NCC 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 benchmark 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 NCC investment portfolio outperformed the benchmark index, falling by -6.76% for the month. Since inception the investment portfolio has now returned +9.81% p.a., substantially outperforming the XSOAI which has returned +4.12% p.a. over the same period. In regard to stock specific events there was little that occurred of any significance which was no surprise, given that the majority of holdings provided detailed updates in the August reporting season.

As our publicly listed investments had a quiet month, this is an opportune time to provide an update on the two private investments held in the NCC investment portfolio, namely MitchCap and Ordermentum. These two investments combined represent a small part of the overall gross portfolio value and importantly these are truly private businesses rather than “pre-IPO” investments and display many similar attributes to the listed businesses held in the investment portfolio. In the case of both investments, we are a substantial shareholder with representation on the board of each business.

MitchCap is a commercial distribution financier to both dealers (floorplans) and OEMs (original equipment manufacturers) for the marine, caravans, motorcycle, and agricultural sectors. For many dealerships in these sectors a certain amount of inventory must be held to operate optimally. Depending on the average cost of a product (e.g., a caravan) the amount of capital required to hold this inventory by a dealership can be significant. MitchCap provides dealerships with the debt facility required to ensure they are able to hold the required level of inventory for sale on their dealership floor. Whilst floorplan financing is commonplace in the car industry, as it provides significant benefits to both the dealerships & vehicle manufacturers and the vehicles act as the loan security, this type of financing is not as prevalent in the niche sectors in which MitchCap operates. During the COVID-19 pandemic MitchCap’s customer base held little inventory predominantly due to global supply chain issues, which heavily impacted the available inventories dealerships could acquire to satisfy strong demand. As supply chains normalise, we expect the ‘utilisation’ levels of the debt facilities MitchCap provides to its dealership customers to return to historically normal levels and therefore provide a significant boost to MitchCap’s earnings base. Longer term we do not expect MitchCap to solely be a financier, but to provide several core offerings to its customer base. Over time, customers may benefit from other services such as managing foreign exchange (as inventories are typically imported) and arranging finance for the dealerships’ end customers purchasing the vehicles. Founded in 2019 MitchCap very much remains an emerging business, but importantly is run by a proven and highly aligned management team in a market that has significant scale.

Founded in 2014, Ordermentum is a software platform for the hospitality industry that connects food and beverage wholesalers with over 30,000 cafés, restaurants and event holders. It uses technology to streamline the ordering & payments relationship between venues and their suppliers, which has historically been a cumbersome, paper-based process that often leads to poor execution of payment terms for wholesale providers and can put undue stress on hospitality venues. For venues, using the Ordermentum platform allows a venue to order a wide range of products from a multitude of suppliers at once, with payment to those suppliers made directly at the time the order is placed. For a supplier, using the Ordermentum platform can improve working capital therefore reducing credit risk as well as provide significant exposure to many thousands of hospitality venues as potential customers which previously they may not have had access to. As with Mitchcap, the key to Ordermentum’s success will be further scaling its marketplace and expanding the product range available to hospitality venues, in addition to providing suppliers with valuable opportunities to form new customer relationships with venues.