The following is a brief introduction to each of our portfolio companies, with a description of why we believe they deserve a position in the Kingfish portfolio.
Abano Healthcare is now predominantly an active investor in dental practices in Australasia. It owns more than 180 dental practices making it the second largest Australasian dental group. It also owns five radiology clinics centred around Auckland.
We are attracted to Abano’s strategy of growing a well-resourced Australasian dental network, focusing on private revenue streams. In particular, we like its goal of achieving a 10% share of the Australasian dental market over the next 10 years, suggesting it has many years of growth ahead of it.
Auckland International Airport (AIA) owns and operates New Zealand’s major gateway as well as 1500 hectares of land surrounding the airport. AIA operates under a ‘dual till’ regulatory regime, meaning that the company’s aeronautical operations are subject to rate of return regulation, whereas the other non-aeronautical operations are unregulated. Over 50% of AIA’s revenue is derived from non-aeronautical operations, such as retail, parking, hotel accommodation and property rental.
AIA is well-positioned to benefit from New Zealand’s positive long-term tourism outlook, particularly tourists from China. With aspirations for 40 million total passengers per annum by 2044, combined with a strengthening consumer business and leveraging its land bank, AIA’s non-aeronautical operations are expected to continue to deliver attractive returns on invested capital into the future.
Delegat Group produces and distributes super-premium wine internationally under the Oyster Bay brand. Oyster Bay is the number one selling New Zealand wine brand in the UK, Australia and Canada, and is growing quickly in the USA. The company operates a vineyard in the Barossa Valley which broadens its wine portfolio.
Delegat continues to grow its profits annually despite currency fluctuations. The company is investing for growth by expanding its winery capacity and increasing vineyard plantings to meet its goal of achieving 7.5% per annum growth in case sales over the next five years.
EBOS Group is Australasia’s largest diversified pharmaceutical and medical care products group, focusing on wholesaling, logistics, sales and marketing of medical products. The company typically has a number 1 or number 2 market position in each market segment it operates in. EBOS also operates in the animal care sector as a veterinary wholesaler, distributor and retailer of animal healthcare products, pet accessories and premium foods across Australasia.
EBOS’ scale and market position means that it is a low cost operator right across the medical care supply chain segments it operates in. The sector has a tailwind from ageing demographics and the increasing prevalence of chronic diseases. Its animal care operations are complementary and scalable.
Fisher & Paykel Healthcare is a leading designer, manufacturer and distributor of innovative medical devices for patients who require acute respiratory and obstructive sleep apnoea care. Over 95% of its products are sold outside New Zealand from dedicated manufacturing facilities in Auckland and Mexico.
We are attracted to the latent demand for Fisher & Paykel’s innovative care products as the worldwide population ages and the incidence of chronic respiratory diseases and obesity rises. Through its own research and development, Fisher & Paykel has continued to develop products that significantly expand its potential patient base, whilst maintaining high returns on invested capital.
Freightways operates nationwide express package and business mail operations with brands including NZ Couriers, Post Haste and DX Mail. The company has also developed an information management business on both sides of the Tasman encompassing document and data storage and document destruction.
Freightways is one of two dominant players in the New Zealand courier market and its information management business has a footprint across Australasia. The company has an impressive track record of value-accretive acquisitions that leverage off its existing infrastructure. Earnings have been resilient in times of recession, and are growing at least as strongly as the domestic economy in more buoyant times.
Infratil invests in a diverse range of infrastructure businesses encompassing renewable energy, air and road transport, aged care, and more recently, data centres with a focus on co investment within Australasia. It is externally managed by an experienced management team.
We are attracted to Infratil’s portfolio of infrastructure assets that are not easily replicable. Infratil’s goal of a 20% per annum after tax return to shareholders meets our expectations and its track record since listing has been strong.
Mainfreight is a global supply chain logistics company. It is a specialist freight forwarder and distributor, with interests spanning managed warehousing, transportation of hazardous substances, international freight, full truckload and less than container load freight. Its operations span New Zealand, Australia, USA, Asia and Europe.
Mainfreight is a well-run company with a special team culture. It continues to open new trade lanes as it spreads its logistics footprint ever wider. Growth will come organically and through judicious acquisitions as it works towards its goal of becoming a global logistics provider.
Meridian Energy is New Zealand’s largest electricity generator, producing approximately 30% of the country’s electricity in an average year, sourced 100% from renewable hydro and wind resources. The company also has a dominant retail business, operating under the Meridian and Powershop brands.
Meridian is a well-run company, with a portfolio of long-dated quality renewable generation assets which provides Meridian with the advantage of being amongst the lowest cost marginal electricity producers. Meridian is favourably positioned over the long term to benefit from key sector event risks and is generating increasing free-cashflows given its decreasing capital expenditure requirements.
Metro Performance Glass provides glass windows, glass doors, balustrades, stairs, decorative glass and many other glass applications throughout New Zealand. Metro Glass’ "moat" (competitive advantage) is a combination of its dominant market share, high barriers to entry, national distribution, low processing costs and the structural impact from residents retrofitting their homes with double glazing.
We like Metro Glass’ dominant market position, low cost structure, national distribution network and strong service proposition in a rising housing market. It has invested for the future with new plants in both Auckland and Christchurch. Retrofitting of double glazing in existing houses provides a structural element to its forward workload.
Michael Hill International is a specialist jewellery retailer, manufacturing most of its own diamond jewellery. The company operates stores in New Zealand, Australia, Canada and the USA.
