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Fisher Funds backs Infratil's Vodafone play

Thursday 20th June 2019

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Listed investment entity Kingfish's manager Fisher Funds Management likens Infratil's planned Vodafone New Zealand purchase to its successful foray into the retail fuels market. 

Infratil was Kingfish's fourth-biggest investment as at May 31, accounting for 8 percent of the $318 million of assets it manages. Infratil's monthly return was minus 0.4 percent in May, when it announced plans to buy the country's biggest mobile carrier, Vodafone, in tandem with global investment house Brookfield Asset Management for $3.4 billion. It completed a $400 million capital raising last week.

"The deal has similarities to Infratil’s extremely successful transformation of Shell’s New Zealand assets into Z Energy where Infratil created significant shareholder value," Fisher senior portfolio manager Sam Dickie said in Kingfish's latest monthly update. 

"We continue to view Infratil as an attractive investment opportunity and participated in the equity offer."

Last month, Infratil chief executive Marko Bogoievski, a former Telecom executive, said they've entered the deal with a very long-term view based on an investment case for "solid mid-teens-type equity returns". The downside scenario operates on high-single-digit returns, while the upside scenarios take a more optimistic view on the industry structure, how infrastructure sharing might benefit the company and revenue growth.

Infratil's strategy for Vodafone echoes much of the strategy in its successful purchase and redevelopment of Shell's New Zealand retail fuel business. That business, acquired in partnership with the NZ Superannuation Fund in 2010 and listed in 2013, moved away from Shell for imported product supply, implemented projects stalled by a lack of funding from group headquarters, challenged industry infrastructure arrangements, and abandoned the Shell brand in favour of local branding as Z Energy. Infratil exited in 2015.

Infratil raised $400 million at $4 a share to help fund its share of the Vodafone deal, which needs Commerce Commission approval. Infratil shares hit a record $4.70 yesterday, and were down 2.4 percent, or 11 cents, at $4.54 in trading this afternoon, having shed rights to an 11-cent dividend today. 

Dickie today said Infratil's portfolio has been reshaped to focus on data proliferation and connectivity, air travel, renewable energy and retirement living. 

"Vodafone is also exposed to favourable data and connectivity trends," he said. 

Kingfish also talked up the performance of Mainfreight in the month, which delivered a 9.7 percent return. The investment firm lifted its Mainfreight holding, which accounts for about 11 percent of its assets. 

"Mainfreight is executing well and the potential for creation of shareholder value from growth in the large US and European markets is significant," Dickie said. 

The firm added to its A2 Milk holding, despite a 6 percent decline in the month. Dickie said the company continues to deliver on its strategy, supported by the launch of its new Smart Nutrition product launch in the 4-12 year-old segment. A2 accounted for 15 percent of the firm's assets.

Kingfish dialled back its position in Freightways to 8 percent of assets, saying that was in the wake of recent share price gains. Dickie said Freightways provided a mixed outlook at a recent broker conference, but that new pricing initiatives should lift performance in the 2020 financial year. 

Kingfish shares ended May at $1.47, a 6.5 percent discount to a $1.60 net asset value after adjusting for the firm's warrants, which ended the month at 12 cents. The shares recently traded at $1.45. 


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