NCC Investment Report NTA April 2022

Market Insight

For the month of April, the NCC investment portfolio increased by +4.85%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which decreased by -1.50%. The investment portfolio has now returned +12.56% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned +6.82% p.a. over this time. It was a busy month for the investment portfolio with a number of positive events occurring which we will expand on below. The only major detractor for the month was Contango Asset Management (ASX: CGA) which has seen their funds under management fall by ~25% due to their exposure to international growth stocks via WCM Investment Management.

Future First Technologies (ASX: FFT) announced Adrian Rudman as their new CEO. Adrian was formerly an executive at Objective Corporation (ASX: OCL) which as some shareholders may know has been held across NAOS portfolios over a number of years. Adrian was at OCL for ~20 years and had a variety of roles focusing on sales and marketing as well as business development. FFT is currently a small business, but we believe the recruitment of someone with Adrian’s calibre highlights the potential that FFT has over the longer term.

COG Financial Services (ASX: COG) released their Q3 FY22 trading update. Pleasingly the growth generated in previous quarters shows no signs of abating and if anything, it looks to have accelerated with NPATA increasing +49% on the previous corresponding period. Clearly, this has been assisted by some small acquisitions, but we believe the organic growth in the business continues to be driven by growth in finance broking volumes, traction in insurance broking as well as increased scale in the funds management business. Pleasingly, the COG model remains capital light which in our view should translate into a very strong cash result for FY22.

BSA Limited (ASX: BSA) started its journey to restoring shareholder value in April. The former CEO and Chairman who oversaw the operational issues that led to the weak balance sheet have now exited the business, and a capital raising has subsequently been completed to repair the balance sheet. Management stated that revenue for 2H FY22 will increase to $240-$260 million with essentially a breakeven EBITDA forecast for the half-year. It will be a long journey until the business can create sustainable returns for shareholders but there remains a large revenue base of ~$500 million p.a. as well as a customer base that includes Telstra, NBN Co, and Aldi. If the BSA board can recruit a high-quality CEO and execute on the stated efficiency initiatives, then this will go a long way towards achieving the desired margins that a business like this should be able to generate.

Finally, BTC Health (ASX: BTC) announced that the Department of Health (DOH) has proposed price changes to all medical devices listed on the Prostheses List, which essentially reduces prices for a number of medical devices on the list. BTC have stated that some of these changes apply to medical devices that BTC distributes, but in their opinion the methodology used is not consistent and therefore the changes should not apply. BTC have engaged with the DOH to clarify whether or not the methodology is correct and does apply. Pleasingly in early May, BTC announced that they have received confirmation from the DOH that the price changes proposed to the wider industry would not apply to BTC as their current pricing structure is already in line with the proposed amendments. Thankfully this will mean there is no substantial change to the revenue or margin profile of BTC going forward.

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