NCC Investment Report NTA May 2021

Market Insight

For the month of May, the NCC Investment Portfolio returned +2.72%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which increased by +0.27%. The NCC Investment Portfolio has now returned +13.34% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned +7.26% p.a. over this time. The major positive contributors to performance for the month were Big River Industries (ASX: BRI), COG Financial Services (ASX: COG) and Objective Corporation (ASX: OCL), which posted monthly gains of +27%, +13% and +15% respectively. The two major detractors to performance were BTC Health (ASX: BTC) and Contango Asset Management (ASX: CGA), which fell despite no news flow during the month. Notable events that occurred in the month related to Saunders International (ASX: SND), which announced a number of new project wins, BTC released its quarterly activities report late in April, and Wingara Ag (ASX: WNR) released their full year FY21 results, as they have a March year-end.

SND continued its recent momentum, announcing a further $11 million of infrastructure project wins as well as reaching preferred status in $8 million of projects with final terms being negotiated. What was surprising about the release was that all these wins related to infrastructure projects with none relating to fuel storage opportunities; as an example SND will be designing and constructing six bridges across three NSW Local Government Authorities. This highlights how the management team has transitioned SND from a purely fuel storage and maintenance focused business to one with far more diversified revenue streams and a greater exposure to low risk clients such as local councils, state governments and defence. Looking forward we believe that 2H CY21 will be catalyst rich for SND, beginning with guidance for the FY21 result which has historically been released in late July / early August. Following this we will be expecting the outcomes of the Federal Government program to increase domestic diesel storage capability to be known and the subsequent building contracts awarded, and then finally later in the year the potential for much larger tenders to be awarded in relation to ongoing maintenance and proactive work of government owned fuel storage systems.

BTC released a quarterly report and activities update for Q3 FY21 in late April. The business continues to grow with organic revenue growth +13% over PCP or +18% when taking into account the prosthesis pricing changes that occurred in FY21. As we have mentioned previously BTC continues to be subscale but at the same time it must continue to prove that it has the capability and processes to grow organically and win the trust of potential partners and vendors. It is also worth noting some comments from Sigma Healthcare (ASX: SIG) from their AGM and in the press, focusing on the medical device distribution sector and trying to grow their presence there. As some would know SIG is a 10% shareholder in BTC after they participated in a capital raising to fund BTC’s most recent acquisition.

Finally, it was refreshing to see WNR release their FY21 accounts and put an end to what can only be described as one of the most turbulent financial years for any NAOS investment. WNR now has a new CEO together with a strong focus on its core capability in hay processing. With the strategic review underway for the poorly performing Austco Polar business, we are hopeful this is the last roadblock that needs resolving before the WNR business is set up to restore shareholder value.

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