NCC Investment Report NTA October 2022

Volatility remained in vogue throughout October, although somewhat unexpectedly to the upside, as the S&P/ASX Small Ordinaries Accumulation Index (XSOAI) finished up +6.46%, and its larger counterpart the S&P/ASX-200 Accumulation Index (XJOAI) returning +6.04%. The NCC investment portfolio finished up +0.97%, with a number of positive news flow items from investee companies failing to translate into share price gains. Saunders International (ASX: SND) announced two major contracts as well as upgrading its tender pipeline, and both Big River Industries (ASX: BRI) and COG Financial Services (ASX: COG) provided detailed trading updates. Finally, Wingara Ag (ASX: WNR) completed the long-awaited divestment of its loss-making Austco Polar business and BTC Health (ASX: BTC) appointed NAOS executive Brendan York to its Board of Directors.

Core investment SND released a number of positive news flow items during October. Firstly, SND announced that it has been awarded a $44m contract to build the fuel terminal for the new Western Sydney Airport over the next 24 months. The following week SND announced they had won a contract to design and build a new diesel storage tank in Newcastle as part of the Government’s plan to boost fuel storage in Australia. SND also advised the market that their tender pipeline has increased by $200 million to over $1.5 billion in just the past 2 months, highlighting the significant activity in their markets. The SND AGM will be held in early November which may well bring with it further commentary around trading conditions and client activity.

BRI held their AGM and provided the market with a detailed trading update for Q1 FY23, which in our view was pleasingly strong. Compared to the prior corresponding period, revenue, EBITDA and EBIT were up +33%, +62% and +84% respectively. Annualising these quarterly figures implies an EBIT figure close to $50 million, which compares very favourably to a market capitalisation of just $170 million. Despite this update the share price of BRI finished the month down, which we ascribe to very low levels of liquidity as well as concerns about how the macro environment may affect BRI over the medium term.

COG released a Q1 FY23 trading update stating that NPATA had grown by +30%, albeit with a significant contribution from previously announced acquisitions. If COG is able to meet consensus FY23 profit estimates of ~$28 million NPATA, then this would imply COG is trading at an NPATA multiple of just 10 times, as the share price of COG also fell over the course of October.

After several months of delays, it was pleasing to see WNR divest their non-core and loss-making Austco Polar business. The sale of this business provides WNR with much needed financial stability and a clean and simple hay processing operation exposed to sound industry fundamentals. We believe the future for WNR now looks much brighter with numerous options available to the business as it moves forward.

Finally, NAOS executive Brendan York was appointed to the BTC Health board. BTC has been a poor performing investment for the NCC investment portfolio, even though it is exposed to an industry with very sound fundamentals. Moving forward, we expect the management of BTC to articulate a more tangible and actionable strategy that can maximise shareholder returns over the long term.