A Value Investing Blog

Posted on 03 Mar 2017 by Steve Johnson

Final Week in CIMIC vs Macmahon

Final Week in CIMIC vs Macmahon


Construction giant CIMIC (CIM) has fired its final bazooka in its attempt to gain control over mining contractor Macmahon (MAH). Yesterday it declared that it won’t be extending the bid beyond 9 March and it won’t be raising the price above $0.145.

I’ve received a number of queries from fellow Macmahon shareholders about events over the past few weeks so. With the deadline now locked down, I’ll lay some thoughts out for investors to consider.

We weren’t particularly impressed with CIMIC’s $0.145 bid to start with. They will get no argument from us about Macmahon’s woeful historical performance. The losses being generated at its newish Telfer contract are completely unacceptable and the company hasn’t, until now, been winning enough new work to justify its overheads. Continue reading “Final Week in CIMIC vs Macmahon”

Posted on 12 Jan 2017 by Forager

Forager’s Top 5 Not-Dick-Smith blogs of 2016

Forager's Top 5 Not-Dick-Smith blogs of 2016


Welcome to our “Top 5 Non-Dick-Smith Blogs of 2016”. Those of you new to Bristlemouth may wonder why we are doing this, while those who have been with us during 2016 will likely have a wry smile. The Dick Smith articles garnered a lot of attention and whipped up some controversy, so you are likely aware of these articles and our thoughts on them. Hence we’ve decided to present you ‘the best of the rest’ to showcase our 2016 blogging highlights. These are the five most read posts of 2016. Continue reading “Forager’s Top 5 Not-Dick-Smith blogs of 2016”

Posted on 10 Jan 2017 by Steve Johnson

Why Value Investors Welcome Uncertainty

Why Value Investors Welcome Uncertainty


Dilma Rousseff. Putin. Filipino Hard Man.
Brexit. Trump’s in. Usain Bolt wins again.

If Billy Joel rewrites his 1989 classic We Didn’t Start the Fire, 2016 will surely get its own verse. From January’s China meltdown worries through to a US president elect pursuing government policy via Twitter, hardly a month went past without something extraordinary happening.

Truth be told, we didn’t predict any of it. We didn’t know who was going to win what and we didn’t place any huge bets on the outcomes of elections, referendums or currency movements. And yet 2016 was one of our best ever years of relative performance. Despite some disappointing developments in the last three months of the year, the Australian Fund added 16% of performance for the year, 4% ahead of the All Ordinaries Accumulation Index. Despite being down 5% in the first month of the year, the International Fund finished up 24%, versus 9% for its MSCI global index. Continue reading “Why Value Investors Welcome Uncertainty”

Posted on 15 Dec 2016 by Steve Johnson

ASX Listing Caps a Great 2016

ASX Listing Caps a Great 2016


The final approvals are in and the bell is ready to be rung.

Forager’s Australian Shares Fund will commence trading on ASX at 11am this Friday, 16 December. If you are an investor in the Fund, you will receive an email shortly with details about our new ASX:FOR investor centre and how to buy and sell units on ASX. The units will trade like any other ASX-listed security under the ticker FOR. You will also receive a welcome letter in the post, as well as a transaction statement with details of your listed holdings from our new share registry Link.

An estimate of the latest portfolio valuation will be released prior to the commencement of trade and we will be doing the same every trading day (with the exception of the Christmas to New Year period). Daily pricing is a rarity in listed fund world. And our investment philosophy is particularly long term. But we want a transparent and informed secondary market and, for those who do want to buy or sell units, knowing the underlying value of the units should help.

I’m not expecting any fireworks on listing. Over the next few months we hope to see the market find a healthy balance between enough liquidity for investors to add to or realise their investment, and long holding periods that you would expect from the same investors who have been with us the past seven years.

Continue reading “ASX Listing Caps a Great 2016”

Posted on 28 Oct 2016 by Kevin Rose

Is Google Finding Religion?

Is Google Finding Religion?


Something is going on at Alphabet (Nasdaq:GOOG), parent company of Google. This past Tuesday, the company announced that it was essentially abandoning Google Fiber, its high-speed broadband internet business. The business will “pause” expansion efforts into new cities and will reduce its employee base. The head of the unit is also stepping down. If that is anything other than a big corporate pink slip, then call me a lumberjack.

I’ve never been much of a fan of Google’s fiber effort. The company was always pushing a monolithic boulder up a Mt. Everest sized slope. It was taking on deeply entrenched incumbent service providers in the cable and telco companies. If you have read our thoughts on FISF holding Cable One, Inc. (NYSE:CABO), then you probably know that we have a great appreciation for those very boring cable businesses. Google was attempting to differentiate itself with a superior service (gigabit speed connection), but the latest announcement implies that its selling proposition failed to find traction. Or at least enough traction to earn an attractive return on Google’s investment.

But the changes at Google Fiber do not stand in isolation. On the same day, YouTube CEO Susan Wojcicki shot down speculation that YouTube might begin to invest more aggressively in scripted original programming. She essentially stated that YouTube’s ad-based business model didn’t generate enough profit to successfully compete with behemoths like Netflix and Amazon. Note the eye on financial discipline.

There have been other signs as well. Back in August, a number of key employees of Google’s self-driving car program left the company, including its Chief Technology Officer. While it remains a mystery as to the reason, rumors abound that he was frustrated with a change in strategy. Google was gearing up to separate the unit from its home within the Google X division and prepare it for life on its own. In other words, management had had enough theory (aka spending money), and now wanted a business (the payoff).

