Our latest video analysis is about the recent Australian reporting season. Chief Investment Officer, Steve Johnson, wraps up the season with Senior Analyst Alex Shevelev to provide insights into some very positive half-yearly results. The Australian Shares Fund was up over 4% for the month of February.
Hi and welcome, I’m Steve Johnson, Chief Investment Officer here at Forager Funds. We’re wrapping up the reporting season for our Australian Fund with Senior Analyst, Alex Shevelev. The meetings are still going on with companies, but the end of February was the deadline for most Australian companies to make their interim results for the year and with COVID over the past 12 months they were particularly closely watched, although often largely flagged by companies leading into reporting season. Our portfolio was up more than 4% for the month. So in general, you’d give it a tick for reporting season. Maybe start with our largest investment in the fund, RPM Global. What did that result look like?
So this is an enterprise software business for mining companies. Now it’s actually been a bit of a trend this reporting season, it’s something we’ve seen with a lot of enterprise companies, that there has been a delay in signing new contracts.
We were quite worried about that coming into this result because RPM was on a pretty good track before COVID to sign quite a lot of new mining companies with its new mining software. It seems like in the result what we saw was yes, a slowdown. But some of the detail in that presentation was very helpful to work out that in fact, in the last calendar quarter of a year things were turning around and so far this quarter we’ve actually seen a lot of new contracts signed.
We’ve actually seen a lot of ASX listed companies that sell software to other companies rather than consumers doing it tough out there because of COVID because everyone’s working from home, getting companies to make big decisions has been really difficult.
And we were quite worried about this company not announcing new contract wins. Last year, every 5 million of contract wins that they’d done they made an announcement of the stock market. We hadn’t heard anything since the full year, last year they gave an AGM update that wasn’t great. So we were quite nervous about this result, yet the number was quite good, at least until the end of February.
That’s right and this really helps to set RPM up for what’s going to happen this year and next year. It’s important here that what we’re adding is a really high quality recurring subscription revenue. And because it’s a very low churn, so not much of it goes away year to year, every dollar we’re adding now will build up forwards.
Pretty excited about that one over the coming years. I would say it was a general theme for reporting season, some great results from retailers, big, fully franked dividends and share prices not moving. One of those we own, Motorcycle Holdings. What did you think of that result?
Motorcycle Holdings has been very consistent in providing really good guidance to us on the first half number. It’s been a phenomenal time to be selling motorcycles because you’ve had people being able to withdraw from super, you’ve had people being able to spend on domestic activities like motorcycles rather than international travel and net profit was up 250% year on year, which is a phenomenal effort. And it looks like from the guidance that those, those numbers have continued, or at least that activity level has continued into the current year.
Yes and the balance sheets gone from slightly worrying to completely fixed here, they’ve generated a huge amount of cashflow over the past 12 months and it’s actually a business that I’m a bit more excited about than the market. I think they’ve done a lot over the past few years to improve their market share, to grow the underlying size of the business and I don’t think we’ve yet seen the full impact of that in the results. So people are looking back and saying, well, if it goes back to 2019 profitability, and I put that on 12 or 13 times earnings, I get today’s price. I think there are sustainable earnings here, well and truly above what they made in 2019.
That’s right. We’ve had some acquisitions in that period. We’ve had a finance joint venture that’s going a lot better than it was before. It was loss-making, it’s now profitable, and we’ve got the ability to put product into their existing store footprint.
That’s actually very profit accretive because you don’t have to spend the extra operating costs. So in this case, they introduced Indian motorcycles in some of their dealerships and those are selling very well. So there’s a lot of self-help work that the company has done that, in addition to cutting costs are really going to come through over the next couple of years.
And last but not least, one of the biggest performance contributors was Life360 in February, a business going through its own troubles because of COVID, but showing some pretty good signs of coming out the other side of it also in a good place.
Life360 is an app that you might download to track your teenage kids as they start leaving home and as they start to drive around. Understandably the focus of the company is the US and there hasn’t been as much of that with COVID. Nonetheless, the company has been able to increase revenue year on year and with the reopening of the US with higher value plans and with more people actually taking on paid plans, they’re talking about revenue growth in the order of 25-35% in this current year.
They still need to deliver those results, but surprisingly bullish guidance from Life360. There was also some talk in their announcement about either a dual listing or a relisting to the NASDAQ in the US, which would certainly apply higher evaluations in this climate than where we’re currently seeing in the share price.
Look we knew this was coming. Most of our companies had let us know that things were going well, but I thought it was a really positive reporting season. We’ve had some nice, big, fat, fully franked dividends, and we’ll be able to distribute those out to unit holders at the end of the year. We’ll have more to come for you on guidance around distributions in 2021 but so far so good. The portfolio is in a good place and making profits and growing and that is good to see. Thanks Alex and thanks for tuning in.
If you would like to subscribe to our YouTube channel, you can do so here: Forager YouTube
Ready to invest?
Visit this page for more information on how to invest with Forager.
Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.