There are ASX shares that have kept growing the dividend in recent years and may have the potential to keep increasing the payment.

The below businesses managed to grow the dividend during the COVID-affected year of 2020 and are experiencing high levels of demand, which could lead to rising profit and a bigger dividend in the future.

Bapcor Ltd (ASX: BAP)

Bapcor is the biggest automotive parts business in Australia. In FY20 the business grew its annual dividend by 2.9% to 17.5 cents thanks to an increase of the interim dividend and a final dividend that was maintained. 

In the FY21 half-year result, Bapcor’s board decided to increase the interim dividend by a further 12.5% to 9 cents per share.

The latest dividend increase was funded by a large increase in profitability. Half-year net profit after tax (NPAT) grew by 49.7% to $67.7 million and pro forma earnings per share (EPS) went up 28.9% to 20.7 cents.

Bapcor said that result was driven by growth in revenue, operating leverage and profitability in all business segments. It’s also continuing to progress major projects that will underpin the company’s future success.

One of those projects by the ASX share is the construction of a new large distribution centre in Victoria which will see 13 locations consolidate into one. The retail segment has already successfully transitioned there. It’s expecting an operating expenditure benefit of $10 million in FY23 and a reduction in working capital of $8 million thanks to this change.

The warehouse is 50,000m2 in size and uses ‘goods to person (GTP) technology’. GTP picks 600 lines per hour, compared to 600 lines per day previously. It also comes with improved freight efficiencies, carbon emission reductions and energy utilisation.

It’s looking at the potential to do this type of consolidation in Queensland as well.

Growth in Asia is another promising area. It recently acquired a 25% stake of Tye Soon which has auto parts operations in a number of countries including Singapore, Malaysia, Australia, South Korea, Thailand and Hong Kong.

It currently has a grossed-up dividend yield of 3.4%.  

Brickworks Limited (ASX: BKW)

Brickworks is a diversified property business. It has a number of building products businesses, as well as a 50% stake in an industrial property trust and it owns almost 40% of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

It’s the property trust and Soul Patts shares that drive the Brickworks dividend higher, as the payout is funded from the distributions and dividends from those two assets.

In FY20 Brickworks increased its dividend by 4% to $0.59 per share. That included a 3% increase of the final dividend to $0.39 per share.

In the FY21 interim result, the ASX share increased the half-year dividend by a further 5% to $0.21 per share.

The industrial property trust is benefiting from the significant increase in demand for logistics.

Brickworks managing director Lindsay Partridge said:

The COVID-19 pandemic has only accelerated industry trends towards online shopping and this is fuelling demand for our prime industrial property. We are seeing increasing interest from our customers for more advanced, high-value facilities. An example of this trend is the state-of-the-art Amazon facility, currently under construction and due to be completed in September.

The business is seeing a recovery in both the Australian and US construction markets.

Brickworks is expecting further cashflow growth as property trust facilities are completed that results in gross rent within the trust increasing by over 40%, with significant further land remaining for development.

At the current Brickworks share price, it has a grossed-up dividend yield of 4.1%.

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• 3 reasons why the Brickworks (ASX:BKW) share price is a buy

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Shares in ALS Ltd (ASX: ALQ) are in rocketing this morning after the company released its full-year results . At the time of writing, the ALS share price is trading for $11.80, up 8.26%.

ALS’ results for the year ending 31 March 2021 show a drop in both revenue and expenses, landing the company in the green.

ALS is a global testing, inspection, and certification company. It works within a number of sectors including agriculture, pharmaceuticals, and construction.

Let’s take a look at the results released by ALS this morning.

Full year results

For the year ending 31 March 2021, ALS recorded earnings before interest, tax, depreciation, and amortisation (EBITDA) of $421.1 million. That’s 25% more than last year’s EBITDA of $326.1 million.

ALS also announced a fully franked interim dividend of 8.5 cents per share and a final, 70% franked, dividend of 14.6 cents. Shareholders will have their dividend distributed on 5 July.

