NCC NTA Released for March– NAOS Asset Management

NCC Investment Report & NTA Update March 2017

For the month of March 2017, the NCC Investment Portfolio returned +0.82% compared to the benchmark Small Ordinaries Accumulation Index (XSOAI) which increased by +2.66%. March often offers little with regards to stock specific news for the Investment Portfolio, though there were two notable developments over the month.

CML Group (ASX: CGR) announced that is has secured an initial $40 million bank debt facility with Westpac. This is notable for a number of reasons: Firstly, it has taken the management team over 3 years to implement the required operational and risk management systems so that a large financial institution is satisfied with the checks and balances that CML has, not only when growing its customer base, but also managing bad debt levels & provisions whilst maintaining a high level of customer service. Secondly, CML has been able to recruit a number of key executives from larger peers, who bring with them a wealth of experience and understanding of what is required at a risk and operational level to bring on institutional funding sources. From a financial standpoint the NAOS Investment Team expects this bank funding agreement to lower to overall cost of funds (which is circa 9% p.a.) for CML, and thus significantly boost their profitability over the next 24 months.

One of Enero Groups’ (ASX: EGG) wholly owned subsidiaries, Hotwire PR, announced that they have won a competitive pitch to handle the public relations, creative, and B2B communications for European energy giant Eaton. This is a notable win as it continues to validate the strategy of strengthening the Hotwire business, both organically and through acquisition, to allow Hotwire to compete for tier-1 pitches for many global brands that are household names. These opportunities are significantly larger from a financial perspective, and offer monthly retainer payments which will allow the firm to manage the cost base more appropriately. Another benefit of these larger contracts is the potential to further increase revenue through one-off project work. Following the integration of US tech PR firm Eastwick, Hotwire is now one of the 15 largest tech PR firms in the US, and top-10 in Europe.

Finally, it is worth mentioning some of the corporate activity that continues to take place within the Small Ordinaires Index especially around perceived lower quality companies, which include Spotless Group (ASX: SPO), Myer (ASX: MYR), Cover-More (ASX: CVO) and Ardent Leisure (ASX: AAD). These companies have large weightings within the index, and have all produced significant negative returns for shareholders over the past 12-24 months, however, all have experienced a recent sharp upturn in share price as a result of this corporate activity, which is reflected in the recent gains made by the XSOAI.