NSC Investment Report NTA April 2022

For the month of April, the NSC investment portfolio recorded a very strong month finishing up +9.32%, significantly outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index which decreased by -1.50%. Pleasingly, the NSC investment portfolio has now outperformed the XSOAI benchmark over a 1, 2 and 3-year time period, as well as since inception in December 2017. Macro events aside, it was a reasonably eventful month for the NSC investment portfolio with significant positive contributions from core investments COG Financial Services (ASX: COG) and Big River Industries (ASX: BRI). During the month, COG provided a Q3 FY22 trading update, BSA Limited (ASX: BSA) started its journey to restoring shareholder value and there were a couple of less notable items related to Experience Co. (EXP) and Move Logistics (NZX: MOV). Maxiparts (ASX: MXI) and Gentrack Group (ASX: GTK) both fell slightly on no specific news flow, but GTK will report their HY results at the end of May.

BSA Limited (ASX: BSA) started its journey to restoring shareholder value in April. The former CEO and Chairman who oversaw the operational issues which led to the weak balance sheet, have now exited the business and a capital raising will subsequently be completed to repair the balance sheet. Management stated that revenue for 2H FY22 will increase to $240-$260 million with essentially a breakeven EBITDA forecast for the half-year. It will be a long journey until the business can create sustainable returns for shareholders but there remains a large revenue base of ~$500 million p.a. as well as a customer base that includes Telstra, NBN Co and Aldi. If the BSA board can recruit a high-quality CEO and execute on the stated efficiency initiatives, then this will go a long way to achieving the desired margins that a business like this should be able to generate.

COG Financial Services (ASX: COG) released their Q3 FY22 trading update. Pleasingly the growth generated in previous quarters shows no signs of abating and if anything, it looks to have accelerated with NPATA increasing +49% on the previous corresponding period. Clearly, this has been assisted by some small acquisitions, but we believe the organic growth in the business continues to be driven by growth in finance broking volumes, traction in insurance broking as well as increased scale in the funds management business. Pleasingly the COG model remains capital light, which in our view should translate into a very strong cash result for FY22.

Finally, there were two notable small pieces of news that may have positive longer-term implications for the NSC investment portfolio. The first of these relates to Move Logistics (NZX: MOV) which announced that it plans to complete a dual listing on the ASX before the end of June. Although not significant in its own right we believe this suggests that management are satisfied with the progress of the internal strategic initiatives to date and are turning their attention to expanding their profile to provide optionality with regard to future growth initiatives. Secondly, in regard to EXP, Cairns Airport announced that over the Easter Holidays they will exceed 300,000 domestic passengers which is the highest monthly total since the start of the COVID-19 pandemic. Anecdotally, we have also heard that a number of domestic tourism operators are budgeting for FY23 to be not too far away from pre-COVID levels. Both of these data points bode well for EXP over the next 12-18 months.