NAC Investment Report NTA September 2022

September saw equity markets continue to rebase in the face of continued interest rate increases and inflationary pressures that have not yet shown signs of easing as some may have expected. Emerging companies in particular bore the brunt of investor selling with the S&P/ASX Small Ordinaries Accumulation Index (XSOAI) falling by -11.20%, significantly underperforming the S&P/ASX 200 Accumulation Index (XJOAI) which fell by -6.17%. The NAC investment portfolio returned-6.43%, outperforming the benchmark S&P/ASX 300 Industrials Accumulation Index (XKIAI) which fell by -7.65%. This brings portfolio performance since inception to +10.27% p.a., outperforming the benchmark index which has returned +5.72% p.a. over this period. With regard to stock specific news flow Gentrack Group (ASX: GTK) provided a strong update, and both MOVe Logistics (NZX: MOV) and Urbanise.com (ASX: UBN) provided releases of note.

It was a very eventful month for GTK with the much-anticipated launch of G2, their overhauled operating system. Much of the adverse feedback we have collated on GTK over the past 12-18 months has centred around the technical shortcomings of the core GTK offering and this has been a focus of the new management team. G2 is the culmination of this strategy, and it sees GTK partner with industry-leading service providers Salesforce and Amazon Web Services (AWS) who will provide the respective CRM and cloud capabilities. Management provided some more granularity around the market opportunity with 200 global utility companies with >400 meter points, expected to seek a new customer billing solution by 2025, and also announced a contract had been secured with Mercury Energy in New Zealand, which recently merged with Trust Power. The combined business has selected Gentrack to provide them with an IT system to run across the merged entity and offer numerous services to their customers. Finally, FY22 guidance was upgraded with revenue expected to be circa $125 million (vs $105.7 million in FY21) and EBITDA in the high single digit millions. We view this as an exceptional result especially when GTK was facing a significant revenue headwind from customers who had either failed or merged with competitors due to the regulatory issues in the UK energy market. Management remains confident in achieving their ambitious FY24 targets and in our view they look distinctly achievable following the upgraded FY22 guidance. As we have said since making our initial investment, we believe GTK should trade above $3 if these targets are achieved.

Generally, when things look too good to be true, they often are, and in the case of MOVe’s previously announced acquisition of private logistics operator Fluidex Transport it appears that the vendor of this business realised this and has subsequently sought to re-negotiate the terms. We commend the MOVe management team for maintaining discipline and walking away from this acquisition. Although this will result in a short-term impact on earnings and reduce the fleet capability, we remain optimistic on both the organic and inorganic opportunities for MOVe, given the logistics industry is dominated by private players which generally have an owner or owners who are >60 years of age with few succession options. These are also businesses which have very few potential acquirers as they require not just the capital, but also significant industry knowledge.

Finally, Urbanise.com appointed a new CFO to replace Simon Lee, who was recently appointed CEO. A new Director was also appointed to replace a non-independent outgoing Director at the upcoming AGM. Pleasingly, the new Director has experience in property related software businesses, including as a founder & CEO, despite possessing no previous public market directorship experience. We believe it is a step in the right direction for UBN from the perspective of board renewal, and we would expect further change to occur over the short to medium term.