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.
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 US.
Delegat Group 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 7.5% per annum growth in case sales over the next five years. 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.
Fletcher Building is a diversified building products and construction company with a range of different business units across many products and services in New Zealand, Australia, and also internationally.
Many of Fletcher Building’s key business units are well established, have performed well, and have strong market positions, particularly in New Zealand. Under the new CEO, the company has strengthened its balance sheet and is refocusing on its core after various missteps on large construction projects and expanding internationally.
Freightways operates a range of nationwide courier operations with brands including NZ Couriers, Post Haste and DX Mail. 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 footprint across Australasia. 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 encompassing renewable energy, air and road transport, aged care, and more recently, data centres with a focus on co-investment within Australasia. 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 exceptional.
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 both full-truckload and less-than-truckload domestic transport. Its operations span New Zealand, Australia, the US, Asia and Europe.
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 and through selective acquisitions 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 hinterland 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 payments and engagement provider to the US faith sector, with more than 7,300 Customers including 14 of the top 20 and 55 of the top 100 largest churches in the US.
Pushpay provides the best in class product and service, and its domain expertise combined with existing resources (both sales and Research & Development) gives us comfort that Pushpay will retain this edge over competitors. Pushpay’s addressable market is very large (cUS$90bn) and very under-penetrated and although Pushpay remains relatively early-stage, it is not unreasonable to see revenue growth over the next three to five years continue to compound at circa 30%+ p.a.
Restaurant Brands has franchise agreements for international fast-food brands in New Zealand, Australia, and the Pacific (including KFC, Taco Bell, Pizza Hut, Starbucks and Carl’s Jr.). In recent times, the company expanded internationally with the purchase of a network of KFC stores in New South Wales, plus Taco Bell and Pizza Hutt stores in the Pacific (primarily Hawaii). The KFC brand is the largest earner for the group.
Restaurant Brands has a long history of achieving attractive returns on invested capital and has successfully delivered increasing same store sales and margins in its KFC division (including in Australia), while changes in strategy have improved profitability of Pizza Hut and Starbucks. Restaurant Brands has a leading management team and is in the middle of a growth phase via its offshore expansion.
Ryman Healthcare was formed in 1984 to develop, construct and operate retirement villages in New Zealand. It now has 32 retirement villages around New Zealand and is in the early stages of replicating its model in Melbourne. 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 is well positioned to lift its build rate of units and beds to meet accelerating demand from an ageing population. Melbourne represents an area of considerable upside with a similar ageing demographic to that in New Zealand. The company plans to have five retirement villages open in Melbourne by 2020, and plans to ultimately build at the same rate there as in New Zealand.
Summerset is an integrated retirement village builder, owner and operator. The company has over 20 retirement villages around New Zealand and is the second largest developer and the third largest owner of retirement villages in New Zealand. It is investigating whether to expand into the Australian market.
Summerset successfully operates a continuum of care model with aged care integrated into its villages. Summerset has consistently lifted its build rate of new units and beds, while expanding its development margin. 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 businesses in the US and UK.
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 around 40% worldwide market share with clients in over 90 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 undeveloped countries. Additionally, the company’s data analytics business (Movio) and other early stage businesses have exciting long term growth prospects.