NCC Investment Report NTA July 2021

Market Insight

For the month of July, the NCC Investment Portfolio returned +1.29%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which increased by +0.68%. The NCC Investment Portfolio has now returned +13.47% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned +7.59% p.a. over this time. July was a relatively eventful month across the NCC investment portfolio, particularly for Saunders International (ASX: SND) which announced a number of new contract wins and the acquisition of a specialist industrial automation business, at the same time as the federal government announced the results of their grant program to increase diesel storage in Australia. BTC Health (ASX: BTC) also announced a strategic acquisition and COG Financial Services (ASX: COG) provided a Q4 FY21 trading update together with FY21 profit guidance. NCC also became a substantial holder in the URF Masters Residential Property Fund (ASX: URF), our investment thesis on this position was touched on in our recent Q4 FY21 webinar.

SND announced a further $10 million in new contract wins, all of which were associated with infrastructure projects. This occurred at the same time as the government announced that nine projects have been offered grant funding to increase Australia’s diesel storage capability. We believe that a significant majority of these project owners are either current or previous clients of SND. The grants can only cover up to a maximum of 50% of the total value of the project, which we believe will preclude some smaller and less well funded competitors from tendering on such work. The decisions on which contractors will assist in building these new projects should be known before the end of the calendar year. Capping off a very busy period for SND was the announcement of the acquisition of specialist process automation and electrical solutions business PlantWeave (PW). Albeit only a small business with $5 million of revenue, this acquisition provides SND with a significant increase in capability in area sector experiencing increasing demand due to technological change and other requirements. SND has worked with PW previously and we believe there is substantial scope for this business to scale substantially over time whilst delivering strong margins.

COG released profit guidance for FY21 after providing a Q4 update and as has been the trend for the entire financial year the results didn’t disappoint with FY21 NPATA +130% ahead of FY20. This result was driven by two main factors, firstly the earnings in the finance broking and aggregation (FB&A) business which almost doubled, and secondly by COG increasing their shareholding in Westlawn Finance Group. COG also stated that a slowdown in Q4 due to delays in deliveries for new equipment means that COG is entering FY22 with a strong forward orderbook. Even though FY21 was a stellar year for COG we believe this financial year may be the year that solidifies COG as an industry leader. FY22 provides an opportunity for COG to focus on growing their insurance broking offering which is run by former Steadfast (ASX: SDF) executive Cameron Bott. The run-off lease book should continue to generate a significant amount of free cash flow and we believe the strategic investment in Earlypay (ASX: EPY) also provides further options for COG. If COG can execute on the above and continue to build out its FB&A software to an industry leading standard whilst continuing to bolt-on further brokers, then the future will look very bright for a business that assisted in funding over $5 billion of equipment finance through its network in FY21.

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