NCC Investment Report NTA April 2021

Market Insight

For the month of April, the NCC Investment Portfolio returned +8.79%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which increased by +4.98%. The NCC Investment Portfolio has now returned +13.11% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned +7.31% p.a. over this time. April’s outperformance was driven by the fact that not one of the NCC investments provided a detraction to performance, and a number of the core investments such as Saunders International (ASX: SND), Contango Asset Management (ASX: CGA) and Big River Industries (ASX: BRI) all provided significant positive contribution. From a news flow perspective CGA and Wingara Ag (ASX: WNR) both released their quarterly activity reports, and we were pleased to see Experience Co. (ASX: EXP) execute on two acquisitions that will form the basis of a third division of the business, which we believe offers significant growth potential. Fund distribution business CGA released a detailed quarterly update, which pleasingly showed the business producing a positive cash flow quarter after continuing to grow funds under management (‘FUM’). FUM has now increased to over $1.05 billion, a strong result given markets globally have become more challenging with different investment styles offering sharp divergences in performance over this short period of time. As we have said for several years, investing in CGA is akin to investing in WCM Investment Management, who now manage over $100 billion in strategies across global equities.

With FUM and momentum continuing to build we believe the 2nd billion of FUM will come much easier than the first. This is due to a variety of reasons including greater planner acceptance and Approved Product List penetration, maturity of the strategy performance track records, as well as a full suite of research ratings and platform distribution. If CGA can grow to $2 billon in FUM, we believe the NPAT of the business should be >$3 million p.a. with a significant cash position. Finally, if CGA can diversify its key manager risk away from WCM and bring on another tier-1 manager in the near-term then CGA may command a similar valuation multiple to the likes of Pinnacle Investment Management Group (ASX: PNI).

EXP completed two acquisitions of premium walking experiences which will form the third division of EXP, serving the premium adventure category. We estimate that these two acquisitions will initially be small from a contribution perspective with a combined EBITDA of <$1.25 million p.a., but from a strategy perspective these acquisitions are significant for a variety of reasons. Firstly, the premium adventure segment within Australia has been growing rapidly and looking to compete with the experiences provided in North America, and this trend has been further accelerated due to COVID-19. In such a high growth segment we believe that there are a number of private businesses (such as Australian Walking Tours) that provide unique experiences with high barriers to entry, which would be highly complementary to the existing operations of EXP.

These recent acquisitions also bring with them a management team that will transition across to EXP and provide valuable experience in an industry that has ample organic growth opportunities. We believe that over the next 3-5 years EXP will mature into a leading provider of tourism experiences in Australia and New Zealand with diversified operations by experience and location, and the opportunity to maximise this position through capitalising on the knowledge and insights generated from their client base.

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