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.
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 light-handed 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. 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.
Contact Energy is New Zealand’s second largest electricity generator, producing approximately 20-25% of the country’s electricity in an average year. The vast majority of its electricity is from renewable hydro and geothermal resources.
Contact Energy has a balanced portfolio of quality renewable generation assets across both islands and this is matched by demand from a strong electricity retailing business plus commercial and industrial customers. Its established business provides solid cash flows which underpin an attractive level of dividends. Contact’s Tauhara geothermal field is the most attractive generation development project in New Zealand. Once this is developed Contact will be able to retire its TCC gas plant and will move to 100% renewable base load electricity generation.
Delegat Group produces and distributes super-premium wine internationally under the Oyster Bay and Barossa Valley Estate brands. Oyster Bay is the number one selling New Zealand wine brand in the UK, Australia and Canada, and is growing quickly in the USA.
Delegat continues to grow its profits annually despite currency fluctuations. The company has invested for growth by expanding its winery capacity and increasing vineyard plantings to meet its goal of achieving high single-digit growth in case sales in the short term. The majority of the growth is likely to be driven by the still relatively immature US market.
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 growing demand for Fisher & Paykel Healthcare’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 Healthcare has continued to develop products that significantly expand its potential patient base, while maintaining high returns on invested capital.
Freightways operates a range of nationwide express delivery operations with brands including NZ Couriers, Post Haste and Big Chill. The company has also developed an information management business on both sides of the Tasman encompassing document storage, data services, and secure destruction services.
Freightways is one of two dominant players in the New Zealand courier market and its information management business has a trans-Tasman footprint. The company has an impressive track record of stable organic growth and 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 with a portfolio focused on data and communications and renewable electricity with smaller exposures to airports and aged care. It is externally managed by an experienced management team.
We are attracted to Infratil’s portfolio of infrastructure assets that are not easily replicable 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 air and sea freight, and domestic transport. Its operations span New Zealand, Australia, the Americas, Europe, and Asia.
Mainfreight is a very well-run company with a special company culture that has delivered strong performance over time. It continues to open new trade lanes as it spreads its logistics footprint ever wider. Growth should come organically 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 in New Zealand, operating under the Meridian and Powershop brands, and is well positioned to double the size of its Australian retail base.
Meridian is a well-run company, with a portfolio of long-dated, quality renewable generation assets which provide 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.
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 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.
Pushpay is a leading mobile payment and engagement provider to the US faith sector, with a growing customer base focused on medium and large churches in the US. It also has a church management software business Church Community Builder. Together these enable churches to manage and interact seamlessly with their congregation in an effective and modern way.
Pushpay provides the best in class product and service. Its combination of ongoing product development and leading customer service gives us comfort that Pushpay will retain this edge over weaker competitors. Pushpay’s addressable market is very large (cUS$90bn) and digital giving remains under-penetrated but growing.
Ryman Healthcare was formed in 1984 to develop, construct and operate retirement villages in New Zealand. It now has a portfolio of retirement villages around New Zealand and is now replicating its model in Victoria, Australia. Ryman Healthcare is the largest owner and developer of retirement villages in New Zealand.
Ryman Healthcare has stuck to its winning formula since inception. Industry dynamics are attractive, and Ryman Healthcare continues to lift its build rate of units and beds to meet latent demand from an ageing population. Victoria has a similar ageing demographic to that in New Zealand but Ryman’s continuum of care offering is more unique there compared to existing product, so this market represents an area of considerable future growth.
Summerset is an integrated retirement village builder, owner and operator. The company has retirement villages spread around New Zealand and is a leading developer of retirement villages in New Zealand with a significant land bank. It has recently acquired sites in Australia and is also looking to grow there.
Summerset successfully operates a continuum of care model with aged care integrated into its villages. It has delivered on growing its portfolio at attractive development margins. 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.
The a2 Milk Company sells ‘a2’-branded fresh milk and infant milk formula internationally. As the name suggests, its products contain only A2 beta-casein protein, on the basis that it is more comfortably digested than normal milk (which contains a mix of both A1 and A2 proteins). In recent years, the company has grown sales and market share rapidly in Australia and China and is currently also focused on its growing business in the US.
The a2 Milk Company has a small but fast-growing share of the very lucrative Chinese infant formula market. Management have capably executed on its growth plans to date and we expect its market share to continue growing across a range of distribution channels. In addition, there is potential for further upside from new products and geographies.
Vista Group is an innovative and profitable IT company primarily providing sophisticated software to cinema exhibitors. It has over 40% worldwide market share with clients in over 100 countries. Its integrated software systems allow cinema exhibitors to run wide-ranging functions such as ticketing, food and beverage sales, staff and film scheduling, loyalty schemes, digital signage as well as external customer interfaces like websites, mobile apps and call centres. Vista Group also has a range of smaller group businesses that leverage its depth of data and cinema industry intellectual property.
We are attracted to Vista Group’s profitable core business which provides sophisticated software to cinema operators of all sizes. We believe that this business still has many years of growth ahead of it, particularly in less developed countries. Additionally, the company’s data analytics business (Movio) and other early-stage businesses have exciting long-term growth prospects.