NAC Investment Report NTA July 2021

Market Insight

The month of July saw the NAC Investment Portfolio decrease -4.12%, underperforming the benchmark S&P/ASX 300 Industrials Accumulation Index (XKIAI) which decreased by -0.27% and also its smaller counterpart the S&P/ASX Small Ordinaries Accumulation Index which increased by +0.68%. This brings portfolio performance since inception to +16.74% p.a., outperforming the benchmark index which has returned +8.38% p.a. over the same period. The July performance was driven by three of the NAC core holdings producing negative returns, namely Over The Wire Holdings (ASX: OTW), Experience Co. (ASX: EXP), and Objective Corp (ASX: OCL). OTW’s share price following the release of a trading update at the end of June, and Experience Co. (ASX: EXP) fell by almost -7% due to the current COVID-19 outbreak that has resulted in lockdowns of numerous states. Finally Objective Corp (ASX: OCL) fell by almost -4% in July, albeit from record highs, after releasing profit guidance for FY21 in early July. With regards to substantial news flow items in July, (ASX: UBN) released its quarterly activities report for Q4 FY21, and as mentioned above OCL provided FY21 profit guidance.

UBN released its quarterly report for Q4 FY21 and reported a 19.2% increase in overall group revenue for the year to just over $11 million. Again, there was no disclosure around what the Annual Recurring Revenue (ARR) and backlog values were at the end of Q4. UBN did state that both statistics will be released at the FY21 result, together with further clarity around the growth strategy going forward. We hope that this update provides more granularity on how UBN’s respective products stack up relative to their peers and how UBN can grow its share of wallet in both the facilities maintenance and strata markets. We will also be looking for any commentary around how UBN can make the sales process more effective and efficient, we believe opportunities exist to optimise the deployment process or to use channel partners to achieve this. From an investment standpoint we continue to believe that UBN is suffering from its somewhat chequered history (under previous management) as well as what may be considered slightly opaque transparency. Both of these issues can be resolved as the business matures and continues to grow at a reasonable rate, as the information UBN will be able to provide to the market should be of a higher quality and have a more direct correlation to the performance and future potential of the business. The FY21 result is an ideal opportunity to demonstrate progress on this front.

OCL released a trading update and profit guidance for FY21, with headline figures such as revenue, EBITDA and NPAT up 36%, 49% and 45% respectively, in what was again another stellar result. It is worth pointing out that from a broker/analyst perspective there are no current broker estimates for OCL, even though it now has a market capitalisation of over $1.6 billion. What really caught our attention was that the cash balance increased by +48% even after the payment for the iTree business, and dividends paid over the course of the year. A cash movement such as this can potentially be a lead indicator for the year ahead as subscription clients often pay in advance for the upcoming year. In our view this provides significant weight to the outlook commentary provided by the CEO in the update, who stated that OCL expect the momentum of the business to drive a continued material uplift in revenue and profitability in FY22.

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