The year saw a drop in both revenue and expenses for ALS. The company’s revenue was $92.5 million less than the previous comparable period – it brought in around $1.76 billion. ALS said the fall in revenue was mainly due to the Australian dollar gaining value against other currencies.  

ALS’ expenses for the period came to around $1.37 billion, down from approximately $1.53 billion it forked out through the previous 12-months.

Combined, its revenue and expenses saw ALS finish the year with a $174.1 million profit.

Its earnings per share through the period was 35.78 cents – 35% better than last year.

ALS now has $611.1 million worth of assets, including $168.6 million of cash in the bank.

The company currently has $243.6 million in bills that need to be paid, as well as holding a group net debt of $613.6 million. It’s spent the last 12 months paying off a substantial portion of that debt – $186.5 million worth.

ALS also refinanced it debt earlier this month. Now, it uses a range of “geographically diverse” financial institutions to hold its multi-currency debt facilities.

Finally, ALS stated it’s committed to repaying COVID-19 related subsidies given to it from governments in countries where such payments exist.

Commentary from management

ALS’ chair Bruce Phillips commented on the company’s results, saying:

This is a very strong performance given the heavy impact of the COVID-19 pandemic. The swift actions from management to align the cost base with client demand and strengthen the balance sheet prepared the Group well to capitalise on the improved trading conditions in the second half of the year and advance our strategic objectives.

ALS share price snapshot

The ALS share price is having a great year so far on the ASX.

Currently, it’s gained 11.45% year to date. It’s also 54.61% higher than it was this time last year.

The company has a market capitalisation of around $5.2 billion, with approximately 482 million shares outstanding.

More reading

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) is coming under fire from a well-armed legal figure. Karl Racine, the attorney general for Washington, D.C., has sued the company for engaging in anticompetitive behavior. This marks the first time that the massive retailer has been hit by an antitrust lawsuit in the U.S.

It’s part of a pattern, though. Amazon and other tech giants have lately come under increased scrutiny by lawmakers, which has led to a raft of antitrust suits being brought against them. 

The attorney general claims in the suit that the policies that govern Amazon’s relationships with third-party merchants prohibit those sellers from offering lower prices on non-Amazon sites. This makes the prices artificially high and helps the big retailer amass monopoly power. 

“Amazon is increasing its dominant stronghold on the market and illegally reducing the ability of other platforms to compete for market share,” Racine told Bloomberg.

Amazon fired back, with an unnamed spokesperson saying in a statement, “The D.C. Attorney General has it exactly backwards — sellers set their own prices for the products they offer in our store.”

Amazon added, “like any store we reserve the right not to highlight offers to customers that are not priced competitively.”

As reported by Bloomberg, Racine said he was unaware if other attorneys general would join the lawsuit — a common practice with suits against high-profile companies. He also said his case isn’t being coordinated with the Federal Trade Commission, the federal agency tasked with enforcing antitrust law.

Investors don’t seem too spooked by the lawsuit. On Tuesday, they pushed Amazon’s shares up by 0.4% while the S&P 500 slumped by 0.2%.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Aristocrat Leisure Limited (ASX: ALL) share price has been a strong performer in May.

Since the start of the month, the gaming technology company’s shares have risen just under 11%.

This means the Aristocrat Leisure share price is now up an impressive 31% year to date.

Why is the Aristocrat Leisure share price on form?

Investors have been bidding the Aristocrat Leisure share price higher this month following the release of its first half update.

For the six months ended 31 March, the company reported a 1% decline in revenue to $2,229.7 million but an 18.4% increase in net profit to $362.2 million.

Management advised that the company’s growth continues to be underpinned by a sustained investment in game design, development and technology.

Aristocrat made a $242.7 million investment in Design & Development (D&D) in the period, representing 10.9% of group revenue. It notes that this is in line with its refreshed growth strategy and commitment to exceptional market-leading product portfolios, customer engagement, people, talent and culture.

