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About Barramundi |
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Australian Small Companies
The Australian smaller company market is a very attractive investment destination. Market breadth - the Australian market presents a number of advantages for a focused smaller company stock-picker. The market is rich in opportunities both in terms of the number of listed companies and in the broad array of industries that these companies operate in. The breadth of opportunity often means that companies are poorly researched and not well understood, which can result in high quality companies trading below their inherent value.
A larger population base – Australia’s larger population and internal market also makes Australia an attractive investment destination. The growth path for smaller Australian companies is often smoother than that for New Zealand firms – there are as many potential customers living in Sydney as there are in New Zealand. This provides a broader growth opportunity for companies before they have to consider the challenging step of exporting their business model.
Improved portfolio characteristics – adding an exposure to high quality, smaller companies to a portfolio of other Australian and New Zealand shares can enhance returns and lower overall portfolio risk.
Active management is important – whilst the smaller company sector in Australia is attractive it is important to be selective in choosing individual companies. Not all companies are created equal and intensive research is required to seek out superior long-term investment opportunities.
Fisher Funds
Robust process with proven success – Fisher Funds’ investment process relies upon intensive research and hands-on company analysis. The quality of Fisher Funds investment process has been proven through eight years of index and industry out-performance in New Zealand. Fisher Funds was named top New Zealand Equity Manager by Fundsource in 2002, 2003 and 2007, also Morningstar Fund Manager of the Year – Domestic Equities in 2004, 2005 and 2006. Its research intensive, award-winning investment process is applied to the management of Barramundi.
Top-rated, experienced team – there is more than 70 years of combined investment experience in the Fisher Funds team. Carmel Fisher is the Managing Director and Frank Jasper is the dedicated specialist Australian portfolio manager who works with well-known and highly rated analyst Terry Tolich. They all work closely together in applying Fisher Funds’ successful investment approach in Australia.
Barramundi
Access, research and communication – Barramundi gives New Zealand investors targeted access to smaller Australian companies. These companies are often overlooked by investors as they are not familiar with them or there is limited research available.
Long-term investment focus – Barramundi is a closed-end fund structured as a limited liability company. The closed-end structure enables the company to have a genuine long-term investment horizon where the Manager can take a long-term perspective on investments, not having to worry that they may have to be sold to fund investor withdrawals.
Diversification and simplicity – Barramundi provides diversification by giving investors exposure to a portfolio of smaller Australian stocks wrapped up in one listed investment vehicle.
Managers’ incentives aligned with investors – the fee structure rewards superior performance and penalises inferior performance.
History
Barramundi Limited listed on the New Zealand Stock Exchange on 26 October 2006 following an initial public offering that raised $100.0 million. Participants in the initial public offering also subscribed for Barramundi Limited warrants. These ‘A’ warrants expired on 26 October 2009.
On 27 October 2009 Barramundi Limited issued new ‘B’ warrants which traded independently to the shares on the New Zealand Stock Exchange under ticker code BRMWB. These ‘B’ warrants expired on 27 October 2011. Investment Objectives
The key investment objectives of Barramundi are to:
The investment philosophy of the Manager, Fisher Funds, is summarised by the following broad principles:
Authorised Investments
The Manager is authorised to undertake investments on behalf of the Company in accordance with the Management Agreement. The Manager is authorised to invest in the following on behalf of the Company:
Borrowings
The Company will procure a debt facility from a registered bank to a maximum value of 20% of the Gross Asset Value of the Company at the time of draw down. The Manager has the authority to draw on this facility with the prior written approval of the Board.
The Manager may use the borrowings where it believes they will enhance the management and/or return of the portfolio.
Acquisition of Own Shares or Warrants
The Company may acquire its own shares or warrants or provide financial assistance in connection with the purchase of its own shares or warrants, with shareholder approval by ordinary resolution and without shareholder approval if effected pro-rata to existing holders, or in certain other limited circumstances. The Company may also elect to acquire its own shares for distribution through any dividend reinvestment plan.
Capital Management
The Board will from time to time consider buying shares or warrants in Barramundi if in the opinion of the Board the value of the shares and warrants do not appropriately reflect the underlying asset value. Any decision by the Board to acquire Barramundi shares or warrants will also involve consideration of other investment alternatives and whether any acquisition is in the best interest of the remaining shareholders.
Dividend Policy
As an investment company that owns growth companies, Barramundi Limited (‘Barramundi’ or the ‘Company’) can be expected to generate greater long-term value for shareholders through capital growth than through dividend income. However, the Board recognises the importance of dividends to many shareholders and announced a new dividend policy on 21 August 2009.
Under the long-term distribution policy Barramundi will pay out to shareholders 2% per quarter of its average Net Asset Value (NAV). The payments will be made in March, June, September and December.
To meet the payment, Barramundi will firstly utilise income from its investments and realised capital gains. If these are insufficient to cover the targeted payout Barramundi may pay from its capital base.
