BRM - New Warrant Issue for Barramundi

[Basil]

Sure did Toddy and added another ~ half cent to NAV, see post 79 here with latest updated NAV at close of ASX today https://stocktalk.co.nz/index.php?topic=105.75  76.84 cents NAV now, up nearly half a cent on 31 January.

Post 77 might interest some of you in terms of how much I have invested in BRM and the warrants BRMWH and my interest in adding a lot more to my Marlin investment..

[Toddy]

Excellent. The ASX market is looking good.

The NZX, well same old.

[Toddy]

Basil

I had a read of your previous posts. There is nothing wrong with going hard out investing in a managed fund with exposures outside NZ.
I loaded up with 900,000 warrants at avg 3.6 cents.

I initially bought in for a bit of fun but are becoming a fan as I get a better understanding of their portfolio.

The best part was that the warrants were issued around the bottom of last years sell off so the price was a complete bargain.

[FatTed]

Basil

You were very dark about BRM March 2022, (#971) what has changed for you?

[Basil]

Welcome to the forum FatTed and thanks for your question and referencing that post.

For almost all of 2021 and 2022 BRM and Marlin traded on the market at a very substantial premium to the NAV, for example on 31 March 2022 that premium for BRM was 14% and MLN 17%, but at times it was over 20%.  In my view there's simply no point in buying these stocks when they trade at a material premium to NAV because you invest a dollar but, in the examples above, only 86 or 83 cents of that is really working for you. Conversely when I was backing up the truck on BRM and MLN recently I have been buying at up to a 10% discount so for every dollar I was fortunate to invest at that level of discount I have $1.10 working for me going forward.

Tech really didn't work for BRM and MLN in 2022 in a rapidly rising interest rate environment where distant future earnings are discounted back to net present value at ever higher discount rates.  As 2024 and 2025 unfolds we're headed into a lower interest rate environment, and I believe tech and growth companies will perform well.  I also think the Australian economy is well positioned to recover over the next few years, but I am expecting a long slow grind for the N.Z..  America appears well placed for either no economic landing at all or a very soft one at worst. In brief, in 2022, we had economic and interest rate headwinds and with BRM and MLN trading at substantial and unwarranted premiums to NAV, that provided a substantial further headwind to investors short to medium term returns with the unusual premium likely to revert to neutral at some stage, as it subsequently has.

Conversely in 2024 I believe we have interest rate and economic tailwinds and BRM and at times MLN trading at a discount to NAV providing investors with an additional tailwind.  The current BRM warrant issue has extremely attractive pricing dynamics in this tailwind environment and confers some great optionality benefits in terms of the prospects of a strong economic recovery in 2024 with the exercise nearly 9 months away.  I believe the warrants are exceptional buying, but as I already have a boat load, the opportunity is there for those that want to increase their exposure with the additional benefit, they don't have to commit the rest of the funds, (exercise price expected to be 63 cents), until late October 2024.

Additionally, for me personally I am two years older and much closer to retirement and after a major health scare last year I really do want to take life easier in terms of the level of investment analysis I do going forward and take the time to smell the roses so to speak, (for me that's walking my dog and boating)..  Although I am presently fully subscribed to the DRIP plan for all my Kingfish group holdings, (yes, I have a small investment in KFL as well), the 8% tax free income will come in really handy in the years ahead when I need it when fully retired.

Thanks Todd, we're on the same page mate, I have a very similar number of warrants at almost exactly the same average price and a similar number of shares too As you imply, they have a very well diversified portfolio of some 26 stocks so I'm perfectly comfortable exercising all my warrants and have funding earmarked to effect that.   If they're all exercised as I am expecting they will be, that would take me up to ~ 50% portfolio allocation but that's on a well-diversified fund, not on a single stock.  Acknowledging 50% will be very high for me but potentially doubling my portfolio allocation through the exercise of BRM warrants is my big option play for 2024.  I don't have to do it but if it's worth my while, as it appears it will be, I am happy to do it.  Done it before too.  Exercised 700,000 of a previous series of warrants.  Made heaps

[moose]

Hi Beagle (et al) I'm interested in your view on KFL. I completely agree with your view that the outlook for the NZ economy is not as good as Oz or the US, however the KFL portfolio is heavily weighted towards stocks that have very significant exposure to international (especially Aus and the US) markets - FPH/MFT & IFT make up almost 50% of the portfolio. The remaining stocks are a mixture of smaller holdings with overseas exposure and "defensive" NZ sticks.

