
Encouragingly, we have seen early signs in Q2 that the market is starting to
appreciate these differences between businesses.
Our largest shareholding, in plasma products manufacturer CSL, is a case
in point. During the second quarter, CSL’s collection of plasma (impacted
during the COVID pandemic) showed signs of improving. The demand for
the company’s products, critical to treating conditions such as haemophilia,
remains robust irrespective of the economic environment. Its outlook is sound.
The market recognised this distinction in June, and CSL rose +0.3% over Q2,
strongly outperforming the ASX 200.
Brambles (+8.1% in Q2), the global leader in providing pallets to help
companies transport their goods around the world, is a second example. In
a trading update Brambles noted that it was increasing prices and applying
transport surcharges for its customers in order to offset rising costs. It has
consequently upgraded its profitability guidance for the year.
As the largest pooling pallet provider globally, Brambles has the scale (and
economic muscle) to enforce these terms on its customers and protect its
profits. The market rewarded it for this characteristic during the second quarter.
As an investment team we have been scouring through listed companies that
we think are high quality, and whose share prices we think have been unduly
punished in this environment. Businesses whose potential over the next 3-5
years is being underestimated by the market because it is so focussed on how
they may be impacted by this near-term uncertainty.
Given our portfolio itself is comprised of good quality businesses, we have
unsurprisingly found a number of these opportunities within our existing
portfolio companies. Over the last six months we’ve added to the likes of AUB
Group, Domino’s Pizza, Credit Corp, oOH!Media, REA Group and CSL.
We also added a new company (Cochlear) to the portfolio which we wrote
about in the March update.
We added a second new company to the portfolio in June, fibre cement
manufacturer James Hardie.
James Hardie – A high quality
business on sale
James Hardie is the global leading manufacturer of fibre cement planks, which
are used to clad the outside of timber framed homes. It invented the fibre
cement product in the 1980s and took this technology to the US. Today, fibre
cement makes up 20% of the cladding market in America. James Hardie has a
whopping 90% share of this category. It is also dominant in Australia.
James Hardie benefits from the size (scale) of its manufacturing facilities. And
its growth runway is long. Fibre cement is likely to continue displacing other
siding materials such as vinyl, for years to come.
James Hardie has been on our investment radar screen for ages. By June, fears
that rising interest rates in the US will result in a recession and a downturn in
the housing market had seen James Hardie’s share price falling over 40% since
the start of the year.
We used this opportunity to add James Hardie to our portfolio. Its near-term
earnings are likely to be impacted by the challenging outlook. This may weigh
on its share price for a while yet. But looking out 3-5-7 years from now, we
think its earnings will likely grow strongly. We think we will be well rewarded
over that longer-term time frame by buying the shares today.
Positioning the portfolio to spring
back strongly when markets
recover
We are in the midst of a broad-based bear market in equities at the moment.
Our portfolio companies are well placed to weather this storm and emerge
stronger out the other side. The broad-based nature of this sell-off is also
presenting us with some attractive investment opportunities.
We have been re-positioning our investments within our portfolio. We’ve been
selling down some of our more fairly priced stocks such as Sonic Healthcare or
the Australian banks. We’ve added to some of our other existing positions and
some new companies (Cochlear and James Hardie) at attractive prices.
We think these changes position our portfolio well to rebound strongly when
the bear market does end.
1
¹ Share price premium 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 April 2022 – 30 June 2022
$
0.7 7
Share Price
Warrant Price
$
0.0 3
as at 30 June 2022
QUARTERLY NEWSLETTER
BRM NAVPREMIUM
1
$
0.6 422.1
%
Robbie Urquhart
Senior Portfolio Manager
Fisher Funds Management Limited
15 July 2022

PERFORMANCE
as at 30 June 2022
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder
Return
(10.1%)+19.5%+16.8%
Adjusted NAV Return (14.1%)+8.5%+10.6%
Portfolio Performance
Gross Performance
Return
(14.2%)+10.8%+13.2%
Benchmark Index¹(11.2%)+4.3%+7.5%
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% Holdings
Ansell3.2%
ANZ Banking Group2.4%
AUB Group4.9%
Audinate Group2.1%
Brambles3.9%
Carsales6.6%
Cochlear2.3%
Commonwealth Bank5.1%
Credit Corp3.3%
CSL10.3%
Domino's Pizza3.1%
Fineos Corporation Holdings1.8%
James Hardie Industries2.4%
Macquarie Group2.7%
Nanosonics2.6%
National Australia Bank3.4%
NEXTDC4.4%
Ooh!Media2.9%
PWR Holdings1.8%
REA Group4.1%
ResMed4.8%
SEEK4.4%
Westpac2.6%
Wise Tech Global5.7%
Woolworths Group3.5%
Xero Limited4.2%
Equity Total98.5%
Australian cash1.2%
New Zealand cash0.3%
Total cash1.5%
Centrebet Rights0.0%
Forward foreign exchange contracts0.0%
Total 100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 30 June 2022
COMPANY NEWS
Dividend Paid 23 June 2022
A dividend of 1.50 cents per share was paid to Barramundi
shareholders on 23 June 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
-39
%
CREDIT CORP
GROUP
-33
%
PWR HOLDINGS
-33
%
SEEK
-30
%
WISETECH
-26
%