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Monthly Report Australian Fund April 2021

30/04/2021

Australian Fund April Monthly Report

The net asset value of the Forager Australian Shares Fund rose 13% in April, bettering the All Ordinaries Accumulation Index’s 4% return. Gains in the portfolio were widespread but the Fund’s investment in Mainstream (MAI) contributed the bulk of the upside.

Shareholders in Mainstream had a month to remember. On 12 April, the fund administrator announced that global behemoth SS&C Technologies (NASDAQ:SSNC) had trumped a $1.20 bid for the company with a $2.00 bid. The 67% premium looked like a knockout bid. And it was for the original bidder, Vistra Group.

But, on 27 April, a new party entered the ring with the firepower to match SS&C. Fellow global funds giant Apex Group offered $2.20 per share in cash and SS&C countered with $2.25. Two days later, Apex bid $2.35. SS&C came back with a $2.35 offer of its own and removed some of the conditions attached to its bid. The latest bid, which might well be dated by the time you read this, was a $2.55 offer from Apex.

Mainstream’s management, helmed by Managing Director Martin Smith, not only built the business into an attractive target but also expertly navigated the auction process. To entice the original bidder, management and board member shareholders gave Vistra a conditional option over 20% of the company. The insiders gave up some gains to get the process started. And in negotiating the original deal, Mainstream’s management agreed a ‘go shop’ clause. This allowed the company to seek competing bids and helped to get more potential acquirers into the auction.

As Mainstream’s largest institutional shareholder, it has been a sensational outcome for the Fund. the shares traded at less than $0.60 for most of our five-year ownership period. We have sold a portion of the investment for risk mitigation purposes but it remains the Fund’s largest holding.

Family tracking company Life360 (360) announced a small acquisition and a positive start to the year. The acquisition of Jiobit brings pets and grandparents into Life 360’s GPS tracking offering. It also announced healthy growth in its core business for the first quarter of 2021, despite most of the world still being impacted by lockdowns associated with COVID-19. Run rate revenue grew 26% as US-based user numbers climbed to a record.

With the vaccination rollout progressing at pace in Life360’s most important market, the United States, growth should accelerate in the back half of the year.

A quarterly update from MSL Solutions (MSL) set its share price alight. A new management team has made excellent progress at MSL, ripping unnecessary costs out of the business, making an important acquisition and winning new contracts. For the third consecutive quarter, MSL generated more than $1m of operating cashflow. That might not sound like much, but it is a sharp turnaround from $6m of cash burn in the 2019 financial year. And, with a market capitalisation of just $56m, a bit more progress might make it look cheap.

iSelect (ISU) announced a special unfranked dividend of $0.01 per share and its intention to pay an annual dividend of $0.02 starting in the 2022 financial year. iSelect’s main asset is a book of commissions due to it from insurance companies over the coming decade. For years the company’s accounting profits were less than the cashflow it generated, with the difference accruing on the balance sheet. That trend will start to reverse in 2022, freeing up cash to be paid to shareholders.

The dividend news also came soon after an announcement from the ACCC that it would not oppose iSelect’s largest shareholder increasing its shareholding up to 35%. That shareholder, Innovation Holdings Australia, owns iSelect’s main competitor, Compare the Market. The ACCC announcement suggests it could wave a full takeover through, something that would be of substantial value to both sets of shareholders

*While Fund performance has been strong this financial year, we do not anticipate that there will be a material distribution for the year ended 30 June 2021, as there have been capital losses realised from some long-term investments. An estimate of the distribution will be provided in early June.

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