AMCIL’s net profit for the 2022/23 financial year was $7.6 million, down 6.9 per cent on the prior year, however last year’s profit included a $2 million non-cash dividend from the BHP Petroleum/Woodside merger. Excluding this dividend, our net profit this year was up 24.1 per cent in comparison.
We maintained our final dividend at 2.5 cents per share fully franked, and our shareholders will also benefit from a special dividend of 1.5 cents per share fully franked. This brings total dividends for the year to 5.0 cents per share, up from the prior year’s total dividend of 3.5 cents per share.
Both the final dividend and special dividend are sourced from capital gains, on which the company has paid or will pay taxes. The amount of the pre-taxable gain, or “LIC capital gain” is 5.71 cents per share, enabling some shareholders to claim a tax deduction on their tax return.
Our portfolio return for the full year was 13.5%, including franking, compared to 16.6% for the ASX 200 Accumulation Index, also including franking. Following further adjustments to our holdings, our portfolio outperformed the benchmark ASX 200 Accumulation Index in the second half of the financial year by close to three percentage points when the benefit of franking is included.
The long-term performance of the portfolio, which better aligns with our investment timeframes, was including franking 9.5% per annum for the 10 years to 30 June 2023. This is only slightly behind the Index return of 10.1% when franking is included, noting the Index does not have the impact of costs and tax in its returns.
It’s important to note that AMCIL’s performance returns are after costs. We also sometimes incur capital gains tax on the sale of shares and not all the franking generated from these realised capital gains is paid out as dividends so is therefore not included in the performance figures.
Sector performance across the market varied markedly during the year as areas exposed to rising interest rates and falling consumer confidence came under pressure. But high commodity prices boosted the performance of the resources sector, and the strength of the NASDAQ Composite Index lifted the technology sector.
Our underweight position in the resources sector weighed upon our portfolio’s relative performance but we remain comfortable with the long-term positioning of the portfolio regarding this more cyclical part of the market.
Several stocks in our portfolio trailed the return of the overall market, including CSL, Mainfreight, and Transurban. Reflecting our long-term investment approach in quality businesses, however, we believe the prospects for these companies are strong.
We also held overweight positions in IRESS and Pexa, which we removed from the portfolio as their maturing business profile made future growth and return on capital outlook look less compelling. Domino’s Pizza Enterprises also underperformed.
This was partially offset by the positive relative performance in overweight positions we hold in companies such as Medibank Private, James Hardie Industries, Reece and REA Group. The share prices of Temple & Webster Group and FINEOS Corporation also rebounded.
Portfolio adjustments included the addition of Medibank Private, National Australia Bank, ALS, and Computershare, all of which we believe provide attractive returns when purchased at the right price. We also added IDP Education, Xero, Gentrack and WiseTech Global for their attractive long-term growth prospects. In addition, we participated in capital raising through the entitlement issues for Macquarie Technology Group and Carsales.com at attractive prices.
Aside from our exiting of IRESS and Pexa, we sold our holding in Nanosonics and trimmed holdings in Cochlear and Woolworths as we shifted from companies trading at high valuations to capture appropriate buying opportunities elsewhere.
We’re cautious but still confident
The US and Australian economies have not yet shown any significant slowdown in economic activity or rise in unemployment despite an uncertain outlook for global inflation, interest rates and central banks’ tighter monetary policy.
Also, equity markets remain buoyant amid persistently high energy prices, falling consumer demand, and slowing economic growth in China.
However, all these factors suggest that economic growth will come under pressure. This leaves us very cautious about the short-term outlook.
We will not be immune from these risks however we remain confident in our investment approach.
Our focus is on investing in quality stocks at the right price, so we believe portfolio holdings will be able to navigate the challenging economic period ahead.