The Monash Investors Small Companies Fund (Fund) is an unlisted retail unit trust offering investors an Australian equity exposure with a strategy of outperforming the S&P ASX Small Ordinaries Total Return Index over the medium term (5yrs).

The Fund has been in operation since July 2012, and over this timeframe has generated strong returns to investors of approximately 10% per annum. Returns have outperformed the Index over time, and have been generated in a way that has often been significantly differentiated from other Australian share funds, helping clients to mitigate risk by blending with other assets within their broader portfolios.

This fund is appropriate for investors with “High” and “Very High” risk and return profiles. A suitable investor for this fund is prepared to accept high risk in the pursuit of capital growth with a medium to long investment timeframe. Investors should refer to the TMD for further information.

Dear Investor,

The Monash Investors Small Companies Fund rose 2.3% in August in a generally very positive market for ASX smaller companies with the ASX Small Ordinaries up 5.2%. The past couple of months have been strong for the Fund, with June seasonal tax loss selling behind us, and many companies reporting strong full-year results through August.

Commentary

Key contributors this month include Austin Engineering which recovered 24% on the back of full-year results in-line with prior guidance. Its 2027 guidance range is below broker analyst expectations, but still a healthy improvement on what was a challenging financial year 2026. Importantly, working capital management has been impressive, with inventories well controlled and the company’s balance sheet strengthening significantly. Verbrec, too, performed well, up 14% on the back of its strong full-year result and reconfirmed guidance for the year ahead. The portfolio also benefited from gains of 13-14% to each of Austco Healthcare and Raiz Invest. In the case of Austco, we were pleased with the solid set of numbers it reported, given the operating challenges it faced in the second half of the financial year. Raiz reported its maiden positive NPAT result with strong growth reported across the business. Having racked up nearly $50m in cumulative losses over its lifetime, we’re pleased to see Raiz now inflecting into positive profitability. The company has a strong net cash balance sheet, which together with its double-digit revenue growth, and current profitability, provide it with considerable firepower to invest strategically and potentially accelerate its growth. We look forward to seeing what the company can achieve in the years ahead.

Detractors again unfortunately include EML Payments which declined 25% following a messy result and downgraded expectations for the period ahead. Its significant revenue base continues to have value and we believe is potentially interesting from a corporate activity perspective. Readytech fell 12% as prior corporate interest failed to materialise in a deal acceptable to key shareholders. We’re comfortable with the company remaining independent, and are looking for better cost control to help drive profitability improvements in the period ahead. Pureprofile and Tyro Payments both fell 11-13% despite each reporting good results and guiding positively for 2027.

While the month was busy with reporting newsflow, it was relatively quiet from a trading perspective. Of note though, we added to our holding in Kip McGrath, which as highlighted last month, is subject to an unsolicited takeover offer from Crimson Education. Having previously downgraded, Kip McGrath delivered a respectable full year result and is positioned well now following a strategic re-set, and exit of its US operations. The company’s board rejected the Crimson takeover offer, and merger arbitrage specialist Harvest Lane acquired a ~19% stake in the company at prices up to that offered by Crimson. We believe Kip McGrath’s shares are attractively priced here as an independent company, considering the progress the company has made over the past couple of years, its growth potential, and its significant current free cashflow. For any potential acquirer, upside exists from removing public-company-related corporate overhead; and for an industry operator, further upside is available from operational synergy. For an industry operator also in an adjacent vertical (such as Crimson with its services targeting kids looking to get into top global universities), the strategic fit offers yet further upside potential. Considering the revenue and earnings multiple Kip McGrath trades for relative to what private equity-backed firms are often valued at, the value arbitrage upside to an acquirer could be significant. For these reasons, we believe there’s a good chance Kip McGrath attracts a significantly higher bid; and failing that, the default position of business as usual and as we have been is a perfectly attractive and fine outcome from our perspective. While at this stage there is only one public bidder for the company, as with a property auction, you only need one bidder to get the right outcome. We look forward to seeing how this story unfolds in the months ahead.

Summary

We’re broadly pleased with reporting season, with most of our companies reporting and guiding positively relative to our expectations. The portfolio is populated with 30+ differentiated companies, many of which are on single digit earnings multiples and growing. The upside potential across our holdings, in our view, is significant. While we have a few challenged businesses, including EML Payments as noted above, on balance, we believe these challenges are well-priced into the shares, and the upside potential from some of these positions is far greater than remaining downside risk. As always, portfolio weightings reflect the upside/downside dynamic, with larger holdings typically being in higher conviction and lower downside potential names; while riskier individual names being maintained at smaller weights. Brought together, we believe the portfolio is well-positioned to generate value to investors in the years ahead.

Thank you for your interest, trust and support.