AMCIL delivers strong outperformance with a focused investment strategy

AMCIL Limited's financial results for the year ending 30 June 2024 highlights the strength of the investment approach. This article provides an overview of AMCIL’s financial performance, key portfolio movements, and market outlook.

Performance highlights

A net profit of $7.5 million was reported, a slight decrease from $7.6 million in the previous year as there was a slight fall in dividends received.

Portfolio performance was strong. The portfolio delivered a 20.5% return, including franking, significantly outperforming the S&P/ASX 200 Accumulation Index's 13.5% return when franking is included. This success is attributed to our investment approach and focus on quality companies, many of which have “owner driver” characteristics. Over the past decade, the annualised return, including franking, has been 9.6%, closely aligning with the S&P/ASX 200 Accumulation Index's performance over the same period.

Key contributions to this outperformance came from Goodman Group, Gentrack, Macquarie Technology Group, CAR Group, Netwealth Group, and Wesfarmers. AMCIL's portfolio also benefited from this diverse sector performance, despite maintaining a large underweight position in banks due to their high valuations.

The environment for the financial year was marked by varied sector performances. The best-performing sectors included Banks (up 34.9%), Information Technology (up 28.4%), and A-REITs (up 24.7%). In contrast, the Resources sector declined by 3.2%.

A final dividend of 2.5 cents per share plus a special dividend of 0.5 cents per share will be paid on 28 August 2024 to ordinary shareholders on the register on 7 August 2024.

The interim dividend was 1.0 cent per share fully franked. This brings total dividends for the year to 4.0 cents per share, compared to 5.0 cents last year. Net tangible assets per share were $1.26, up from $1.12 on 30 June 2023.

Key Portfolio Movements:

During the year, several adjustments were made to the portfolio. The sell-off in health care stocks, following the emergence of diabetic drug GLP-1 as a successful weight loss treatment, provided an opportunity to add to the holding in ResMed.

We continue to be attracted to quality “owner driver businesses” where management and board members have significant shareholdings. These companies generally have a strong alignment between management and shareholder interests. These companies can be smaller but deliver strong long- term returns. In this context, several companies were added to the portfolio. The larger of these purchases were Altium, Mineral Resources and Objective Corporation. Altium was subsequently sold towards the end of the financial year as it became subject to a takeover offer. Smaller positions were also established in Block, PWR Holdings, Redox and PSC Insurance.

The other large addition to the portfolio, Technology One, is an example of a company where we believe its growth potential is not fully reflected in its valuation despite having strong share price momentum.

The most material sales in the year were in Medibank Private, as the share price ran up to a point where it was appropriate to recycle capital from this position to pursue attractive buying opportunities elsewhere in the market. In this context positions in Santos and Computershare were also sold. There was also a trimming of the holding in James Hardie Industries as the portfolio position became larger than wanted from a risk management perspective. It remains in our top 20 holdings given the quality of its franchise and industry position.

Outlook for FY25

There is little scope for any disappointment in key economic variables over the coming months, with consumer sentiment already weakening in Australia. The outlook for corporate earnings in the upcoming company reporting season will therefore be closely monitored. In an environment of higher costs, anticipated subdued economic activity and high share prices, many companies are likely to be tested. While geopolitical factors have not curtailed market enthusiasm, they remain relevant with ongoing conflicts and with policy implications of elections in key developed markets yet to emerge.

AMCIL will continue to focus on quality investments to navigate market challenges effectively and deliver consistent returns to shareholders. The disciplined investment approach, combined with a focus on quality stock selection, positions AMCIL well in what is expected to be a volatile environment.