MUNRO GLOBAL GROWTH FUND JUNE QUARTER 2017 Disclaimer Neither - - PowerPoint PPT Presentation

MUNRO GLOBAL GROWTH FUND JUNE QUARTER 2017

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Disclaimer

Neither 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 personal advice 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.

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• r 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 of

the PDS, then please contact Munro on (03) 9290 0900 or contact@munropartners.com.au and Munro will arrange for a copy of the PDS to be forwarded to you. Alternatively, a copy of the PDS for the Fund is available 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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verified, 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 general reference 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, costs and 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 Australian

• dollars. 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 to
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presented or referred to in the Presentation, and the economic, financial, regulatory, legal, taxation and accounting implications of such. The recipient further represents to the Munro that it is not relying on any recommendation or statement by Munro. The recipient acknowledges that no independent third-party audit or review has been obtained by Munro or has been undertaken by an such an independent third party oft he financial assumptions, data, results, calculations and forecasts contained, presented or referred to in the Presentation.

• 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 any

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CONTENTS

GLOBAL MARKET OUTLOOK 5 MGGF PERFORMANCE ANALYSIS 9 KEY INVESTMENT THEME: VIDEO GAMES (LONG) 15

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GLOBAL MARKET OUTLOOK

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GLOBAL MARKET OUTLOOK

Growth has stabilised, with Europe still improving.

Source: Bloomberg Consensus Data

54.7 54.9 52.4 51.4 45.2 56.0 55.2 52.7 51.3 44.0 57.7 55.4 53.3 51.6 46.9 57.2 56.2 52.4 51.8 49.6 54.8 56.7 52.7 51.2 50.1 54.9 57.0 53.1 51.2 52.0

42 44 46 48 50 52 54 56 58 60 US Eurozone Japan China Brazil

Global Purchasing Managers Indices (PMI's)

Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17

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GLOBAL MARKET OUTLOOK

S&P 500 Index valuation is high, however earnings growth has now inflected positively and looks likely to continue.

Source: Bloomberg Consensus Data

5 10 15 20 25 30 20 40 60 80 100 120 140 160 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&P 500 Index Forward Valuation (RHS) and EPS (LHS)

S&P 500 Fwd EPS (LHS) S&P 500 Fwd P/E (RHS)

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GLOBAL MARKET OUTLOOK

Yield carry for equities has shrunk, but importantly remains positive.

Source: Bloomberg Consensus Data

• 8
• 6
• 4
• 2

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&P 500 Earnings Yield - US 10yr Bond Yield (%)

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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 Net Exposure (trailing 10day average) Gross Exposure (trailing 10day average)

GLOBAL MARKET OUTLOOK

The Munro Global Growth Fund has reduced market exposure over recent months as valuations and seasonality start to slow market performance.

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CASE STUDY: VIDEO GAMES

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THE RISE OF GAMING

GAMING

CONSOLE MAKERS SOFTWARE MAKERS GAMING ENABLERS ESPORTS AND HOSTING GRAPHICS

AoI Winners Sub - Trends

The introduction of next generation consoles, smartphones and using the internet for connected game play has resulted in video games moving from the bedrooms of teenagers to the hands of all individuals, sold out sports stadiums and prime time TV. The addressable market is exploding and multiple vendors across the eco-system look well placed.

SECULAR CONTENT LOSERS

Images do not necessarily represent assets of the Fund or constitute financial advice.

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20 40 60 80 100 120 2012 2013 2014 2015 2016 2017E 2018E

$ Billion

THE GLOBAL GAMING MARKET

The global gaming market in gross dollars spent is growing at roughly 8% per annum, driven by the growth in screens, the rise in casual gamers and the digitalisation of game play / game downloads.

Global gaming market growing at 8% per annum, driven by three key secular trends:

• More screens: Smartphone / tablet penetration gives everyone their
• wn hand held gaming device for publishers to target a much larger

audience via casual gaming.

• MMO (Massively Multiplayer Online): Internet connected games allow

players to play each other from all over the world, giving rise to huge playing communities around the top games.

