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Monthly Report International Fund August 2021


International Fund August Monthly Report

Despite most of the Fund’s smaller companies reporting quarterly results in August, it was a relatively quiet month for stock price movements. The unit price of the Forager International Shares Fund fell 0.03%, while the MSCI AC World Net Index in Australian dollar was up 3.06% for the month.

Most of the companies we are invested in continued to show excellent progress. The relatively muted share price responses reflect either heightened expectations implied by share prices that had already risen significantly, or general investor apathy.

Both Fathom (NASDAQ:FTHM) and Opening Lending (NASDAQ: LPRO) are in the former category. No one could argue with the results.

For the second quarter, Fathom’s revenue was more than double the same period last year. That was thanks to a 74% increase in property transactions and a 53% increase in the number of agents working for this office-less real estate agent. All metrics are moving in the right direction and the company has more than delivered on its IPO promises. Its owner manager now thinks they can be selling more than 100,000 properties a year by 2023. After rallying 400% from the IPO price, it’s perhaps no surprise the share has recently fallen despite the good results. If they keep delivering, though, it is going to start looking cheap again in the not too distant future.

Open Lending’s share price has also done very well the past 12 months. It, too, is justifying it. This highly profitable auto lending platform is growing at well north of 100% per annum. Its pre-tax profit margins are more than 70% and it hardly requires any capital, so that profit turns up as cold hard cash. It has plenty of growth ahead of it, with new clients signing up on a regular basis (credit unions and large car manufacturers who have their own financing arms). It is a nice thing to be worrying about, but our only concern is that it makes too much money.

BM Technologies (NYSE:BMTX) is another delivering on its promises. In this case, though, high investor expectations aren’t the problem. While the results keep coming in, the share price keeps going down.

The online bank’s revenue grew 48% in the second quarter. Unlike its much-hyped competitors, BM Tech is already profitable and will be increasingly so (perhaps that is the problem?). Its co-branded offering with Google launches later this year and management claim to have a number of new significant partners in the pipeline. Its US$118m market capitalisation doesn’t do much justice to any of that.

In all three cases, time should be our friend with these rapidly growing smaller companies.

One stock that has finally come to life is Norwegian small cap Norbit (OB:NORBT).

The Fund acquired shares in this high-end manufacturing company in its 2019 IPO. The stock had done little since. Norbit’s Oceans division makes integrated sonar units that are smaller, cheaper and easier to use than competing alternatives, and it’s expanding the sonar market globally. The Intelligent Traffic Systems (ITS) division makes connectivity solutions for tolling and safety monitoring of vehicles, particularly large ones like trucks and buses. The ITS division has some medium length contracts that have been and were set to remain very profitable, until new truck registrations in Europe got poleaxed by COVID-19. That hurt results in 2020 and more so 2021. They should rebound soon.

Our valuation has always placed more weight on the Oceans segment, where we think Norbit occupies an interesting niche unlikely to get competed away quickly. New geographies, new products, new use cases should all contribute to growth over the longer run. That was reinforced with the second quarter 2021 result. It was easily the highest revenue in the division’s history and almost twice as profitable as any preceding quarter. The results can be volatile and one swallow doesn’t make a spring, but the market has taken notice and the shares were up more than a third during August.