Wednesday 24th April 2019
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Kingfish pivoted out of Michael Hill International in the latest quarter, adding to its position in A2 Milk, Fisher & Paykel Healthcare and Mainfreight after strong returns.
"During the March quarter portfolio heavyweights like the A2 Milk Company, Fisher & Paykel Healthcare and Mainfreight delivered significantly higher returns than the market," said senior portfolio manager Sam Dickie.
A2 Milk was up 28 percent while Fisher & Paykel Healthcare gained 21 percent, he said. Mainfreight gained 16 percent in the quarter according to data from Refinitiv.
Kingfish had its best quarter in 13 years and its adjusted net asset value for the three months was 13.9 percent while the S&P/NZX50G Index returned 11.7 percent for the quarter, Dickie said.
He noted that in recent months A2's share price has been battered by various fears related to regulatory changes in China, news the chief executive had sold a parcel of shares as well as slowing consumption in China. Finally, a sales "miss" relative to consensus "led many to think the growth story was over."
However, "we have added to our A2 position in several of those situations, which have all proved to be transitory and reflect the market’s short-term focus." Of its total portfolio, 13.2 percent is now invested in A2, up from 11.5 percent on Dec. 31.
Regarding Fisher & Paykel Healthcare, he said Kingfish continues to focus on the five to 20-year outlook as well as the "very large and untapped opportunities Fisher & Paykel Healthcare has with Optiflow outside the intensive care unit." Optiflow is a nasal high-flow therapy that is used for respiratory support. The stock now accounts for 13.9 percent of the portfolio versus 13.4 percent on Dec. 31,
Kingfish also lifted its investment in Mainfreight to 10.6 percent from 10.4 percent.
In the other direction, Dickie said the fund has exited its longstanding holding in Michael Hill, noting the investment case has "changed meaningfully." Kingfish had 2.5 percent of its portfolio invested in Michael Hill as of Dec. 31.
According to Dickie, the company requires "near flawless execution" to navigate the backdrop of a structural shift to online sales. Underlying growth in the fine jewellery category is also "flat at best."
"During these turbulent times, it became clear to us that the strength of the business and the moat around the business is not what it once was. The recent share price recovery on the back of the new CEO’s turnaround plan presented an attractive time to exit the position," he said.
Kingfish shares last traded at $1.42 and are up 6.8 percent over the past 12 months.
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