Is it too late to invest?

One leading broker that still sees value in the Aristocrat Leisure share price is Citi.

According to a note this week, the broker has retained its buy rating and lifted its price target to $46.60.

Based on the current Aristocrat Leisure share price of $41.02, this implies potential upside of 13.5% over the next 12 months.

What did the broker say?

Citi was pleased with its performance during the first half and particularly its Digital margins.

It commented: “Aristocrat is gaining share and seeing improving rates of profitability in both the land-based and digital markets. Our earnings outlook is largely unchanged, with small downgrades to FY21e (-1.7%) and FY22e (-1.1%) on higher rates of reinvestment in D&D and UA but upgrade the longer-term outlook (FY23e +2.3%).”

“Digital margins are the key source of upside surprise vs. consensus in our view, given the monetisation of RAID and the shift to Plarium Play. Aristocrat’s balance sheet remains undervalued given the capacity it provides for acquisitions and reinvestment. We increase our target price to $46.60 given the improving outlook for Digital margins and the pace of the North American and ANZ land based recovery,” Citi concluded.

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The Australian Ethical Investment Ltd (ASX: AEF) share price has fallen in opening trade today after the company announced an earnings guidance and business update for FY21.

At the time of writing, the Australian Ethical share price is trading at $9.60, down 2%.

What might move the Australian Ethical share price today?

Earnings guidance for FY21

In today’s release, the wealth management company advised it expected to deliver an underlying profit after tax before performance fees for the year ending 30 June 2021 between $8.8 million and $9.3 million. This compares to the $7 million full-year underlying profit after tax delivered in FY20 on an equivalent basis. The expected profits for FY21 represent an increase between 25.7% and 32.8%.

Australian Ethical has seen a solid increase in funds under management (FUM), with $5.68 billion as at 30 April 2021. This represents a 5% increase from the $5.41 billion in March this year, and a 40% increase from 30 June 2020.

The company said that increases in April was driven by $0.17 billion in investment performances and continued solid netflows of $0.1 billion.

Australian Ethical highlighted its commitment to making ethical investing as accessible as possible for all Australian, and advised that it will reduce fees across targeted super options and managed fund products from 1 June 2021 onwards.

From a revenue perspective, the reductions will reduce the average revenue margin by approximately 0.04% pa. The company’s revenue margins at 31 December 2020 was 1.05% pa. Despite the margin reductions, the company believes it could improve the competitiveness of its products and contribute to long-term growth in FUM.

Business update

The company said it was seeing “great momentum” as its strategy delivered a number of positive outcomes in terms of FUM growth, investment performance and other key performance indicators. Its strong business performance could be a catalyst behind the 100% year-to-date surge in the Australian Ethical share price.

Its business update observed continued strong investment returns with its Australian Shares super option ranked first over 1 year, 5, 7 and 10 years. Its Australian Shares Fund and Emerging Companies Fund have delivered above benchmark returns, returning 15.1% and 18.6% above their benchmarks respectively.

Another area of growth for Australian Ethical is its adviser channel, which saw flows up 177% on the same period last year, reaching a significant milestone of $1 billion in advised FUM.

Outlook

The Australian Ethical share price has outperformed the broader market and is standing strong against recent market volatility.

Australian Ethical CEO John McMurdo commented:.

We are seeing unprecedented interest and demand for ethical investing as Australians open their eyes to how our products deliver attractive investment returns and make a positive difference in the world. Looking ahead, we expect this growth in ethical investing to accelerate

Mr McMurdo said the company was already reaping the benefits of strategic investments to strengthen its operating platform, diversify acquisition channels and improve customer experience.

We recognise the opportunity to extend our market leadership position through future investment in deepening our investment expertise, brand and marketing to improve brand awareness, technology to enhance customer experience and expanding our product offering to meet demand and further our positive impact.