Overall KFL appears to have significant overseas exposure without a huge techstock weighting. To my mind a "retirement" portfolio in which income is important may be better made up of an equal weighting of all 3 of these (KFL/BRM/MLN)? KFLs pricing (including warrants) is also, superficially at least, the most attractive.

[Basil]

Hi Moose, welcome to the forum and thanks for your question which is also a very good one.
You make a very good point and it's an exercise I have just been through for a friend who inherited a very modest sum through a trust.  For him, the $100K he inherited is his only retirement savings and he's likely to live another 20 or so years based on actuary life expectancy data so it was important to get him into something that made a genuine difference to his retirement lifestyle, (yes even $8,000 in annual dividends tax free makes a difference if all you have is superannuation, a few small treats now and again is better than no treats!).

In his case I recommended a 30%,35%,35% split between the three with KFL the lowest.  He only wanted 20% in Kingfish, 50% in Barramundi and 30% in Marlin but as one of the Trustees I overrode that choice in conjunction with the other Trustee because I wanted better diversification, acknowledging there is a risk to investing it all in equities.  He complained a bit, but I made the exact point to him that you've made in your post, that a lot of the KFL portfolio is invested in companies with very strong overseas interests, not forgetting too that in addition to what you've mentioned RYM and SUM, another two of their portfolio stocks are also rapidly expanding into Australia.

For me personally, by and large I am happy to do my own stock picking in N.Z. and my holding in KFL is very small (circa 2%).  KFL warrants appear to be a borderline thing to me.  Exercise price is likely to be $1.26 and the shares are also $1.26.  Clearly, they are a play on how the market performs between now and the exercise date but we're talking about the N.Z. share market here Moose, the same market that struggled to break even last year inclusive of all dividends paid and is still well below where it was 3 years ago and is in fact down nearly 30% in real inflation adjusted terms over the last 3 years. (Let that fact sink in for a minute). I guess you could say we are well and truly overdue for a good year on the NZX!  While it's fair to suggest that, whether it happens is another thing.  6 years of Labour have left us with a deeply divided country with very low growth, (recession on a per capita basis if you exclude spending by new residents) and little prospect for a quick turnaround. 

In summary, you make a very good point but I'm not sure there's a one size fits all, 1/3rd 1/3rd, 1/3rd for the Kingfish group as every investor has different goals and aspirations and most will have an existing portfolio often biased towards N.Z. stocks already.

[SmallSteps]

Hi Moose, welcome to the forum and thanks for your question which is also a very good one.
You make a very good point and it's an exercise I have just been through for a friend who inherited a very modest sum through a trust.  For him, the $100K he inherited is his only retirement savings and he's likely to live another 20 or so years based on actuary life expectancy data so it was important to get him into something that made a genuine difference to his retirement lifestyle, (yes even $8,000 in annual dividends tax free makes a difference if all you have is superannuation, a few small treats now and again is better than no treats!).

In his case I recommended a 30%,35%,35% split between the three with KFL the lowest.  He only wanted 20% in Kingfish, 50% in Barramundi and 30% in Marlin but as one of the Trustees I overrode that choice in conjunction with the other Trustee because I wanted better diversification, acknowledging there is a risk to investing it all in equities.  He complained a bit, but I made the exact point to him that you've made in your post, that a lot of the KFL portfolio is invested in companies with very strong overseas interests, not forgetting too that in addition to what you've mentioned RYM and SUM, another two of their portfolio stocks are also rapidly expanding into Australia.

