NCC NTA Released for February– NAOS Asset Management

NCC Investment Report & NTA Update February 2017

February signalled the 4 year anniversary of NCC, a 4-year period that has seen the inception return of the Investment Portfolio total +20.49% p.a. The portfolio fell by -1.93% for the month, compared to the Benchmark Small Ordinaires Accumulation Index which increased by +1.31%. February is always a key month within the financial year as it heralds the half yearly reporting for the majority of listed companies. In terms of the holdings within the NCC portfolio, pleasingly there were no significantly negative results, though there were also no surprises on the positive side. Enero Group Limited (ASX:EGG) and MNF Group Limited (ASX:MNF) provided the most positive market reaction in terms of share price during February.

The largest detractor for the month was Armidale Investment Group (ASX: AIK) which contributed just over -3% to the investment portfolio performance. The half year results for AIK were the first set of consolidated accounts released as an operating entity as opposed to as an investment entity. From a valuation perspective, this change in accounting policy has resulted in the difficult task of combining two months of consolidated entity accounting and four months of investment entity accounting to extrapolate meaningful annualised figures. Fortunately, this change in business structure and accounting policy is a one-off occurrence and going forward it will be much easier for the market to analyse and understand the earnings of the business as a consolidated entity.

As the share price of AIK had risen over 80% in the past year there was clearly an amount of eagerness in relation not only to the headline figures of these accounts but also the level of detail on the underlying business. The NAOS Investment Team believes that there were three key points that will set up this business for a considerable amount of growth over the next 2-3 years. Firstly, the disclosure that 10 new finance brokers joined the network over the half, a +10.63% total increase in one half alone; secondly, the combined net assets financed by the group increased by +15% over the 6-month period; and finally the leasing business, which wrote $17 million of leases and made a profit of $1 million, and is expected to ramp up significantly in the 2nd half which should increase profits substantially. Overall, we remain very comfortable with our significant investment in AIK and we expect the business not only to grow significantly but also the wider investment community to gain a greater understanding of this business and the opportunity in front of it.

Finally, NAOS held our Bi-Annual Investor Roadshow across 5 capital cities. Pleasingly attendees were up significantly and we appreciate everyone taking time out of their busy schedules to attend. We hope everyone found these events insightful and if you have any suggestions on how we could improve on these events please contact any member of the NAOS team.