• In game purchases: Digitalization allows players to purchase more

goods in the game, it also allows publishers to hook casual gamers with initially free games. Widening the community and widening the revenue opportunity. Global gaming market $bn’s 2012-2018

7% CAGR 8% CAGR 9% CAGR 2% CAGR 15% CAGR

Source : NewZoo

PC, Webgames &MMO Smartphones Tablets & Handhelds Consoles

Global gaming market growth

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FEWER GAMES BUT MORE SUSTAINABLE FRANCHISES

The stock market is increasing recognising that the major video game publishers have morphed from “hit driven” business models around AAA game releases, to companies that have been able to build more sustainable franchises via steady gamer engagement.

Activision Monetisation Model

0.00 1.00 2.00 3.00 4.00 5.00 10 20 30 40 2010 2011 2012 2013 2014 2015 2016 2017e Electronic Arts Earnings Per Share (Non-GAAP) Electronic Arts Number of New Titles p.a. EA # of titles p.a. EA EPS (RHS)

450 million users 43 billion hours played/ watched $3.6 billion in digital in-game sales $2.2bn of

• perating

cash flow

Source : Activision Blizzard, Electronic Arts, Morgan Stanley

EA Game Titles vs. Earnings Per Share

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DIGITAL MONETISATION

Video Games have moved from the physical to the digital world and this not only allows for a more sustainable revenue profile for each title, it also a drastically improves margins. Digital downloads are ~20% higher margin that physical and extra digital content is even higher margin.

Digital Dramatically Improves Margins For Electronic Arts

Source : Electronic Arts, Morgan Stanley, Munro Partners estimates

Packaged Mobile Extra Content Subscriptions Full Game Downloads 1000 2000 3000 4000 5000 6000 FY12 FY16 FY20e

Electronic Arts Revenues ($USm)

Electronic Arts Metrics Digital (as a % of Sales) 29% 55% 71% Gross Margin 63% 71% 75% Operating Margin 9% 28% 34% Earnings (US$ million) 284 1,018 1,449

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E-SPORTS PROVIDES SIGNIFICANT POSSIBLE UPSIDE TO EARNINGS GROWTH

E-Sports is rapidly becoming a challenger to traditional sports, with regular viewers set to top 400mn in 2017. E-Sports looks likely to provide the gaming companies with a whole new channel of engagement and earnings growth over the coming years.

Esports Case Study : Overwatch Esports Case Study : FIFA Online

Source : Electronic Arts, Activision Blizzard, FIFA

5 10 15 20 25 30 35 Q2 -2016 Q3-2016 Q4-2017 Q1-2017 Q2-2017

Registered Players (millions)

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KEY STOCK IDEA: ACTIVISION BLIZZARD (LONG)

Activision Blizzard publishes, develops and distributes interactive entertainment software and peripheral products. The company’s products cover a diverse range of game categories including action, sports, role playing, simulation, strategy and more.

Key Stock Activision Blizzard

Key Details Market Cap: USD 45.6bn Listed: US Revenue 2017: USD 6.4bn Qualitative Tests Growth: The total addressable market for gaming is increasing via more screens, more interactive gaming and e-sports. Activision Blizzard has over 90 million monthly active users (MAU’s) playing over 43 billion hours of video games per year, up 50% y/y. Economic Leverage: Margin upside from shift to digital sales and in game

• sales. Margins can expand from 35% in 2016 to over 40% in 4 years.

Sustainability: Rise of MMO (Massively Multiplayer Online) communities and E-sports leads to users amalgamating around platform games. Control: Robert Kotick (CEO since 1991) & Brian Kelly (Chairman) control US$1.3bn of stock in the company. Customer Perception: Activision receives excellent reviews for its premium franchises. Quantitative Tests Earnings upside: Market observations suggested that the shift to digital and subsequent EPS growth was underappreciated by the market. Multiple upside: Stock was trading on a multiple of less than 15x forward EPS

• n discovery.