In the medium to longer term, we expect higher levels of profitability as we realise the anticipated benefits of investing in our business and operating leverage from achieving greater scale.

More reading

• The Australian Ethical (ASX:AEF) share price has surged 80% in 2021

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The Fletcher Building Limited (ASX: FBU) share price is on the move on Wednesday.

At the time of writing, the building products company’s shares are up 4.5% to a 52-week high of $7.02.

Why is the Fletcher Building share price rising?

Investors have been buying the company’s shares this morning after it provided an update on its guidance for FY 2021 and revealed plans to return funds to shareholders.

According to the release, Fletcher Building is expecting to achieve earnings before interest and tax (EBIT) of NZ$650 million to NZ$665 million in FY 2021. This is at the top end of its previous guidance range.

CEO Ross Taylor commented: “We continue to make material progress on executing our strategy and achieving key financial targets. We are seeing a broadly stable market environment with trading conditions in the second half of FY21 largely consistent with the first.”

“Despite some supply chain constraints and input cost pressures, we continue to see good margin performance from the business. Forward indicators for market activity are pointing to ongoing robust volumes in New Zealand and Australia, with our businesses focused on delivering above market growth and improved profitability in this environment.”

Share buyback

In light of its positive form and its strong balance sheet, Fletcher Building has announced that it will undertake a capital return to shareholders of up to NZ$300 million. This will be achieved through an on-market share buyback, commencing in June.

Mr Taylor commented: “Fletcher Building’s balance sheet is in a strong position, with leverage expected to remain below our target range in the medium term. This position provides us with capacity to recommence capital management and distribute up to NZ$300 million to shareholders, with the most effective method being an on-market share buyback.”

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) and MercadoLibre (NASDAQ: MELI) exist as similar businesses targeting different markets. While Amazon might have become the king of e-commerce in the developed world, MercadoLibre’s approach has effectively made it the Amazon of Latin America.

The question now comes down to which company has better positioned itself for stockholders. Let’s take a closer look to see which consumer discretionary stock will likely offer higher investor returns.

Similarities and differences

As most know, both Amazon and MercadoLibre emerged as e-commerce pioneers, working to make e-retailing a viable shopping option for many of the world’s consumers.

Amazon brought these benefits first to North America and later to other countries. The company has also moved into the Latin American market. However, it has faced a key competitive disadvantage in this region. Most Latin American consumers use cash regularly, and a large percentage of them hold neither a bank account nor a credit card. This presents a challenge to e-retailers who rely on cashless payment.

MercadoLibre has addressed this through its payment system, Mercado Pago. On the Q1 2021 earnings call, CFO Pedro Arnt emphasized the company’s role to “democratize money and access to financial services” within its ecosystem. To this end, Mercado Pago offers fintech options so consumers can pay for items on the site. Moreover, the company has since expanded Mercado Pago to help other companies facilitate cashless commerce. Not only does this give MercadoLibre a competitive advantage in its home region, but it also makes MercadoLibre a fintech company.

Still, investors should remember that Amazon also operates a nonretail business with its cloud infrastructure service, Amazon Web Services (AWS). AWS not only pioneered the cloud industry, but it also delivered much higher margins than retailing and, at least until recently, accounted for a majority of company profits. These profits have sometimes subsidized Amazon’s retail arm. One example is the shift from two-day to one-day shipping in 2019, when Amazon sacrificed short-term profit growth to widen its competitive advantage.

How the financials compare

Amazon supports a market cap of more than $1.6 trillion, one exponentially larger than the $70 billion market cap for MercadoLibre. However, this means that MercadoLibre can achieve higher growth percentages than Amazon on lower volumes.

In the first quarter, MercadoLibre’s revenue of $1.4 billion surged by 111% compared with year-ago levels. The company also logged a $34 million loss, more than the loss of $21 million in the same quarter last year. Still, investors should remember that while the company did lose money in the first quarter of last year, that did not prevent MercadoLibre from turning a profit in fiscal 2020.

