NCC Investment Report NTA December 2021

Market Insight

For the month of December, the NCC Investment Portfolio increased by +1.76%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI) which returned +1.41%. The NCC Investment Portfolio has now returned +13.18% p.a. since inception in February 2013, significantly outperforming the XSOAI which has returned 7.79% p.a. over this time. It was a relatively uneventful month with just one announcement of any significance, which came from Contango Asset Management (ASX: CGA). The NCC investment portfolio continues to diversify and we have recently added two new positions, namely Maxiparts (ASX: MXI) and Future First Technologies (ASX: FFT), both of which will be briefly touched on below.

As mentioned above, CGA was the only investment which provided an update of any note during the month, updating the market on the progress of its strategic initiatives on the 30th of December. The most notable part of the release was confirmation that CGA has added an Australian domiciled alternative asset manager to its stable, following the success of the partnership with WCM Investment Management, where FUM has grown to ~$1.20 billion in Australia over the past 3-years. Unfortunately, the detail in the announcement was extremely light, with no further tangible information provided. However, assuming that the manager is highly regarded there could be significant potential for this relationship to be beneficial for both parties. We look forward to more detailed information in due course.

MXI was added to the NCC Investment Portfolio in December after being on our watchlist for several years. MXI was originally a manufacturer of truck trailers and over time has built up a parts distribution business to support the client relationships that had been developed via selling trailers. More recently the underperforming and highly capital-intensive trailer manufacturing business was divested with the proceeds split between paying a special dividend to shareholders as well as supporting the MaxiParts business, which would remain as a listed entity. We believe that over the next 3-5 years the prospects for MXI to grow at a reasonable rate are excellent as the market is highly fragmented with the three largest players holding ~30% market share. There should also be significant potential for MXI to grow its margins as it gains scale and diversifies, and the demand prospects for truck parts should also be relatively healthy given the global shortage of new trucks due to supply chain constraints. The investment is not without risk, but as fellow listed truck and bus part distributor Supply Network Ltd (ASX: SNL) has shown, if MXI can execute on their strategy then the valuation outcome could be significant.

Finally, NCC made a small investment in B2B SAAS provider FFT. What attracted us to such a small business is that FFT has secured long term contracts with highly reputable government organisations being VIC Roads and NSW Roads for its Asset Vision/Eagle Eye software to assist in their real time road inspections by analysing which works are of most importance. It is rare that a business of this scale can not only win work with such large clients but also renew contracts with these clients as well. Clearly the scale of the work completed to date has not been company defining, but the sheer scale of the road network in VIC and NSW alone means there is significant opportunity for FFT to grow over the longer term if they can continue to improve their software offering and support it with the people talent that clients such as the ones mentioned above demand of their service providers.

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