BRM - New Warrant Issue for Barramundi

[FatTed]

Or invest in new companies

[Mos]

Error

[Minimoke]

From a conceptual point of view I agree but the issue is they have money to invest because warrants were issued over a year ago.  What makes no sense is what they normally do with warrant exercise proceeds and that's apply the money to buying more Australian shares in the ratio in which the portfolio is already allocated, effectively paying $31m for $31m of assets when shares could be bought back at a substantial discount to NAV.

Maybe that $31m is at a discount to NAV for those shares.

[Basil]

Decade high 15% discount to NTA just announced.  8% net yield becomes 8 / 0.85 = 9.41% Net when buying at a 15% discount.  That becomes 9.41% / 0.97 = 9.701% net when taking the 3% shares in lieu of dividend discount.
9.701% net is worth 9.701 / 0.67 = 14.48% gross for 33% taxpayers.  Its paid quarterly so you get the effective rate of 14.48% / 4 = 3.62% gross per quarter.  3.62% per quarter compounded for 4 quarters = 15.29% per annum on an annualized basis.  The value of free warrants issued from time to time are additional to that.  Opportunity knocks, you be the judge, I already have heaps.
https://api.nzx.com/public/announcement/441467/attachment/431384/441467-431384.pdf
On average over the last 5 years they have beaten their reference index after their fees and tax.

[Basil]

NAV increased nicely from 77.28 cps as at close of trade on Wednesday, confirmed by BRM on Thursday, to 78.11 cps as at close of trade on ASX today.
Happy to maintain a very high portfolio allocation and added a few more to it yesterday.  Continues to trade around a decade high discount to NTA.

[snapiti]

NAV increased nicely from 77.28 cps as at close of trade on Wednesday, confirmed by BRM on Thursday, to 78.11 cps as at close of trade on ASX today.
Happy to maintain a very high portfolio allocation and added a few more to it yesterday.  Continues to trade around a decade high discount to NTA.

thanks for the update Basil, only took 10 days to claw back dilution from warrants, plenty in the kitty to continue to pay out divi's......not long to go now for another divi as well, a very solid performer, due to my warrent uptake I am very overwieght BRM but won't sell any with the discount to NAV so unusually high, happy to collect Divy

[Plata]

I think some level of discount is warranted if you assume they perform inline with the market going forward. The discount does seem steep though. I dipped my toe in with some warrants and have been meaning to try do a proper analysis, I think making comparisons to the NTA discounts of ASX listed LICs could be a worthwhile exercise. I did some calculations before I bought the warrants that showed the discount can more than overcome the drag of the management fee in certain circumstances.

[Basil]

Over my standard 5 year timeframe, (not making an exception for any company or fund), adjusted NAV is up 12.2% per annum, (this is after fees), gross before fees is 14.9% per annum and the benchmark is 9.0% per annum, see page 2.  They have outperformed by an average of 3.2% per annum after fees over the last 5 years.  https://barramundi.co.nz/assets/Investor-Centre/Barramundi-Newsletter-September-2024.pdf
With significant average outperformance like that is any discount to NAV warranted ?

If you're going to make comparisons with overseas funds in terms of their discount to NAV, you need to find funds which have outperformed their benchmark after fees by a similar amount on average over the same timeframe. 

[Basil]

78.70 cps.

[Basil]

79.01 cps.  Let's see how well my spreadsheet modeling is working when they announce NAV tomorrow.  My model does not take into account exchange rat differences so will always be a little bit different to exact NAV.

[Basil]

I asked Robbie Urquart the investment manager about Xero and Wisetech at the annual meeting.  He was very confident in his conviction about holding notwithstanding the very elevated PE's.
XRO up about more than 10% since the annual meeting.
Today's presentation is here https://research.iress.com.au/IDS/old/20241114/02880514.pdf?uid=8DEB10C0DF3BDE97C31E95DDFE8699426E7900009E158D047045E640093D250091850000&ppv=

[777]

79.01 cps.  Let's see how well my spreadsheet modeling is working when they announce NAV tomorrow.  My model does not take into account exchange rat differences so will always be a little bit different to exact NAV.