Michael Hill’s Australasian business has continued to perform solidly through its policy of controlled profitable growth no matter the economic backdrop. Its new Emma & Roe division looks to be a credible growth option going forward whilst its Professional Care Plans have dramatically increased cash flows, and will help to sustain earnings growth in the medium-term.
Port of Tauranga is the natural gateway to and from international markets for many of New Zealand’s major businesses. It is in close proximity to many important exporters in the forestry, dairy, meat and fruit industries. Its investment in port facilities in Timaru and an inland port near Christchurch opens up the South Island hinterland for exports to be hubbed out of Tauranga.
Port of Tauranga continues to grow in importance as a leading shipping port in New Zealand for both exports and imports. It has many natural advantages, including excellent access for road and rail, large land holdings and, more recently, a deep harbour for bigger ships to call. It has an important strategic 10 year agreement with Kotahi which underwrites its investment in Primeport Timaru and its Metroport near Christchurch.
Restaurant Brands has exclusive franchise agreements for international fast-food brands in New Zealand including KFC, Pizza Hut, Starbucks and Carl’s Jr. More recently it has entered the Australian KFC market with the purchase of 42 stores in New South Wales. KFC is the predominant earner for the group, representing over 80% of operating earnings.
Restaurant Brands has a long history of achieving attractive returns on invested capital and has successfully delivered increasing same store sales and margins in its KFC division (including in Australia), while changes in strategy have improved profitability of Pizza Hut and Starbucks. Carl’s Jr provides an additional growth option, which is expected to contribute to earnings growth over the medium term.
Ryman Healthcare was formed in 1984 to develop, construct and operate retirement villages in New Zealand. It now has 30 retirement villages around New Zealand and is in the early stages of replicating its model in Melbourne, having successfully opened its first village and is in the process of developing its second. Ryman is the largest owner and developer of retirement villages in New Zealand.
Ryman has stuck to its winning formula since inception. Industry dynamics are extremely attractive, and Ryman continues to lift its build rate of units and beds to meet latent demand from an ageing population. Melbourne represents an area of considerable upside with a similar ageing demographic to that in New Zealand. It plans to have five retirement villages open in Melbourne by 2020, and plans to ultimately build at the same rate there as in New Zealand.
Summerset is an integrated retirement village builder, owner and operator. The company has over 20 retirement villages around New Zealand and is the second largest developer and the third largest owner of retirement villages in New Zealand.
Summerset successfully operates a continuum of care model with aged care integrated into its villages. Summerset has consistently lifted its build rate of new units and beds, whilst expanding its development margin. This indicates that it is executing its business model well, and has a large land bank to continue the roll-out of its sought-after villages.
Tegel is New Zealand’s largest poultry processor with around a 50% market share. It operates three vertically integrated and regionally separated operations in New Zealand. Tegel is a well-recognised brand and the company holds #1 market positions in all supermarket chicken product categories. It is also the largest turkey processor and second largest sausage manufacturer in the country.
We like Tegel’s dominant market position and its vertically integrated business model. Due to strict bio-security laws, Tegel does not have to compete domestically against imports. Poultry consumption in New Zealand continues to grow, and is a relatively cheap source of protein. Tegel has had success in exporting chicken, and this adds to the growth opportunities going forward.
Trade Me is a leading online business with market leading positions across a broad range of categories. It has become New Zealand’s leading general retail trading and auction internet platform, and has leveraged its brand into market leading ‘vertical’ positions in motors, property and jobs.
The company is asset-light, with modest working capital and capital expenditure requirements. Consequently, there is a high conversion of profits into free cash flow. Although it has many competitors, its "moat" (competitive advantage) is a combination of its market position, brand, infrastructure platform, diverse revenue streams and service culture. It has re-invested back into the business over the last three years, and is now starting to see some earnings momentum.
Vista Group is an innovative and profitable IT company providing sophisticated software to cinema exhibitors. It has a 38% worldwide market share with clients in over 60 countries. Its integrated software systems allows cinema exhibitors to run wide ranging functions such as ticketing, food and beverage sales and re-ordering, staff and film scheduling, loyalty schemes, digital signage as well as external customer interfaces like websites, mobile apps and call centres.
We are attracted to Vista’s profitable core business of providing sophisticated software to cinema operators of all sizes. We believe that this business has many years of growth ahead of it, particularly in undeveloped countries. Additionally, it has developed adjacent data analytics businesses which have exciting growth prospects albeit that these are fledgling businesses at this stage.
Unlisted Waterman Holdings (Fund 1) acquired and operated established unlisted medium-sized businesses in New Zealand. The company sold its last remaining asset, David Reid Homes, in August 2016. Waterman is now in the process of winding itself up.
Waterman is in wind-up mode following the sale of its last remaining asset. This is expected to occur in 3Q 2017. The investment in Waterman has been a successful one for Kingfish shareholders.
Z Energy recently acquired Chevron New Zealand (Caltex) and now has around a 50% share of New Zealand’s transport fuel market. The combined group will have over 300 petrol stations, 160 truck stops and 14 storage terminals. Z Energy will keep the Caltex brand and operations separate to its own.
We believe that the combined Z Energy and Caltex operations will have substantial synergy benefits even when operated separately. Z Energy is extremely well managed and we believe that there is upside in Caltex’s operations being domestically managed by Z Energy management too. Z Energy is investing in alternate biofuels and electric charging stations to mitigate the effect of being ‘disrupted’ in the medium to long term.