NCC Investment Report NTA July 2022

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Market Insight

July provided some much relief for equity investors, especially those who have feared the worst over the previous 6 months. The benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) returned a staggering +11.43% after finishing the previous month down -13.09%. The businesses that had fared worst in the previous 6 months were the significant outperformers in July, with examples including BNPL stalwart Zip Co Ltd (ASX: ZIP), (up +158%), Kogan.com (ASX: KGN) (up +66%) and Temple & Webster (ASX: TPW) (up +59%). It is worth noting that even after July’s performance all three of these companies share prices are still down by at least -47% for the calendar year to date. The NCC Investment Portfolio increased by +3.30% for the month, bringing the inception return to +10.26% p.a., significantly outperforming the XSOAI which has returned +5.45% p.a. over the same period. July was a predictably quiet month as many of the companies in the NCC investment portfolio are in a blackout period prior to releasing their full year results in August. The notable news flow items came from COG Financial Services (ASX: COG) which provided unaudited FY22 results ahead of guidance at the NPATA level, in addition to full-year dividend guidance. Wingara Ag (ASX: WNR) updated the market on a proposed transaction as well as releasing their quarterly cash flow and activities update.

COG released their unaudited FY22 results, reporting NPATA of $25.0 million, in excess of their previously released guidance in May. In our view, this is an outstanding result and again reinforces the multiple organic and in-organic growth levers that COG has at its disposal. Based on feedback from the business post the release of their unaudited results, the demand for COG’s services remains strong. This is despite the recent significant interest rate rises, and in our view is due to the significant amount of demand that remains within the economy in addition to the long lead times that remain for equipment orders to be fulfilled. Importantly, from a finance broking standpoint COG brokers do not book revenue until equipment has been financed and received by the customer, so given the significant backlog of unfulfilled orders COG should have excellent visibility over their short-term revenue pipeline. Management also stated that their insurance broking division continues to gain traction and further updates on this division will be provided to the market in due course.

WNR, which was suspended from trading for a few weeks, updated the market on a proposed transaction which had been reviewed by the ASX. WNR stated that it was considered unlikely that the ASX would provide approval to the proposed transaction and as such it proceeded no further. WNR also released their quarterly activities and cash flow report for Q1 FY23 which showed the business continues to achieve scale with hay sales volume of ~27,000 tonnes (up +36% on Q1 FY22), and the business generating positive operating cash flows of $1.2 million. Importantly this quarterly result was achieved prior to the sale of the Austco Polar Cold Storage business which we believe is a drag on both profit and cash flow. The sale of the Austco business is ongoing and will result in WNR becoming a standalone hay processing business. WNR did not provide any greater detail around the aforementioned proposed transaction, but we would imagine that any transaction would be centered around WNR’s hay operations due to their location and scale. As a standalone entity WNR would benefit significantly from further scale and diversification opportunities either within the hay space or similar fodder commodities.

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