Slightly high but not too bad.

.7875

[Basil]

To be honest about it, I wasn't all that happy about being as much as a ~ quarter of a cent out so thinking about the most logical explanation I put it down to two things, firstly exchange rate differences my model does not account for but secondly, they may not have invested all the cash raised in the warrant issue yet especially after I encouraged the board at the recent annual meeting to step up their share buyback program.  Basically, I said what's the point in buying more shares across your portfolio at full price when you can buy your own shares back at a decade high discount to NTA of about 15% which is far more value accretive to shareholders.  I also suggested to Robbie Urquart in the meeting that Wisetech and Xero are on super high PE's and maybe time to take some profits?  He didn't agree, explained why and I see both are up significantly since the ASM so that's served as a timely hubris check that I don't have all the answers lol

Anyway, I regauged the baseline on my spreadsheet to eradicate out last week's error and the current estimated NTA as at close of the ASX today has shown a healthy improvement in the last 2 days from 78.75 cps to 79.62 cps, assuming they've reinvested all warrant proceeds across the portfolio already which, as noted above, may not be the case.  Updated discount to NTA at 68 cents is 14.6%.  Very cheap exposure to the ASX in my opinion.  Holding heaps and looking forward to next month's quarterly dividend in time for Christmas.  Very nice to see NTA back very close to 80 cents so soon after the warrant exercise.  Happy days.

[Dolcile]

Can someone help me understand this...

Type ASX200 into google and it provides a chart that shows the ASX200 index has delivered 17.38% for the last 12 months.

I do the same for BRM, and the result is -1.45%.   

That's a difference of nearly 19%.

Add that BRM has paid a ~8% dividend, so that's about an 11% gap.

The NZD has depreciated about 1.5% over the period, so there is part of it.

Why is there such a difference ?

[Basil]

Type ASX200 into google and it provides a chart that shows the ASX200 index has delivered 17.38% for the last 12 months.

Thanks for your question.
That's correct but please note as an interesting anecdote, year to date from 1 January the ASX200 is up just over 8%.

I do the same for BRM, and the result is -1.45%.   

The share price a year ago was 69 cents, on 9/11/23 the NAV was 69.76cps and it traded at just a 1% discount to NAV, and it closed yesterday at 68 cents a 14.6% discount to NAV as per my calculations. 

The total difference per google is 18.83% 17.38% positive on one hand and 1.45% negative on the other.
8% of the difference is accounted for with dividends as you mentioned leaving another 10.83% difference.  This is more than accounted for with the change in the discount level BRM shares are currently trading at.  Was 1% a year ago and current discount is 14.6%, a difference of 13.6%.

NAV has actually increased from 69.76 cps to 79.62 cps a 14.1% gain over the last year despite paying 8% in dividends, total gain 22.1% plus conferring gains in the warrants too.  In effect The NAV of Barramundi has increased 14.1% + 8% dividends = 22.1% and has outperformed the ASX200 by 22.1% - 17.38% = 4.72% fund outperformance after BRM management fees and tax + the warrant accretion value.

Google is picking up the share price movement only, 69 cents to 68 cents = 1.45% decline, not the NAV gain, the dividends paid or the value accrual through the warrants.  It's also not picking up the huge change in the discount level the shares are trading at.

The discount to NAV as mentioned above, is at a decade high and has moved from 1% last year to 14.6% currently.  This is exactly why I have been pointing out that the fund is a remarkable buy at this level.  You have a fund that has comprehensively beaten the ASSX200 in the last year, and over the long term, 5 years has also soundly beaten it.  It's a PIE with wonderful tax-free dividends and is trading at a totally underserved decade high discount to NAV.  I'd be buying like crazy if I hadn't backed the truck up already.   

I've deliberately said the same thing several ways above, so hopefully one of those paragraphs resonates and makes sense to you and others.
You might be wondering what is a normal level of discount to NAV the shares trade at ? I've done a ten-year study on BRM and found the average discount to NAV over 120 monthly measurement points was 0.6%.  We're probably 5 standard deviations away from that at present with the 14.6% discount and that's at 68 cents and there are plenty on offer there.