In contrast, Amazon’s $108.5 billion in net sales amounted to a 44% increase compared to the same quarter last year. Thanks largely to noncore income sources, net income surged 220% to $8.1 billion. That income led to a free cash flow of $26.4 billion over the last year, compared with about $691 million for MercadoLibre’s previous four quarters.

Additionally, of the two companies, only Amazon published forward guidance, but neither would commit to a full-year outlook. Companies and analysts alike have expressed concerns that e-commerce growth will temporarily slow as countries emerge from the pandemic. However, with COVID-19 cases still on the rise in MercadoLibre’s home region, that company faces more uncertainty on this front.

MercadoLibre’s stock has also outperformed Amazon’s over the last year. MercadoLibre increased by just under 65% over the previous 12 months versus Amazon’s 33% increase during that period. Nonetheless, Amazon investors will pay less for growth. MercadoLibre sells for about 15 times sales, while Amazon’s P/S ratio has fallen to about 4.

Data by YCharts.

MercadoLibre or Amazon?

Despite the higher expense, I believe MercadoLibre holds an edge for the long-term investor. This decision comes down to size. Amazon has already realized much of its potential, while MercadoLibre remains in an earlier stage of its development, meaning it can more easily log faster revenue growth.

Admittedly, Amazon might remain the superior company, and MercadoLibre might never match Amazon’s size. Also, given its current growth rates and strong cash flows, Amazon could remain a more suitable choice for risk-averse investors. Nonetheless, given MercadoLibre’s much faster increases in revenue, those with a higher risk tolerance should benefit more from its stock in the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Element 25 Ltd (ASX: E25) share price will be one to watch this morning. This follows the mineral exploration and mining company’s announcement of another positive update on its Butcherbird manganese project.

Just yesterday, Element 25 executed a Multi User Access Agreement with the Pilbara Port Authority.

At yesterday’s market close, Element 25 shares ended the day at $2.40 – closing in on their all-time high of $2.90.

What did Element 25 announce?

Element shares could be on the move today after investors digest the company’s latest news.

In a statement to the ASX, Element 25 advised it has sold the first parcel of its manganese product to OM Holdings Limited (ASX: OMH). This marks a significant milestone for Element 25 after it published the project’s pre-feasibility study in May 2020.

Under the offtake agreement, the company will supply material in contract specification of 30% to 35% of manganese concentrate.

As part of ramping up the company’s activities, the Butcherbird mine site has progressed to 24-hour processing. The increased production rate will facilitate the first shipment to OM Holdings, scheduled for June 2021.

Element 25 managing director Justin Brown commented:

Delivering the first material under the offtake agreement within 12 months of publishing the Pre-Feasibility Study is a testament to the hard work and dedication of the Project team. This is another important milestone for the Project and Company and we are excited to be heading for our first shipment of Butcherbird’s material to our offtake partners.

Powering ahead

In further news that could impact Element 25 shares, the company is focusing on the next stages of its Butcherbird project. A multi-stage development strategy is in the works which will see a stage 2 expansion of the concentrate business.

This will be followed by a stage 3 development to convert the concentrate material into high purity manganese sulphate monohydrate – a key ingredient for electric vehicle batteries.

How has the Element 25 share price been performing?

Over the past 12 months, Element 25 shares have accelerated by more than 500%, with year-to-date performance returning over 50%. The company’s share price reached an all-time high of $2.90 in late March before trending lower recently.

On valuation grounds, Element 25 commands a market capitalisation of around $357 million, with approximately 148 million shares on issue.

More reading

• Why the Element 25 (ASX:E25) share price is rising today

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The Fortescue Metals Group Limited (ASX: FMG) share price has been out of form recently.

Due to a pullback in iron ore prices, the mining giant’s shares have lost approximately 6% of their value since this time last week.  

Is this a buying opportunity?

