munro global growth fund june quarter...
TRANSCRIPT
MUNROGLOBALGROWTHFUNDJUNEQUARTER2017
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DisclaimerNeither Munro Asset Management Limited, Munro Investment Holdings Pty Ltd, Munro Partners (together “Munro”) nor Grant Samuel Funds Management Pty Ltd are providing any general advice or personaladvice regarding any potential investment in any financial products within the meaning of section 766B of the Corporations Act.
• Munro Asset Management Limited is the holder of an Australian Financial Services Licence (AFSL) number 480509. Our Financial Services Guide can be located on our website: www.munropartners.com.au.This presentation is not an advertisement and is not intended for public use or distribution. Grant Samuel Funds Management Pty Limited ABN 14 125 715 004 AFSL 317587 has a distribution arrangement withMunro to represent their products in the Australia and New Zealand markets. As such, it is not to be released or made available to any other party, excepting Grant Samuel Funds Management Pty Ltd (GSFM)or used for any other purpose.
• Munro has issued a product disclosure statement (PDS) on 1 March 2017 offering investors an opportunity to subscribe for units in the Munro Global Growth Fund (Fund). If you would like to receive a copy ofthe PDS, then please contact Munro on (03) 9290 0900 or [email protected] and Munro will arrange for a copy of the PDS to be forwarded to you. Alternatively, a copy of the PDS for the Fund isavailable on our website www.munropartners.com.au/access. All prospective investors should consider the contents of the PDS in full prior to making a decision regarding an investment in the Fund.
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• It contains selected information and does not purport to be all-inclusive or to contain all of the information that may be relevant. The information contained in the Presentation has not been independentlyverified, nor have they conducted any due diligence in respect of the information provided. It should be noted that any projections, references to companies or past performance are provided for generalreference purposes and are based on assumptions relating to the general economy and other factors beyond the control of Munro. Returns of the Munro Global Growth Fund are net of applicable fees, costsand taxes. Returns have not been annualised. Past performance is not a reliable indicator of future performance. The MSCI AC World TR Index (AUD) refers to the MSCI All Country World Net Index in Australiandollars. The Top 5 Holdings depict end of month figures and may have changed materially from holdings during the month or not disclosed due to confidentiality reasons. Numbers may not sum due torounding. Please also see our Financial Services Guide, Privacy Policy and Terms of Use via www.munropartners.com.au/legals/.
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• This Presentation may contain forward-looking statements, forecasts, historical performance, estimates, projections and opinions ("Forward Statements"). No representation is made or will be made that anyForward Statements will be achieved or is correct. Actual future results and operations could vary materially from the Forward Statements. Similarly no representation is given that the assumptions disclosed inthis Presentation upon which Forward Statements may be based are reasonable. The recipient acknowledges that circumstances may change and the contents of this Presentation may become outdated as aresult.
CONTENTSGLOBALMARKETOUTLOOK 5
MGGFPERFORMANCEANALYSIS 9
KEYINVESTMENTTHEME:VIDEOGAMES(LONG) 15
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4
GLOBALMARKETOUTLOOK
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GLOBALMARKETOUTLOOKGrowthhasstabilised,withEuropestillimproving.
Source:BloombergConsensusData
54.7 54.9
52.4
51.4
45.2
56.055.2
52.7
51.3
44.0
57.7
55.4
53.3
51.6
46.9
57.2
56.2
52.451.8
49.6
54.8
56.7
52.7
51.2
50.1
54.9
57.0
53.1
51.252.0
42
44
46
48
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56
58
60
US Eurozone Japan China Brazil
GlobalPurchasingManagersIndices(PMI's)
Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
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GLOBALMARKETOUTLOOKS&P500Indexvaluationishigh,howeverearningsgrowthhasnowinflectedpositivelyandlookslikelytocontinue.
Source:BloombergConsensusData
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Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
S&P500IndexForwardValuation(RHS)andEPS(LHS)
S&P500FwdEPS(LHS) S&P500FwdP/E(RHS)
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GLOBALMARKETOUTLOOKYieldcarryforequitieshasshrunk,butimportantlyremainspositive.
Source:BloombergConsensusData
-8
-6
-4
-2
0
2
4
6
8
Jan-62 Jan-66 Jan-70 Jan-74 Jan-78 Jan-82 Jan-86 Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 Jan-14
S&P500EarningsYield- US10yrBondYield(%)
8
60%
70%
80%
90%
100%
110%
120%
Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
NetExposure(trailing10dayaverage) GrossExposure(trailing10dayaverage)
GLOBALMARKETOUTLOOKTheMunroGlobalGrowthFundhasreducedmarketexposureoverrecentmonthsasvaluationsandseasonalitystarttoslowmarketperformance.
