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Monthly Report Australian Fund May 2023


Australian Fund May Monthly Report

May was a good month for the Forager Australian Shares Fund. The unit price rose 0.3%, while the All Ordinaries Accumulation Index fell 2.6%. It was an eventful month for the portfolio, with some positive earnings releases, one negative update and one business fielding a takeover approach.

Gentrack (GTK), a provider of mission-critical enterprise software to utilities and airports, reported earnings for the half year to March. It was a procession of good news. Revenue across the business rose by 48% and earnings before interest, tax, depreciation and amortisation moved from $1m in the prior year to $16m. The business generated $15m of free cash flow and finished the period with a very healthy $42m of cash.

Most importantly, earnings guidance was upgraded for both the 2023 and 2024 years ending September. Revenue expectations moved 7% and 6% higher respectively to just under $160m in both years. Current-year earnings expectations are now expected to beat prior market expectations by 40%, while 2024 earnings expectations increased in line with the revenue uplift.

Keeping revenue stable is no mean feat, with $25m of this year’s revenue generated by now-defunct UK energy retailers. That won’t be repeated in 2024. Existing client projects, new client wins and an accelerating airports business are making up the gap, with growth opportunities strong in the following year too.

Despite earnings upgrades being relatively minor in future years, increased confidence from investors in management’s growth strategy saw the share price rise 29% on the day of the results. It is now up 165% during the past year.

Sales enablement software provider Bigtincan (BTH) saw some fireworks as the Australian Financial Review reported that the company had received another takeover offer at a price of $0.80 per share, this time by well-funded private equity firm Siris Capital.

Bigtincan did not provide due diligence to the bidder or disclose the bid to shareholders until the article. Later, Bigtincan confirmed the bid, stating it was not in the best interests of shareholders, and that other bids had also been received. The share price rose 32% during the month to finish at $0.54 per share, still a third less than the rejected bid price.

Early in the month, outdoor advertising leader Ooh!Media (OML) saw investors collectively gasp after it delivered an update suggesting that revenue for April had fallen 10% on the prior year. The reaction was severe, with Ooh! losing nearly a quarter of its market value during the day.

An annual general meeting presentation the following week disclosed that April weakness was driven by government and media client spending falling off from an election-fueled prior period. May and June were both tracking to over 10% growth. But the damage was done. Investors will now be eagerly watching how advertising revenue pans out for the rest of the year.

Catapult (CAT), the sports technology group, was another to report earnings for the March period. Excluding currency headwinds, Catapult’s revenue grew by 14%, supported by annualised contract value for its main wearables division growing 28%. Growth for the video division continued to be gradual at only 11%. With new video products recently released for new sports, the current northern hemisphere sports software contracting season should allow Catapult to accelerate future revenue growth.

The bigger changes were at the expense line though, with variable costs 24% lower and fixed costs 26% down in the second half of the year to March (when compared to the first). This has now positioned the company to be free cash flow breakeven in the 2024 year to March while continuing to grow sticky and valuable recurring revenue. While the reaction on the day of results was muted, Catapult shares rose by more than 28% during the month.