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Monthly Report Australian Fund November 2021

30/11/2021

Australian Fund November Monthly Report

November is Annual General Meeting (or AGM) season in Australia. It has become an increasingly important time over the years, with most companies taking the opportunity to deliver a trading update. Despite plenty of those and a handful of companies reporting earnings, it was a benign month in terms of performance for both the market (-0.33%) and the Forager Australian Shares Fund (-1.35%).

One part of the market with heightened action, though, was the cohort of small-cap growth stocks on the ASX. The prospect of rising interest rates and growing investor scepticism sent the share prices of some of these darlings tumbling in November. The share price of Nearmap (NEA), for example, was down 28% despite providing a relatively reassuring AGM update.

With relatively limited exposure and a preference for stocks with lower expectations in price, the impact on the Fund has been minimal. The general headwinds have, however, resulted in muted responses to some very positive updates.

For instance, Whispir’s (WSP) communication technology business continued to fire on all cylinders. On account of very strong customer activity on its platform, management decided to upgrade this year’s growth guidance from 23% to 38% at the midpoint a substantial improvement in the pace of growth that is a testament to the utility that customers see in its solutions. However, despite an initially strong reaction on the day, Whispir’s share price ended the month lower than it began after being caught up in the general high-growth malaise. 

Fintech lender Plenti (PLT) reported earnings during the month. The 183% growth in the value of new loans written and the 110% growth in its loan book had already been disclosed. But after achieving a $1 billion loan book and becoming cash net profit positive, the company has shown no signs of curtailing its ambitions. Over the medium term, Plenti expects to reach a $5 billion loan book, or 5% of the non-mortgage and non-credit card personal lending market. At anywhere near that level, far above our expectations, it would be a large and very profitable lender. Even achieving half of that loan book would make the current market cap look excessively cheap.

Gentrack (GTK), a provider of software for utilities and airports, found itself on the defensive after one of its largest clients, UK energy provider Bulb Energy, entered a special form of administration. An advisor appointed by the UK’s regulator is working out where Bulb’s 1.7 million clients will go. For Gentrack, the likely loss of Bulb’s work dampened expectations for revenue growth. But, in its full-year results released last month, the company maintained strong targets for the financial year ending September 2024. After absorbing more than $10 million in revenue losses from some UK energy customers and accounting for Bulb, the company maintains that revenue will grow this year. And with a balance sheet rich with $26 million in cash and a management team scoring new clients, Gentrack will weather the storm.

Thesis-confirming news and muted share responses provide us with opportunities to increase portfolio weightings. That should set things up well for 2022 and beyond.

Updated distribution policy

In conjunction with Perpetual, the Fund’s Responsible Entity, we have updated the distribution policy for the Fund. Fund distributions will now be at least semi-annual, and it is our intention to pay regular and consistent ordinary distributions starting with $0.04 for the half-year to 31 December 2021. These ordinary distributions will be complemented with special distributions in years where the taxable income of the Fund is significantly higher than the regular distributions. 

You can get more information in the dedicated ASX announcement and at our upcoming webinar, to be held on 15 December 2021. We’ll provide a summary of the changes, update investors on Fund performance, discuss long-term Fund strategy, and leave plenty of time for questions. You can register for the webinar on our website, www.foragerfunds.com

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