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Monthly Report: International Fund July 2023


International Fund July Monthly Report

July was an eventful month for the Fund. The unit price of the Forager International Shares Fund rose 3.0% on the back of several positive results, outpacing a 2.6% return from the index. In early July, data erasure software provider Blancco (AIM:BLTG) released a trading update  saying that its second half had been strong and the business expected to report revenue and profit for the year ended 30 June 2023 ‘comfortably higher than current forecasts’. The stock popped more than 15% on the news. It seemed strange the company took until three days after books closed to tell us it had been a good year. Perhaps they’d been busy?

A few days into August, the news broke that private equity firm Francisco Partners had bid £2.23 cash per share to take Blancco private. The bid represents a 25% premium over the share price at the end of July. The Blancco board has endorsed the bid and several large shareholders have committed to accepting it in the absence of a better offer. We’re certainly not celebrating. The bid offers no obvious premium for control and undervalues the returns this business can likely generate for shareholders over the medium to long term. We’re also concerned the board hasn’t significantly shopped the company around to other potential bidders before accepting this one. We outlined those concerns in an Open Letter to all shareholders in Blancco Technology Group, which you can find published on our website. We may have more to say on the matter over the coming months.

Meta Platforms (NASDAQ:META) and Alphabet  NASDAQ:GOOGL) both delivered second-quarter results suggesting the 2022 growth slowdown is behind them. Meta reported an 11% increase in Family of Apps advertising revenue compared to the previous year and a steady 5% increase in daily active users. Google’s advertising revenue grew a commendable 7% versus the prior year, while cloud revenue surged 28% to $8 billion and the growing segment reported its second consecutive quarterly profit.In the past 12 months, both of these megacaps traded at valuation levels that suggested investors had given up on  growth (in Meta’s case, it traded at less than 10 times earnings). Throughout 2023, the evidence has been growing that neither of these businesses are dead. They are trading at more sensible multiples today and we have been reducing the Meta investment—its share price is up 165% this  year. We can only hope the market gets as pessimistic again in future.

One company we don’t expect to grow much is Lloyds Banking Group (LSE:LLOY). All that is required for this to be a successful investment is that its ample profits and cash generation are returned to shareholders. On both fronts, it is living up to expectations. The company continues to slowly (and deliberately) give up market share, preferencing maximising its net interest margin (NIM) and current profitability. The NIM, which measures the difference between what a bank earns on loans and what it pays depositors, stood at 3.14% over the quarter. It could proactively sacrifice some NIM and chase market share at the flick of a switch but for now is opting not to. Lloyds bought back £1.5bn of stock—nearly 5% of its ordinary shares—between February and July and has kept going apace since. It also raised its interim dividend by 15%, more than meeting our hopes on this front.

Defying a challenging macroeconomic environment, Fortune Brands Innovations (NYSE:FBIN) delivered good results. Management marginally upgraded their full-year guidance, helped by the recent acquisition of various security assets from ASSA ABLOY (OM:ASSAB) and an improvement in repair and renovation markets. Synergies from the acquisition alone are expected to increase Fortune Brands’ earnings power by more than 10% over the next few years. A stabilisation in new home construction will further help results. This is a business that generates plenty of cash, with the starting point being a free cash flow yield of more than 6% in 2023 despite its end markets being under pressure. The company has a long history of compounding revenues at over 10% per annum and should continue to grow from here.