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Monthly Report: Australian Fund August 2023


Until the last two days of the month, the August reporting season was relatively uneventful for the Forager Australian Shares Fund.

There were puts and takes amongst some of the smaller investments in the portfolio. Healthcare distributor Paragon Care (PGC) delivered a disappointing result, as did sales software company Bigtincan (BTH). Mining services company Perenti (PRN) delivered a good result but told investors to expect a 2024 that could be worse than we were expecting.

On the other side of the ledger, Motorcycle Holdings (MTO) reported a result that was much better than feared, Perenti’s competitor Macmahon (MAH) is delivering profitability and growth and gym operator Viva Leisure (VVA) reported nice 2023 results and looks on track to show its full potential in 2024.

Amongst the Fund’s largest holdings, results were in line with our expectations – a good outcome in the current patchy economic environment.

Readytech (RDY), a software provider to the education, workforce and government and justice industries, announced results largely in-line with expectations and painted a picture of continual growth, improving profit margins and increased cash operating leverage.

Total revenue climbed 32% for the year while organic revenue (excluding acquisitions) was up 13%. This continues the company’s strong organic growth, sourced from higher prices, selling more software modules to existing customers and adding new clients.

If everything goes to management’s targets, by 2026 the business will be generating cash profit margins of roughly 25% of revenue. That would be good enough to drop about $25m of free cash flow into the business, a very attractive 6% free cash flow yield on today’s price, while still growing healthily. With results like these Readytech is knocking on the door of the Australian technology big leagues.

Mining software company RPMGlobal (RUL) continued its revenue growth during the year. New clients included the likes of BHP (BHP), Worley (WOR) and Mineral Resources (MIN), again cementing the quality of the product.

The added revenue helped RPM to significantly increase its profit and cash generation. Software revenue rose more than 50%, with 56% of that dropping through to the segment profit line. This is despite the company paying a management incentive during the year for software sales that will be mostly recognised as revenue in subsequent years.

While both Readytech and RPM have been successful long-term investments for the Fund, shares price for both have stagnated. That leaves them at very sensible valuations and we expect further growth to translate to share price growth from here.

Things haven’t been stagnant at Tourism Holdings (THL). The campervan rental company delivered a great result and provided commentary that gives us confidence in further profit growth into 2024 and beyond.

Forager’s profit expectations are higher than broker estimates and, despite a strong rise over the past year, would make the current price look very attractive. We will find out more at the upcoming annual meeting, but management commentary about permanently higher yields and the continued recovery of international tourism arrivals into Australia and New Zealand supports our view.

The net of all of those results added up to not much. Then, on the final trading day of the month, private equity firm Pacific Equity Partners (PEP) lobbed a takeover offer for allied health company Healthia (HLA). The price, $1.80 per share, represented an 84% premium over the prior day’s closing price. While that’s a big premium, the share price has been hammered in recent months.

The offer has the support of Healthia’s board and a number of larger shareholders, making its success likely. It’s not the upside we anticipated when first investing in the stock and PEP is likely to do well with its investment. But the small-cap market is awash with opportunity and the price is fair for Healthia’s current state. In the absence of a better offer, we are likely to support the deal too and deploy the money elsewhere. Healthia’s share price jump after the takeover announcement added more than 2% to the Fund’s net asset value and a similar amount of outperformance for the month. The Fund’s net asset value rose 1.5% in August, while the All Ordinaries Index fell 0.7%.