Monthly Report Australian Fund January 2023
31/01/2023
Australian Fund January Monthly Report
Stock markets around the world had a strong month in January. Domestically, the All Ordinaries Accumulation Index rose by 6.4% with the Forager Australian Shares Fund close behind, delivering a 5.8% return. Expectations of peaking inflation drove interest rate expectations lower in January, with market prices now suggesting the Reserve Bank of Australia will cap its cash rate at 3.6% by mid-2023.
There was plenty of stock news too, with many companies reporting quarterly updates ahead of ahead of full- or half-year results in February.
Communication and workflow automation company Whispir (WSP) was a big winner during the pandemic, registering revenue growth of nearly 50% in the 2022 financial year. The flipside of that success is that revenue is now being compared against a very high watermark. The December quarter saw cash receipts reported in line with (recently reduced) expectations, but well below what the company was suggesting was “recurring” a year ago. A big restructuring announced in November has reduced the cost base to roughly in line with revenue. What Whispir needs now is for revenue to resume its growth trajectory while letting some of those incremental dollars drop through to the profit line.
Sales enablement software maker Bigtincan (BTH), in the spotlight recently for rejecting a takeover offer at $0.80 while raising capital at $0.60, provided a trading update confirming the business is tracking well towards its recurring revenue guidance. As Bigtincan no longer reports quarterly cashflows we will have to wait for results in February to get a better picture of the past six months.
Reporting on the December quarter, too, were non-bank lenders Plenti (PLT) and Wisr (WZR). As funding rates rise, both have been increasing interest rates for customers on their personal and car loans during 2022. New loan volumes declined as a result: Plenti’s December quarter lending volume was down 3% on the prior year, while Wisr reduced its new loans written by 15%.
Both are also lending mostly to higher credit quality customers, with Plenti’s credit score of 833 nearing a level credit agency Equifax would term ‘excellent’. So far, customers with loan payments more than 90 days in arrears have risen to 1.07% for Wisr and only 0.35% for Plenti, well within expectations. The true test for these businesses will come as economic conditions sour and bad debts rise later in the year. If they successfully navigate 2023, both will be worth far more than their current share prices.
The owner of physio, podiatry and optical clinics Healthia (HLA) disclosed profits for the first half of the financial year and confirmed prior guidance for the full year. The company gave a monthly trading update during the first half, giving investors some pause when October profits drifted despite a clearing up of the COVID disruptions seen earlier in 2022. But the business recovered strongly into December as private health fund members rushed to use benefits before they were lost.
Management has been busy recruiting graduates to increase staff numbers, adjusting prices up to offset inflation and working on acquisitions of more clinics. With only a 3% market share, Healthia has a long runway of growth ahead.
PDF and e-signature provider Nitro (NTO) continued to be the focus of a takeover battle between different private equity groups, however no new bids were tabled during January. As of the time of writing, KKR-backed Alludo’s $2.15 offer remains the winning bid. While the proposed Scheme of Arrangement failed to get the requisite 75% majority, the parallel takeover offer (with a 50.1% minimum required acceptance) remains open until March 3rd. Alludo has made this offer its ‘best and final’, leaving the door open for the other bidder to potentially increase its offer and take away the deal.
One business we won’t be hearing any more from is MSL Solutions (MSL). At a meeting in late January, 98% of shareholders voted to sell the business to private equity group Pemba for $0.295 per share. After Forager encouraged board and management changes in 2019, new executive chairman Tony Toohey reduced costs, cleaned up the balance sheet and made some prospective acquisitions. All these actions attracted the bid from Pemba at a fair price. The Fund will receive its proceeds from the sale in mid-February.