According to a note out of Bell Potter from last week, Fortescue’s shares could be worth a look if you’re an income investor. This is because its analysts are forecasting massive dividend yields in FY 2021 and FY 2022.

Bell Potter currently has a hold rating and $23.96 price target on the iron ore producer’s shares. With the Fortescue share price fetching $21.72 today, this still implies potential upside of 10% over the next 12 months.

That return alone is attractive but if you throw in dividends, things get even better. Bell Potter is forecasting fully franked dividends of $5.40 per share in FY 2021 and then $4.12 per share in FY 2022.

Based on the current Fortescue share price, this represents massive yields of ~25% and then ~19%, respectively.

What did Bell Potter say?

Bell Potter believes the sky high iron ore price has put Fortescue in a position to reward shareholders with bumper dividends.

It explained: “The extraordinary iron ore price action we have continued to see through the June quarter has prompted us to further refine our financial performance forecasts for FMG as we head towards the end of FY21. Marking-to-market the iron ore price for the June 2021 quarter to date shows the average price now sits at ~US$184/dmt.”

“This compares with our previous forecast of US$160/dmt and the current spot price [21 May] of US$212.90/dmt. This lifts our 2HFY21 forecast to US$179/t, up 9% from US$164/dmt previously. Our higher forecast iron ore price flows through to modest earnings and dividend increases. It is partially offset by a higher AUD:USD forecast and the slightly higher costs reported in the March 2021 quarterly.”

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part 1 of our interview, Forager Fund senior analyst Alex Shevelev explains how his ASX-listed fund nabs under-appreciated bargains, plus the stock it’s still holding after 9 years.

Investment style

The Motley Fool: What’s your fund’s philosophy?

Alex Shevelev: At the Forager Australian Shares Fund (ASX: FOR), we’re opportunistic investors. We hook and gravitate towards unloved and under-appreciated stocks. And it’s often stocks and sectors that others aren’t able to, or won’t, be particularly interested in.

The fund is a listed investment trust. So it’s listed on the ASX and can be purchased in the same way as other ASX shares. We’re currently trading at a 10% discount on its net asset value.

MF: To give our readers an idea, what are your two biggest holdings?

AS: There are actually two very interesting names. 

Mainstream Group Holdings Ltd (ASX: MAI) is actually our largest holding at the moment. You may have seen the auction process for Mainstream that’s been ongoing for about the last couple of [months]. 

But I might take you back to the beginning. We’ve actually been the shareholder in Mainstream since the IPO [initial public offering], the largest institutional shareholder, and the business has some really interesting characteristics. It is a highly recurring revenue stream. Once a fund manager like Magellan signs up for fund administration services, they usually don’t change for a very long time… 

The business has been growing really well but didn’t quite attract investor attention and, in fact, spent the better part of the last 5 years somewhere between 40 and 60, 70 cents.

Meanwhile, they’d been growing revenue more than 20% per annum into June 2020. So we thought the business had been doing a pretty good job… but it wasn’t really being recognised in the market. 

So we went to the board and management and proposed a strategy for communicating with investors to close that gap. But then also to put the business in a position where it could be auctioned off. And that auction strategy was because the business is more valuable, given it’s a recurring revenue stream, in the hands of a much bigger player.

They’ve executed that really, really well. So [chief executive] Martin Smith and the team there communicated well, the stock ran up to a little over $1 at the beginning of the year. 

The management and the board, headed by Martin Smith — they actually gave up some of the upside on their own shareholdings in the business. They got the option process started at $1.20. The subsequent bid to that was $2, and now we’re at $2.65.

The second largest is RPMGlobal Holdings Ltd (ASX: RUL). They provide software for mining companies and mining contractors. It allows a mining company to work out, for example, what part of the deposit to mine next or when a piece of equipment needs to be maintained. 

So it’s an enterprise software business. Those have some interesting characteristics. Chief amongst them is that revenue is often very sticky. Much like Mainstream, someone puts in a piece of software within a key process in a mining company, they’re hesitant to change that, and that product will often be in place for a very long period of time. 

