Forager's Recovery Continues in August

I was asked yesterday whether I’m happy with the way the Forager Australian Shares Fund has recovered through August. I’m not happy, and won’t be for some time yet. I am relieved.

It wasn’t just clients asking serious questions of us in March. We were asking serious questions of ourselves. It’s one thing to see your portfolio plummet in value. It’s another to have it happen at the end of two already woeful years. Some of the price movements seemed absurd. But what if we had simply stuffed things up?

This month has shown that most of the companies we own are likely worth what we believe they are worth. And the prices they were trading at in March were the sort of thing you only see a few times in your life.

Take Kiwi media company NZME (NZM) for example. Its share price hit a low of NZ$0.18. That price valued the whole company at just $NZ35m.

Cash flowing from NZME

This week it reported its results for the period to 30 June 2020. NZME generated NZ$20m of free cashflow, after debt service and capital expenditure. That’s in one half of one year. Management is suggesting an increase in earnings in the second half of 2020 and further growth into 2021. Its net debt is down to just NZ$55m and the company won’t be far from debt free by this time next year.

Or little National Tyre and Distribution (NTD). This company was cheap at $0.40 and the first-half result released in February was pleasing. That didn’t stop its share price plummeting. At the March low of $0.21, NTD’s perceived worth was just $22m.

It has since made a significant acquisition that will make it not so little any more. But the just-released results don’t reflect that. They do show the business generated $10m of cash for the year. That increased the net cash balance to almost $14m. There is plenty of upside if the acquisition is successful.

Eking out some excellent results

Those are just two extreme examples. Across the portfolio, it has largely been a story of eking out excellent results in a very tough environment. Some, like Enero (EGG) and Macmahon (MAH) have even managed to grow.

The net asset value of our whole portfolio was $1.36 per unit at the start of the year. It hit a low of $0.65 per unit on the 23rd of March, down more than 50%. At the end of August it was worth $1.27, up more than 90% from the low point. Our job, of course, is to make our clients money, not just get it back. But this reporting season has shown that businesses in our portfolio are making profits, generating cashflow and still trading at highly attractive prices. That, if nothing else, is a relief.