Keeping the Google soul

Taken together, it strikes me that CFO Ruth Porat is having a massive impact. We have noted in the past that her joining the company spurred us back in to the stock. But not even we could have hoped for this level of financial rigor. My guess is that if you worked at Google three years ago and wanted a billion dollars for a ping-pong table, a wet bar and an engineering team to develop a humanoid yogi, you probably got it. Those days are long gone.

But at the risk of biting the hand that feeds, I hope Google is not losing its soul. The company has a unique essence that has enabled it to continue to grow at a rate unheard of for a mega-sized company (unless you’re Amazon). Pouring money into R&D, encouraging its employees to spend time on unsanctioned side projects, its apathy towards money-losing ventures, the moonshots. Collectively these qualities represent an attitude that has led to major businesses like YouTube, Gmail, Android and others. Google Cloud looks primed to be the next in that string. I hope that the company finds the right balance, an appetite to fuel innovation without starving itself, but within a more fiscally reasonable paradigm.

Posted on 12 Sep 2016 by Kevin Rose

Fitbit Falls Out of Shape

Fitbit Falls Out of Shape


Back in March, I asked our blog readers if they had any opinions about Fitbit and its consumer wearables. Readers provided a range of responses, but the majority of voices sounded a tone of skepticism. I believe the term “gimmicky” was used more than once. In my blog, I implied that the company would need to develop something more engaging if it wanted to maintain its healthy profit stream.

Since that piece, the company has reported six months’ worth of activity. The results have been predictably abysmal. Its operating profit margin collapsed, from 23% in the first six months of 2015 to 3.7% over the same period this year. That is a staggering fall for a business in which revenue grew 48% over the same period. Continue reading “Fitbit Falls Out of Shape”

Posted on 02 Aug 2016 by Daniel Mueller

Reporting Season and the Dollar

Reporting Season and the Dollar

Reporting season is on our doorstep. This semi-annual affair, occurring every February and August, is where companies report their half year and full year earnings. It can be a time of backslapping or a time for airing dirty laundry. And its lead-up is associated with an abundance of crystal ball gazing.

At this time of year, broker reports and the financial press are plastered with expected themes for reporting season. Unsurprising, the predominant theme for this reporting season is the ongoing low growth environment, with sales growth hard to come by. Companies that focus on reducing costs will be the ones rewarded with earnings growth. While this theme has been prevalent for several years, and will likely continue for several more, one theme that might not continue for much longer is the impact of the lower Australian dollar on earnings.

Continue reading “Reporting Season and the Dollar”

Posted on 29 Jul 2016 by Alvise Peggion

A New Journey for the International Fund

A New Journey for the International Fund


In late 2012 one Australian dollar was buying more than one US dollar and all major stock market indices across the world were still significantly below their 2007-highs.

This was a rare opportunity for Australian investors to look abroad. And so the Forager International Shares Fund was born in February 2013.

Once up and running, our priority was to quickly invest the Fund’s capital in foreign currencies and a diversified portfolio of attractively-priced world-class businesses.

At the same time we said that the Fund’s investment philosophy was likely to shift over the coming years towards the kind of value investing that has worked so well for the Australian Shares Fund.

Now, three and a half years later it’s time to assess where the International Fund is at and what investors should expect in the future from an investment in this Fund.

Continue reading “A New Journey for the International Fund”

Posted on 22 Jul 2016 by Daniel Mueller

More Woes Ahead for Asaleo

Personal care and hygiene company Asaleo Care (ASX:AHY) announced a nasty downgrade today. It now expects profit for 2016 to decrease 15% on 2015, whereas previous guidance was steady. A little disappointing for a company that sells well-known branded staple goods like Sorbent tissues and Libra feminine hygiene products.

Reading through today’s announcement, there was something awfully familiar about the company’s explanation for part of the downgrade. According to their CEO, the company’s new “Every Day Price” strategy was introduced “with the strong endorsement of major retailers.”

“Every Day Price strategy” sounds a lot like the “Every Day Low Price” strategy of major customer, Coles, or the “Everyday Rewards” strategy of their other major customer, Woolworths.

Call me cynical, but this reads like management speak for “we are being worked over by our major customers.”

This company earned a lofty operating margin of 18.8% last year (compared to Goodman Fielder’s 7% operating margin prior to being taken over). Its profit represented a return on tangible capital of 51%. That’s a very profitable business, which is not a great starting point when your major customers are in the midst of a price war.

Posted on 20 Jul 2016 by Steve Johnson

El.En. Rides the Inking Wave

El.En. Rides the Inking Wave

This is an excerpt from Forager Funds June 2016 Quarterly Report

If you have recently visited Bondi Beach, this won’t come as a surprise: tattoo removal is a growth industry. It’s an important trend for one of the International Shares Fund’s largest investments.

In early January the Fund purchased shares in El.En. (BIT: ELN), a manufacturer of medical and industrial lasers based in Florence.

The medical division accounts for 70% of El.En.’s sales and almost all of its profits. Products span machines used for the removal of hair and tattoos to more complex devices used for the treatment of conditions such as kidney stones and vaginal atrophy. The remainder of the business — its industrial division — focuses on lasers used to cut wood, metals and glass during manufacturing processes.

Continue reading “El.En. Rides the Inking Wave”

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