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CASESTUDY:VIDEOGAMES
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THERISEOFGAMING
GAMING
CONSOLEMAKERS
SOFTWAREMAKERS
GAMINGENABLERS
ESPORTSANDHOSTING
GRAPHICS
AoI WinnersSub- Trends
Theintroductionofnextgenerationconsoles,smartphonesandusingtheinternetforconnectedgameplayhasresultedinvideogamesmovingfromthebedroomsofteenagerstothehandsofallindividuals,soldoutsportsstadiumsandprimetimeTV.Theaddressablemarketisexplodingandmultiplevendorsacrosstheeco-systemlookwellplaced.
SECULARCONTENTLOSERS
ImagesdonotnecessarilyrepresentassetsoftheFundorconstitutefinancialadvice.
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2012 2013 2014 2015 2016 2017E 2018E
$Billion
THEGLOBALGAMINGMARKETTheglobalgamingmarketingrossdollarsspentisgrowingatroughly8%perannum,drivenbythegrowthinscreens,therise in casualgamersandthedigitalisation ofgameplay/gamedownloads.
Globalgamingmarketgrowingat8%perannum,drivenbythreekeyseculartrends:
• More screens: Smartphone / tablet penetration gives everyone theirown hand held gaming device for publishers to target a much largeraudience via casual gaming.
• MMO (Massively Multiplayer Online): Internet connected games allowplayers to play each other from all over the world, giving rise to hugeplaying communities around the top games.
• In game purchases: Digitalization allows players to purchase moregoods in the game, it also allows publishers to hook casual gamers withinitially free games. Widening the community and widening therevenue opportunity.
Globalgamingmarket$bn’s 2012-2018
7%CAGR
8%CAGR
9%CAGR
2%CAGR
15%CAGR
Source:NewZoo
PC,Webgames&MMO
Smartphones
Tablets&Handhelds
Consoles
Globalgamingmarketgrowth
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FEWERGAMESBUTMORESUSTAINABLEFRANCHISESThestockmarketisincreasingrecognisingthatthemajorvideogamepublishershavemorphedfrom“hitdriven”businessmodelsaroundAAAgamereleases,tocompaniesthathavebeenabletobuildmoresustainablefranchisesviasteadygamerengagement.
ActivisionMonetisationModel
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2010 2011 2012 2013 2014 2015 2016 2017e
Electron
icArts
EarningsPerSha
re(N
on-GAA
P)
Electron
icArts
Num
bero
fNew
Titlesp.a.
EA#oftitlesp.a. EAEPS(RHS)
450millionusers
43billionhoursplayed/watched
$3.6billionindigitalin-game
sales
$2.2bnofoperatingcashflow
Source:ActivisionBlizzard,ElectronicArts,MorganStanley
EAGameTitlesvs.EarningsPerShare
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DIGITALMONETISATIONVideoGameshavemovedfromthephysicaltothedigitalworldandthisnotonlyallowsforamoresustainablerevenueprofile foreachtitle,italsoadrasticallyimprovesmargins.Digitaldownloadsare~20%highermarginthatphysicalandextradigitalcontentisevenhighermargin.
DigitalDramaticallyImprovesMarginsForElectronicArts
Source:ElectronicArts,MorganStanley,MunroPartnersestimates
Packaged
Mobile
ExtraContent
Subscriptions
FullGameDownloads
0
1000
2000
3000
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6000
FY12 FY16 FY20e
Electron
icArtsR
even
ues($U
Sm)
ElectronicArtsMetrics
Digital(asa%ofSales) 29% 55% 71%
GrossMargin 63% 71% 75%
OperatingMargin 9% 28% 34%
Earnings(US$million) 284 1,018 1,449
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E-SPORTSPROVIDESSIGNIFICANTPOSSIBLEUPSIDETOEARNINGSGROWTHE-Sportsisrapidlybecomingachallengertotraditionalsports,withregularviewerssettotop400mnin2017.E-Sportslookslikelytoprovidethegamingcompanieswithawholenewchannelofengagementandearningsgrowthoverthecomingyears.
EsportsCaseStudy:OverwatchEsportsCaseStudy:FIFAOnline
Source:ElectronicArts,ActivisionBlizzard,FIFA
0
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35
Q2-2016 Q3-2016 Q4-2017 Q1-2017 Q2-2017
Registered
Players(m
illions)
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KEYSTOCKIDEA:ACTIVISIONBLIZZARD(LONG)ActivisionBlizzardpublishes,developsanddistributesinteractiveentertainmentsoftwareandperipheralproducts.Thecompany’sproductscoveradiverserangeofgamecategoriesincludingaction,sports,roleplaying,simulation,strategyandmore.
KeyStock ActivisionBlizzardKeyDetails Market Cap:USD45.6bn
Listed:USRevenue2017:USD6.4bn
QualitativeTests
Growth:The totaladdressablemarketforgamingisincreasingviamorescreens,moreinteractivegamingande-sports.ActivisionBlizzardhasover90millionmonthlyactiveusers(MAU’s)playingover43billionhours ofvideogamesperyear,up50%y/y.EconomicLeverage:Marginupsidefromshifttodigitalsalesandingamesales.Marginscanexpandfrom35%in2016toover40%in4years.Sustainability:RiseofMMO(MassivelyMultiplayerOnline)communitiesandE-sportsleadstousersamalgamatingaroundplatformgames.Control:RobertKotick(CEOsince1991)&BrianKelly(Chairman)controlUS$1.3bnofstockinthecompany.CustomerPerception:Activisionreceivesexcellentreviewsforitspremiumfranchises.