Catalysts / Sizing: Earnings results, new franchise releases. Outcome Stock discovered: June 2015, trading below 15x forward EPS. EPS estimates have expanded by over 50% as the shift to digital increased profitability. Stock moved from $25 to over $50.

0.5 1 1.5 2 2.5 10 20 30 40 50 60 Jan-10 Jan-12 Jan-14 Jan-16 Forward EPS Share Price Stock Price Forward EPS

EPS up over 50% since discovery

8 12 16 20 24 10 20 30 40 50 60 Jan-10 Jan-12 Jan-14 Jan-16

Forward PE Multiple Share Price

Stock Price Forward P/E Multiple

PE re-rated by over 50%

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FUND PERFORMANCE

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% HANG SENG INDEX NIKKEI 225 DOW JONES INDUS. AVG S&P 500 INDEX HANG SENG CHINA ENT INDX FTSE 100 INDEX STXE 600 € Pr SHANGHAI SE COMPOSITE MSCI Local MGGF local

April 1 to June 30 2017 (%)

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MGGF VS. MAJOR MARKET INDICES - QUARTERLY

Local currency returns of various global markets and the return of the MSCI World AC Index in AUD next to the return of the MGGF in AUD.

= FX Contribution Index Return 3.7% Fund Return 6.4%

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MGGF LONG/SHORT ATTRIBUTION - QUARTERLY

April 1 to June 30 basis point attribution of the MGGF by investment category.

• 200
• 100

100 200 300 400 500 600 700 800 FX Long Short Hedging

MGGF Attribution (bps)

Past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

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MGGF STOCK AND REGION ATTRIBUTION - QUARTERLY

April 1 to June 30 basis point attribution of the MGGF by stock and by region.

Top 5 Performers Bps Blue Prism 186 Renesas Electronics 95 Activision Blizzard 56 Electronic Arts 49 Siltronic 40 Bottom 5 Performers Bps ASML

• 33

United Rentals

• 32

Sumco

• 20

Criteo

• 20

Wells Fargo

• 18

50 100 150 200 250 300 United States United Kingdom Euro Region Japan Sweden Hong Kong Taiwan Korea

Regional Performance (bps)

Past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

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Snapshot of Munro Global Growth Fund since inception – 30 June 2017

MGGF PERFORMANCE SINCE INCEPTION

Performance Summary as at 30 June 2017 1MTH 2MTHS 3MTHS 6MTHS 9MTHS INCEPTION Munro Global Growth Fund (Local Currency)

• 0.4%

3.6% 6.7% 13.3% 12.0% 15.5% +/- Currency Impact

• 0.9%
• 0.7%
• 0.2%
• 2.4%
• 1.5%
• 2.3%

MUNRO GLOBAL GROWTH FUND (AUD)

• 1.3%

2.8% 6.4% 10.6% 10.4% 12.9% MSCI AC World TR Net Index (Local Currency) 0.2% 1.8% 3.1% 8.9% 13.4% 14.4% +/- Currency Impact

• 2.7%
• 1.7%

0.6%

• 3.5%
• 0.6%
• 1.4%

MSCI AC World TR Net Index (AUD)

• 2.5%

0.1% 3.7% 5.2% 12.5% 12.8%

Past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

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MGGF CURRENT EXPOSURE

Snapshot of Munro Global Growth Fund – as at 30 June 2017

Top 5 Holdings as at 30 June 2017 Stock Country Industry Weight (%) BLUE PRISM UK

• INFO. TECH.

4.3 AMAZON US CONSUMER DISC. 3.8 FACEBOOK INC. US INFO TECH. 3.5 ASML HOLDING NE

• INFO. TECH.

3.4 MICRON TECH. US INFO TECH. 3.3 Sector Exposure as at 30 June 2017

Information Technology, 43.8% Industrials, 13.1% Consumer Discretionary, 6.7% Financials, 2.0% Consumer Staples, 2.0% Real Estate, 2.2% Cash, 30.3%

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