Interestingly, RPM was going through a transition that wasn’t quite recognised by the market. They used to sell their software on a perpetual license and maintenance model, so they would charge quite a lot up front and then a smaller maintenance fee over time. They were moving that to a subscription model, which is roughly equal amounts over each year. 

That meant that revenue and profits were in fact lower in the first couple of years while the business was growing and doing quite well. [But] it didn’t quite look like that when you looked at the accounts. 

The management team at RPM also attracted us to the business. So [chief executive] Richard Matthews is an executive in this space that has done a lot with enterprise software businesses in Australia. He took over and sharply increased the spend on software for the business and really went about developing some products that are best-of-breed, the best technology, and is happy to spend money developing those products. 

It could be another M&A candidate. Even without that, though, we think in the financial year 2023, RPM will be trading at a price-to-earnings ratio of about 15 times, excluding the excess cash on the balance sheet. Then in the subsequent year that drops down to about 10 times.

Buying and selling 

MF: What do you look at closely when considering buying a stock?

AS: We start with: Is there a psychological edge to this purchase, or is there an analytical edge? I’ll run through the two elements. 

The psychological edge is more like March 2020. Market panic, lots of uncertainty around COVID, lots of selling across the entire market. Other things in that psychological edge category: over-reactions to specific company news or to sector news, [and] motivated selling. 

For example, an investor might not be able to hold a particular stock if that stock drops out of an index or becomes too small for them — or the money is being redeemed and that investor is a forced seller. So that’s the psychological edge component.

On the information edge side, we try to understand the businesses very well. So misunderstood business models are one of the interesting elements to that informational edge [as] I talked about RPM earlier. 

Often we get these opportunities in smaller stocks or in areas of the market that we know well — where we have spent time researching other investments.

Sometimes we pick up trusted [businesses] that may not belong to individual markets. We had an investment in Virgin Money UK CDI (ASX: VUK), which we bought in April of 2020 — that’s a UK bank listed in Australia. It creates a little bit of uncertainty amongst local investors who may not be posted up to the business.

Beyond those reasons, the psychological and the informational edge, we do look at as much information as we can gather. So we look at the quality of the business. What it does, where it sits in the industry, what sort of returns on capital we can expect, how sustainable the cash flows of the business are. We look at the management aspects — who are we actually trusting with our money? The history of treating shareholders well and successfully running businesses, like the one they’re currently running, is helpful. 

We are quite valuation-driven in our approach. So we do make sure that we pay an appropriate price for the cash flows that we expect and the growth of those cash flows over time.

MF: What triggers you to sell a share?

AS: Oftentimes, that’s when the thesis is not playing up. So we think that a business should be progressing in a particular way and it’s just not getting there. Something’s gone wrong.

Perhaps it’s something in the numbers, perhaps something in the environment and our confidence in the future cash flows that we had originally assumed gets dented. That’s a situation where the thesis doesn’t play out. 

Where the thesis does play out, we’re also interested to see when we sell out of a stock. So again, we looked at our view of the appropriate valuation for the business to really drive the exit. We are cognisant, though, that oftentimes the businesses that we’ve gotten right continue to get better, and other investors may be more excited than us about certain stocks that may well inform our exit as well.

MF: Do you have a horizon in mind when you buy in?

AS: We’re long-term investors in our stocks. So we’ve held one investment in the fund since inception in 2009, and we’ve held quite a few others for a very long time as well.

MF: What is the one you’ve held since 2009?

AS: That’s Enero Group Ltd (ASX: EGG). It’s a marketing services business which we’ve held for a long time, and it’s had an interesting history over the last 10 years. One of the businesses in its marketing services umbrella has particularly started to perform very well over the last 12 to 24 months. And the stock price has rallied dramatically on the back of that as well.

Tomorrow in part 2 of our interview, Shevelev reveals the stock purchase that he’s most proud of.

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