NAC NTA Released for March 2017– NAOS Asset Management

NAC Investment Report & NTA Update March 2017

For the month of March, the NAC portfolio returned +1.48%. One of the top performers for the month was Gentrack Group Limited (ASX: GTK), which announced it was acquiring a UK business called Junifer Systems, a market leading utility customer information and billing system provider for energy retailers in the UK.

The transaction was valued at NZ$74.6m, and given GTK’s market cap prior to the deal was NZ$265m, it is a significant acquisition. We believe it to be a smart transaction, as the acquisition will expand and diversify GTK’s core utility billing business, and position them as the clear market leader in the provision of customer information and billing systems to energy and water retailers in the UK.

Once the businesses are combined they will serve 32 out of 50 energy utility providers in the UK, predominantly outside of the “Big 6” large incumbent retailers. This puts GTK in a strong position to leverage the growth of independent energy retailers, smart metering and new utility models in the region.

GTK is forecasting the market share of independent energy retailers in the UK to grow from 15% to 30% by 2020. Furthermore, the imminent deregulation of the water market is likely to result in an increased number of smaller suppliers, as was the case with the electricity market post deregulation, providing further growth opportunities for GTK.

Importantly, the three founders and another three key executives of Junifer Systems are all investing in GTK and will join the UK management team to lead the combined business. We expect the transaction to be accretive to earnings and provide a strong growth platform for the business going forward. Finally, it’s worth noting this deal has brought HGCapital onto the GTK register as an 11% shareholder. HGCapital are a leading tech PE firm that have a track record of success, and we view this as a strong endorsement for GTK.

The Small Ordinaries index in Australia has stabilised lately and was relatively flat for the quarter after a fall late last year, which saw an -11.5% decline from the mid-August high to the November low. The fall created buying opportunities for us, and as a result our cash levels are now close to the lowest they have been at since NAC’s inception. It is worth noting that our cash levels are not dependent on our macro-economic views, but rather a direct result of the amount of individual opportunities we find that meet our investment criteria. We do not believe we have a comparative advantage in picking the tops and bottoms of any index, so if we can find opportunities that meet our investment criteria at a reasonable price, we will look to invest regardless of wider sentiment in the index.