A dividend from capital should not be confused with “yield” or “income” and shareholders should not draw any conclusion about the Company’s investment performance from the amount of dividends or from the terms of this policy.
As a Portfolio Investment Entity (PIE), distributions will be tax-free to NZ Resident Barramundi shareholders. Investors in Barramundi should refer to ‘PIE regime’ under the FAQ’s section of the website or their financial adviser for further information.
The Directors intend that imputation credits will be attached to dividends to the fullest extent possible. To the extent that the dividend is not imputed, the dividend should be treated as excluded income for New Zealand resident investors.
The Board may change or terminate this dividend policy at any time without prior notice to shareholders. Any such change or termination may have an adverse effect on the market price for the Company’s shares.
Portfolio Holdings Summary as at 30 September 2011:
For our top five holdings, please refer to the latest NAV under market announcements.
Portfolio StocksThe following is a brief introduction to each of the portfolio companies, with a description of why we believe they deserve a position in the Barramundi portfolio.
AustbrokersWhat does it do?
Austbrokers operates a general insurance broking network focused on the small to medium sized business market. Why do we own it?
We like Austbrokers owner-driver business model where member firms are strongly incentivised to grow. We believe insurance broking is an industry ripe for consolidation allowing Austbrokers to be an aggregator of smaller broking firms. We recognise that Austbrokers is well positioned to benefit from higher insurance premiums following a period where Australia has experienced a number of natural disasters. Bravura SolutionsWhat does it do?
Bravura Solutions is a leading supplier of wealth management software and services for superannuation and pension funds, life insurance providers, portfolio administrators, transfer agencies and the STP financial messaging industries. Why do we own it?
Despite the GFC slowing down financial services expenditure plans, demand for wealth management products and the computer systems to administer these is still growing. Bravura Solutions has market leading software in the key areas of wrap platforms and registry systems. We like Bravura’s technology, the ‘lockin’ they get with key clients, and the global market they address with clients in Australia, the UK, Europe, Asia and South Africa. Centrebet InternationalWhat does it do?
Centrebet is an online wagering (sports and horse betting) and gaming business. It is an international business with dominant market position in Australia and Scandinavia, and a growing presence in Europe. Why do we own it?
Centrebet participates in the high growth online wagering and gaming industry that we believe will continue to take market share from traditional land based providers of these services. Centrebet is well positioned to cross sell more gaming products to their wagering customer base further driving sales. Opportunity exists for Centrebet to enter new geographic and product markets using their core strengths in marketing and risk management. Credit Corp GroupWhat does it do?
Credit Corp is a specialist purchaser and collection agent of default debt ledgers. They service financial institutions and other credit providers. Why do we own it?
Despite a tough market following the GFC, we have maintained our investment in Credit Corp due to its niche leading market position and business strategy which is differentiated from their main competitors. Since the challenges of the GFC, the business has rejuvenated, driving diversification of cash flows and growth over the medium term. CSGWhat does it do? Why do we own it? Dart EnergyWhat does it do?
Dart Energy is a company focused on the development of coal bed methane and shale gas in Eastern Australia, Asia and Europe. Why do we own it?
We inherited a position in Dart Energy as a result of the successful investment in, and subsequent takeover of, Arrow Energy. Dart now owns Arrow’s early stage CSM assets and has built a portfolio of opportunities around the globe since listing. We are attracted to the diversified nature of Dart’s asset, its strategy to drive near-term earnings and cash flow and the calibre of its management team and Board. DWS Advanced Business SolutionsWhat does it do?
DWS Advanced Business Solutions is a leading IT services company. Why do we own it?
DWS has an enviable record of growth having improved revenues each year over its 19-year tenure. Through their unique business model and strong leadership DWS is set to repeat this strong growth in years to come. This business generates strong fee cash flow, has no debt and pays an attractive dividend yield. McMillan ShakespeareWhat does it do?
McMillan Shakespeare provides bureau style services in salary packaging administration and fleet management. Why do we own it?
We like McMillan Shakespeare’s market leadership position. We believe this will strengthen over time as the benefits of scale support a “winner takes most” outcome. This also helps establish high barriers to entry in this industry. To fuel future growth McMillan Shakespeare will take advantage of the trend to outsource packaging services and drive service uptake within the existing client base. McPherson'sWhat does it do?
McPherson’s Consumer Products is the leading marketer of non-electrical houseware products in Australasia, with operations in Australia, New Zealand and Asia. Why do we own it?
We believe that McPherson’s has a differential market position in the provision of housewares and personal care products to the Australasian retail market. This includes ownership of well recognised brands like Wilshire and Manicare. With the ability to generate consistent GDP plus sales growth, a sound balance sheet and a very reasonable valuation we expect McPhersons to deliver healthy long-term, low risk, returns to shareholders. NanosonicsWhat does it do?
