NAC Investment Report NTA April 2022

Market Insight

The month of April saw the NAC Investment Portfolio decrease by -1.74%, underperforming both the benchmark S&P/ASX 300 Industrials Accumulation Index (XKIAI) which increased by +0.29% and its smaller counterpart the S&P/ ASX Small Ordinaries Accumulation Index which decreased by -1.50%. This brings portfolio performance since inception to +12.96% p.a., outperforming the benchmark index which has returned +7.89% p.a. over the same time period. April was again a frustrating month from a contribution perspective with the two main detractors being (ASX: UBN) and Gentrack Group (ASX: GTK). In the case of GTK, there was no news over the course of the month, and we expect a solid half year result at the end of May. Although UBN announced a customer loss, in our view their trading update was not overly negative. Clearly, both investments have been caught up in the wider tech meltdown which has seen many “high quality” businesses fall by up to 40-75% in recent months. We firmly believe that in the case of UBN and GTK their profitability over the next 12 – 36 months will provide meaningful positive share price performance, without the reliance on a revenue multiple. We also remain steadfast in our belief that the other core investments within the NAC portfolio such as Experience Co. (ASX: EXP) and Eureka Group Holdings (ASX: EGH) also have the potential to produce reasonable long-term returns, especially considering the industry tailwinds that both companies are currently experiencing.

As mentioned UBN made two significant announcements in the month of April. The first of these was that Ventia (ASX: VNT) will cease to use UBN for the majority of its current applications as they seek to consolidate the number of software providers they use by removing 18 suppliers and moving to just one tier-1 global ERP (Enterprise Resource Planning) System Integrator. Clearly, this is a negative outcome over the short-term for UBN but we do not believe this is any reflection of the software’s capability and more a reflection of a customer seeking cost efficiencies across their group. UBN also released its quarterly activities report for the March quarter. Interestingly, management believes they remain on track to reach a sustainable cash position even with the loss of Ventia over the next 6 months. The pipeline of opportunities continues to be strong in both strata and facilities management and the integration of Colliers Australia as a client remains on track.

Finally, there were two notable small pieces of news that may have positive longer-term implications for the NAC investment portfolio. The first of these relates to Move Logistics (NZX: MOV) which announced that it plans to complete a dual listing on the ASX before the end of June. Although not significant in its own right, we believe this suggests that management are satisfied with the progress of the internal strategic initiatives to date and are turning their attention to expanding their profile to provide optionality with regard to future growth initiatives. Secondly, in regard to EXP, Cairns Airport announced that over the Easter Holidays they will exceed 300,000 domestic passengers which is the highest monthly total since the start of the COVID-19 pandemic. Anecdotally we have also heard that a number of domestic tourism operators are budgeting for FY23 to be not too far away from the pre-COVID levels. Both data points bode well for EXP over the next 12-18 months.

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