QuantitativeTests
Earnings upside:MarketobservationssuggestedthattheshifttodigitalandsubsequentEPSgrowthwasunderappreciatedbythemarket.Multipleupside:Stockwastradingonamultipleoflessthan15xforwardEPSondiscovery.Catalysts/Sizing:Earningsresults,newfranchisereleases.
Outcome Stock discovered:June2015,tradingbelow15xforwardEPS.EPSestimateshaveexpandedbyover50%astheshifttodigitalincreasedprofitability.Stockmovedfrom$25toover$50.
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Forw
ard
EPS
Shar
ePr
ice
StockPrice ForwardEPS
EPSupover50%sincediscovery
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Jan-10 Jan-12 Jan-14 Jan-16
Forw
ard
PEM
ultip
le
Shar
ePr
iceStockPrice ForwardP/EMultiple
PEre-ratedbyover50%
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FUNDPERFORMANCE
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
HANGSENGINDEX NIKKEI225 DOWJONESINDUS.AVG
S&P500INDEX HANGSENGCHINAENTINDX
FTSE100INDEX STXE600€Pr SHANGHAISECOMPOSITE
MSCILocal MGGFlocal
April1toJune302017(%)
17
MGGFVS.MAJORMARKETINDICES- QUARTERLYLocalcurrencyreturnsofvariousglobalmarketsandthereturnoftheMSCIWorldACIndexinAUDnexttothereturnoftheMGGF inAUD.
=FXContribution
IndexReturn3.7%
FundReturn6.4%
18
MGGFLONG/SHORTATTRIBUTION- QUARTERLYApril1toJune30basispointattributionoftheMGGFbyinvestmentcategory.
-200 -100 0 100 200 300 400 500 600 700 800
FX
Long
Short
Hedging
MGGFAttribution(bps)
Pastperformanceinformationgiveninthispresentationisgivenforillustrativepurposesonlyandshouldnotbereliedupon as (andisnot)anindicationoffutureperformance.
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MGGFSTOCKANDREGIONATTRIBUTION- QUARTERLYApril1toJune30basispointattributionoftheMGGFbystockandbyregion.
Top5Performers Bps
BluePrism 186
RenesasElectronics 95
ActivisionBlizzard 56
ElectronicArts 49
Siltronic 40
Bottom5Performers Bps
ASML -33
UnitedRentals -32
Sumco -20
Criteo -20
WellsFargo -180
50
100
150
200
250
300
UnitedStates UnitedKingdom
EuroRegion Japan Sweden HongKong Taiwan Korea
RegionalPerformance(bps)
Pastperformanceinformationgiveninthispresentationisgivenforillustrativepurposesonlyandshouldnotbereliedupon as (andisnot)anindicationoffutureperformance.
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Snapshot of Munro Global Growth Fund since inception – 30 June 2017
MGGFPERFORMANCESINCEINCEPTION
PerformanceSummaryasat30June2017 1MTH 2MTHS 3MTHS 6MTHS 9MTHS INCEPTION
MunroGlobalGrowthFund(LocalCurrency) -0.4% 3.6% 6.7% 13.3% 12.0% 15.5%
+/- CurrencyImpact -0.9% -0.7% -0.2% -2.4% -1.5% -2.3%
MUNROGLOBALGROWTHFUND(AUD) -1.3% 2.8% 6.4% 10.6% 10.4% 12.9%
MSCIACWorldTRNetIndex(LocalCurrency) 0.2% 1.8% 3.1% 8.9% 13.4% 14.4%
+/- CurrencyImpact -2.7% -1.7% 0.6% -3.5% -0.6% -1.4%
MSCIACWorldTRNetIndex(AUD) -2.5% 0.1% 3.7% 5.2% 12.5% 12.8%
Pastperformanceinformationgiveninthispresentationisgivenforillustrativepurposesonlyandshouldnotbereliedupon as (andisnot)anindicationoffutureperformance.
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MGGFCURRENTEXPOSURESnapshot of Munro Global Growth Fund – as at 30 June 2017
Top5Holdingsas at30June2017
Stock Country Industry Weight(%)
BLUEPRISM UK INFO.TECH. 4.3
AMAZON US CONSUMERDISC. 3.8
FACEBOOKINC. US INFOTECH. 3.5
ASMLHOLDING NE INFO.TECH. 3.4
MICRONTECH. US INFOTECH. 3.3
SectorExposureasat30June2017
InformationTechnology,43.8%
Industrials,13.1%
ConsumerDiscretionary,6.7%
Financials,2.0%
ConsumerStaples,2.0%
RealEstate,2.2%
Cash, 30.3%
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