NCC Investment Report NTA March 2021

Market Insight

For the month of March, the NCC Investment Portfolio returned -0.79%, slightly underperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which increased by +0.79%. The NCC Investment Portfolio has now returned +12.08% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned +6.74% p.a. over this time. March was an uneventful month for the portfolio with none of the investments releasing any meaningful announcements. From a contribution perspective the main positive contributors were Saunders International (ASX: SND), COG Financial Services (ASX: COG) and Contango Asset Management (ASX: CGA). Unfortunately, these gains were offset by Experience Co (ASX: EXP), which fell on no specific news, although one could argue the slow rollout of COVID-19 vaccines is not helping investor sentiment; and Wingara Ag (ASX: WNR) which is still suffering from the fallout associated with poor capital management decisions, governance issues and a vacant CEO position.

Two new positions were entered into the portfolio during the month which we believe will build into core holdings if value and liquidity permits. Interestingly both investments are discount to net tangible asset plays, which may be somewhat unexpected to most of our investors given the market we are presently in. What has been clear over the past 3-6 months with the rotation between so-called value and growth stocks, is that several opportunities have presented themselves in both the value and growth category. These opportunities generally arise due to one or more of the following variables applying to them; lack of liquidity, poorly understood structures (trusts etc), niche markets and/or an overly complex corporate history. As a result of these variables, we believe we have sourced two businesses that are going through a period of simplification, operate in a segment of the property sector which is simple and transparent, and finally have implemented a capital management strategy that is focused on maximising shareholder returns. In Australia we have seen prices of detached dwellings in both regional and city locations rise sharply, although this is not just a domestic phenomenon. In the US, the most recent reading of the S&P CoreLogic Case-Shiller National Home Price Index has seen home prices rise at their fastest pace in 15 years, with supply of existing homes at close to record lows. We will elaborate further on both holdings as they become larger positions within the portfolio.

Looking forward to the final 3 months of the financial year which traditionally has low news flow, we believe a number of key events may occur across some of the core NCC investments. Regarding WNR, the next few months will be critical with the search for a CEO hopefully reaching a conclusion, along with an update on the current inventory write-down issues, and the implementation of a more focused and measurable strategy together with capital management goals. For SND we are keen to see an update regarding the two outstanding tenders with Defence as well as progress on both the national fuel storage program and regional bridges replacement program. Finally, for Experience Co. (ASX: EXP), a sustained period of open interstate borders and even a travel bubble with NZ together with some progress on the M&A strategy would be a fantastic outcome for a business that has now essentially gone through a 24-month restructuring period against the backdrop of COVID-19.

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