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Monthly Report: International Fund July 2019

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International Fund July Monthly Report

Blancco Technology Group (AIM:BLTG) announced an equity raising alongside another trading update. Revenue for the year ended 30 June 2019 is now expected to be close to broker estimates of £30.5m, while profitability should be “ahead”.

Roughly half of the £10m raised from existing shareholders will be used for the acquisition of Irish software company Inhance Technology. Inhance offers an app-based mobile diagnostics system that allows consumers to establish the value of and complete a trade-in for their used mobile phones. All without having to step foot in a store. The technology ties in well with Blancco’s existing mobile business.

The remainder of the funds will go towards a strategic investment in Blancco’s existing mobile diagnostics software and repaying debt. The Fund participated in the discounted placement and subsequently (profitably) sold some shares to maintain a prudent portfolio weighting. It remains our largest investment by some margin.

Alphabet (Nasdaq:GOOG) announced a strong second quarter result. Revenue grew more than 22% with mobile search (+28%) and YouTube (+32%) key contributors. A healthy operating profit margin of 24% was achieved, despite continued losses from the ‘Other Bets’ category. This includes a significant investment in driverless car leader Waymo.

Alphabet’s net cash pile reached a record US$117bn. Importantly, though, the board looks keen to make inroads into that cash, repurchasing $4bn of stock in the quarter and authorising a new $25bn buyback, the largest in its history.

Despite a market capitalisation north of $800bn, the company continues to grow rapidly, the valuation is undemanding and our concerns around capital allocation may subside through more aggressive use of buybacks. The Fund sold down its position a little during the month but it remains a core holding with a weighting of 5.1%.

Norwegian conglomerate Bonheur (OB:BON) has been a great performer for the Fund recently, almost doubling since the start of 2019. The most pleasing aspect of its recent second quarter result was the profit generated by the offshore wind installation segment, a business we’ve historically struggled to value with confidence. Bonheur controls three specialised jackup rigs, used for the transportation, installation and maintenance of giant offshore wind turbines, plus seven crew transfer vessels and a related labour hire business. Segment revenues almost doubled to NOK806m and earnings before interest, tax, depreciation and amortisation (EBITDA) rose fourfold to NOK255m. The rest of 2019 will be less profitable. But two of the three jackups are already booked out for long stretches over 2020/21.

Eagle-eyed unitholders might have noticed the name Zebra Technologies (Nasdaq:ZBRA) in the Fund’s top 10 holdings in our webinar in July or heard its mention in our recent roadshow. We’ll lay out the investment thesis more fully in a coming quarterly report. Zebra is the world leader in handheld hardware and associated software for use by retail and warehouse/logistics staff, for identification and tracking of any object with a barcode. In the second quarter, the company announced sales of US$1.1bn, up 8.4% versus the same quarter last year. Key competitor Honeywell (NYSE:HON) saw contracting sales over the same period. Zebra’s underlying earnings per share rose 22%. The company announced a $1bn share repurchase, enough to buy back almost 10% of the company’s outstanding equity if executed at today’s share price. We’ll have more to say on this investment soon.