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Monthly Report: Australian Fund May 2020

31/05/2020
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Australian Fund May Monthly Report

The ASX All Ordinaries Index continued its recovery in May, rising 5%. The index is now 18% off its February peak, having been down 36% at the coronavirus nadir on the 23rd of March.

Having fallen much more than the index, the net asset value of Forager’s Australian Shares Fund also bounced back faster. The unit value rose 18% in May thanks to a combination of diminished fear and relatively positive updates from companies with extremely depressed share prices.

Leading the latter was leasing company Eclipx (ECX). Having released three reassuring announcements about operating performance and access to finance over the past few months, investors finally got the message with the release of Eclipx’s half-year results in the middle of May.

While the headline results were messy thanks to ongoing restructuring, Eclipx’s core leasing business grew its earnings 11%. More importantly, the second-hand car market is improving rapidly as the Australian economy begins to recover. Eclipx typically leases new cars for two to three years and a chunk of its earnings come from selling those cars into the second hand market at the end of the lease.

After a hiatus in April as potential consumers stayed home, more recent activity has seen Eclipx selling the normal number of cars at pre-coronavirus prices. New CEO Julian Russell has been doing an outstanding job turning this business around and we think the recovery has a ways to go.

The survival of smash repairer AMA Group (AMA) was being questioned in March, with the share price troughing down more than 70%. In May the company released a welcome update. With support from its banks and an improved environment, AMA was able to rule out the need for fresh funds.

As accident numbers declined AMA shrank its business. The workforce has been reduced, leases recut and other costs curtailed. Improving payments from insurers, an issue affecting the business since late last year, is close to being finalised. With drivers back on the roads, AMA should see bingles rise from here.

Thorn (TGA) released its annual results in May. It didn’t make for good reading. COVID-19 has dramatically affected. Thorn’s small business equipment finance segment. More than a quarter of its $323m loan book is not being repaid. Losses for the division reached $19m. And as the situation worsened, Thorn’s own funder refused to accept new loans.

The news was better for Thorn’s Radio Rentals consumer leasing division, now in run-down. Stores have been closed and 300 staff have been made redundant. The company will now collect as much as it can from the $146m owed by customers. Costs will need to be trimmed to realise the most cash from the process while a new online offering is being relaunched.

The company’s $30m-odd net cash pile is set to grow. How much cash is eventually realised will depend on the actions that the Board and management team take over the next few months.

Marketing services group Enero (EGG) announced a new CEO in May. He has some big shoes to fill. Former CEO Matt Melhuish took on a struggling Enero in 2012 and left in December last year with the business performing strongly. Despite most companies dramatically cutting marketing over the last few months, Enero continues to be well positioned as spend recovers. That will leave Brent Scrimshaw, formerly with big advertiser Nike and more recently the founder of a startup, with some interesting options on where to take Enero in a post COVID-19 world.

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