For me personally, by and large I am happy to do my own stock picking in N.Z. and my holding in KFL is very small (circa 2%).  KFL warrants appear to be a borderline thing to me.  Exercise price is likely to be $1.26 and the shares are also $1.26.  Clearly, they are a play on how the market performs between now and the exercise date but we're talking about the N.Z. share market here Moose, the same market that struggled to break even last year inclusive of all dividends paid and is still well below where it was 3 years ago and is in fact down nearly 30% in real inflation adjusted terms over the last 3 years. (Let that fact sink in for a minute). I guess you could say we are well and truly overdue for a good year on the NZX!  While it's fair to suggest that, whether it happens is another thing.  6 years of Labour have left us with a deeply divided country with very low growth, (recession on a per capita basis if you exclude spending by new residents) and little prospect for a quick turnaround. 

In summary, you make a very good point but I'm not sure there's a one size fits all, 1/3rd 1/3rd, 1/3rd for the Kingfish group as every investor has different goals and aspirations and most will have an existing portfolio often biased towards N.Z. stocks already.

Excellent Question re splitting between those three - I have done the 1/3 1/3 1/3 split between the three funds, so was interested to see Basils take on that one.
Due to the timing of buying (and deciding on split), my KFL is Well down, Marlin about even, and BRM is up.
I'm also optimistic that my BRM warrants will do well, KFL 50/50. I'm only small scale, so quite like the way these work (more so when the SP is not going down however).

[Perky]

I've gone a slightly different route for 1/3, 1/3, 1/3
I have KFL, and BRM
Instead of marlin I've gone MFF on asx.

https://www.mffcapital.com.au/

It's similar to marlin concept as a LIC but been around longer and I believe it has better quality companies. Good discount to NTA...lower dividend but just sell a few if you need some dosh

Gives me some diversification from kingfish group and NZ dollar and  another way to access global companies from this part of the world.

[Toddy]

The KFL portfolio is more difficult to actively manage because of the liquidity issues on the NZX.

For example, if the portfolio managers decided to exit the Pot then the Pot share price would tank. It would also take a long period of time to execute.

Mft,Fph and Ift are the exceptions as they are truly international companyies.

[Basil]

The PIE structure of the funds means all distributions are tax free in shareholders hands.  Other funds like the one Perky mentioned above will have a different tax structure and people need to DYOR as to the implications for them.  The Kingfish group's distribution policy of 2% of NTA tax free is I believe unique and it makes a meaningful difference for a lot of people and is especially attractive for those looking for retirement income. 

Going off the example I provided above for that friend that inherited $100K, no other investment structure would generate him $8,000 per year ~$154 per week tax free in his hands.

People living on National superannuation without any other income apparently constitute about 40% of that demographic.  It can be done if people own their own home but there's very little if anything in the way of money left over for treats.  $154 per week extra gives my friend the opportunity to catch up with his friends for coffee and lunch a couple of times a week and to have a reasonable holiday once a year.  That's a meaningful difference to the happiness in his life, for the rest of his life.  Pretty cool to think as little as $100K can make that sort of difference so he can enjoy a much happier retirement.
Unfortunately, I have much more expensive tastes lol

Agree 100% Toddy.  I often find the NZX extremely frustrating in terms of lack of liquidity.    As for the unlisted market, oh my goodness...the lack of liquidity there is absolutely shocking.

[Toddy]

I have a chunk in an unlisted Share. Zespri.

Good dividend stock but no capital gain as  the Zespri revenue model is not tied to the growth of the industry.

That may change in the future if new varieties are issued on a commission basis and not tied to one off license rights.

[Dolcile]

Does anyone know, if you are on a 39% marginal tax rate, do you have to pay 11% additional tax (39% mins 28%) on the dividends.   Or for tax purposes is this a PIE and therefore final tax.  I.e. no need to include the distribution in your tax return?

Thanks

[Basil]

See the opening line of post #100 above.   It is a final tax. The PIE structure keeps me out of the dreaded 39% tax scalping tax bracket so I am a very happy camper 

[winner (n)]

See the opening line of post #100 above.   It is a final tax. The PIE structure keeps me out of the dreaded 39% tax scalping tax bracket so I am a very happy camper 

Better not crow about that too much  ....... Government will sort that out to 'catch' us out ...... working on it already?

Count count on Luxon and his Coalition mates