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Monthly Report International Fund May 2021

31/05/2021

International Fund May Monthly Report

The Forager International Shares Fund returned 1.4% this month, slightly ahead of the MSCI ACWI IMI in Australian dollars. Some of the Fund’s new undisclosed investments have contributed significantly to performance over the past couple of months. These will be discussed in detail in the June Quarterly Report.

A number of existing investments reported results throughout May.

Canadian manufacturing conglomerate Linamar (TSX:LNR) has been in the portfolio for almost 3 years. This family-controlled company prides itself on advanced manufacturing capabilities and applies those skills across farm equipment, construction equipment and the automobile industry. All end markets were suffering prior to COVID, and were hit even harder by the subsequent global slowdown. The environment is getting rapidly better in 2021 and 2022 is shaping up as a bumper year.

Its first quarter showed a profit of C$2.41 per share, more than double what it made the prior year (for context, the share price is roughly C$80). Despite ongoing supply chain issues, most acutely a desperate lack of computer chips for the auto sector, the company expects “solid growth” for 2021. Linamar keeps increasing its market share and has won so much business on new electric vehicle programs that shareholders should be little concerned by the potential phasing out of the internal combustion engine over the coming decades. Even in difficult recent years, it generated prodigious amounts of cash. Debt funding taken on to acquire its agricultural business, MacDon, is almost fully paid off.

This business is priced like your typical cyclical auto parts supplier. Our view of the company is a high return on capital, family-run business with lots of growth ahead of it. Yes, it will be cyclical. But there’s nothing wrong with that.

Energy drink company Celsius (NASDAQ:CELH) returned to the portfolio after a substantial pull back in its share price. While the share price was falling from $70 in January to $43 in April, industry data was suggesting the company’s sales growth was accelerating. We re-invested in the company prior to its first quarter results, which franked the industry data and our decision.

Revenue was 78% higher than the same quarter the previous year. In the all important North American market, growth was 101%. According to Nielsen data, it has accelerated since and Celsius recently overtook RedBull as the number two energy drink on Amazon.

The share price hit all time highs again in late May and in early June it upgraded its auditor to Ernst and Young, removing one of our governance concerns. The Fund’s best performer of 2020 is contributing again in 2021.

Homewares retailer Bed Bath & Beyond (NASDAQ:BBBY) announced a partnership with DoorDash (NYSE:DASH) this month. This collaboration will allow Bed Bath & Beyond customers to purchase items online and have them delivered on the same day in more than 3,000 ZIP codes throughout the US. It is not yet clear how this delivery option will impact the company’s profitability. However it’s indicative that management is now focused on strategic actions rather than simply putting out fires, as can be the case in the early stages of a turnaround. In addition, CFO and Treasurer Gustavo Arnal purchased $509,000 worth of shares at an average price of $25.45 in mid April. Paraphrasing famed investor Peter Lynch, company insiders sell for many reasons, but they buy for only one. Mr Arnal is clearly confident in Bed Bath & Beyond’s future prospects.

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