Nanosonics owns intellectual property and has developed applications for point of use disinfection and sterilisation technologies. These technologies have a number of core benefits compared to existing approaches and can be applied to a variety of markets. The company’s first product to market, the Trophon EPR, is revolutionising disinfection in the sonograph market. Why do we own it?
Nanosonics has positioned itself well as hospitals around the world are increasingly focussed on infection prevention and increased disinfection requirements. With a strong patent portfolio and the first product to market, the Trophon EPR, we see Nanosonics well positioned for future strong earnings growth. Noni-BWhat does it do?
Noni B is a specialist retailer focusing on the 40+ year-old woman’s fashion segment. Why do we own it?
We believe Noni B will post strong earnings growth over the next three to five years as sales rebound from the GFC, and it continues a measured rollout of new stores. The pricing on this stock is very reasonable with a price earnings ratio of 7.7x on broker consensus forecasts. PharmaxisWhat does it do?
Pharmaxis Ltd is an Australian specialty integrated pharmaceutical company focused on the development of new products for the diagnosis and treatment of chronic respiratory and immune disorders. Why do we own it?
We own Pharmaxis as we believe the quality of their intellectual property, primarily Aridol and Bronchitol, will drive long-term earnings growth for the company. ReckonWhat does it do?
Reckon is a software company specialising in the development, marketing and distribution of accounting software. These products range from personal financial services, to ledger and business management solutions for smaller businesses, through to accounting firm practice management software. Why do we own it?
In our view Reckon has a key competitive advantage through its relationship with major US software developer Intuit. This provides Reckon with access to a product stream spending over US$200 million per annum on software development. As a result Reckon has access to top quality products for resale to its Australasian client base. Retail Food GroupWhat does it do?
RFG design develops and manages retail franchise systems and is the intellectual property owner and licensor of the Donut King, BGB’s Cafes, Big Dads Pies, Brumby’s Bakeries and Michel’s Patisseries franchise systems. Why do we own it?
RFG has demonstrated a strong ability to take fledging franchised food chains and through its management expertise scale these concepts up to grow profitability and value. We see considerable opportunity for Retail Food Group’s entrepreneurial management team to continue doing this over time. The Reject ShopWhat does it do?
The Reject Shop is a leading bargain variety retailer in Australia. The company now numbers over 200 stores in Victoria, New South Wales, Queensland, Tasmania and Western Australia. The Reject Shop's typical customer is value oriented and appreciates the convenience of stores located close to where they live and work. This is a company that Barramundi has invested in previously that was sold on the basis of valuation as its share price had more than doubled.
Why do we own it?
We believe The Reject Shop is a well managed retailer with the ability to grow to over 400 stores in a market segment that we see as attractive. From a timing point of view we have been given the opportunity to reinvest in The Reject Shop due to a number of one off events, primarily relating to the flooding of the company's Queensland distribution centre, that resulted in the company's share price falling in half. It is this, in our view, overly pessimistic take by the market on The Reject Shops medium term prospects that has given us the chance to bag a bargain for investors in Barramundi.
Tox Free SolutionsWhat does it do?
ToxFree Solutions is a provider of waste management and environmental services based in Western Australia. The company specialises in the treatment of industrial and hazardous waste, the remediation of contaminated soil and equipment and the provision of industrial services. Why do we own it?
ToxFree has a strong market position in the rapidly growing Western Australian economy. They have established a strong foothold that is difficult to compete with given green-fields waste operations are notoriously hard to start under current environmental regulations Treasury GroupWhat does it do?
Treasury Group is a specialist service provider and investor in boutique fund management businesses. The firm currently has interest in six fund managers with management rights to the Listed Investment Company, Premier Investors. Why do we own it?
Key to Treasury Group’s proposition is the synthesis between their experienced executive team and the opportunity provided by highly motivated boutique fund managers in the secular growth wealth management industry. Universal Biosensors IncWhat does it do?
A specialist medical diagnostics company focused on the development, manufacture and commercialisation of a range of in vitro diagnostic tests for point-of-care use. Universal Biosensors has a relationship with Johnson and Johnson for the global roll out of its unique blood glucose strip monitoring technology. Why do we own it?
Strong intellectual property is the underpinning of our investment thesis in this company. With its blood glucose strip Universal Biosensors has demonstrated leading edge technology and the ability to negotiate and commercialise its IP with a major multinational. We expect further similar deals as UBI rolls out applications for indications other than blood glucose. WHK GroupWhat does it do?
WHK Group owns a network of mid-market accountancy firms across Australia and New Zealand. In addition to traditional accounting services WHK offers clients a full range of financial services through its network including financial planning, lending services and provision of risk insurance. Why do we own it?
The outlook for the firm is driven by organic growth in both financial services and accountancy, ongoing acquisition of accounting practices and through the cross selling of new services to existing and newly acquired clients.
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