The 2021/2022 financial year saw a significant shift in market sentiment beginning in the early weeks of calendar year 2022, which eventually led to negative returns across most parts of the market. AMCIL’s full-year profit was $8.1 million, up 19.8% from $6.8 million last year.
Mark Freeman, AMCIL Managing Director, discusses the results and the fund’s investment outlook for the new financial year.
AMCIL delivered a full-year profit to 30 June 2022 of $8.1 million, which includes a dividend of $2.0 million, non-cash but carries franking credits, from the BHP Petroleum / Woodside merger. Last year’s $6.8 million profit included a dividend of $2.2 million from the Endeavour Group / Woolworths demerger. The increase in profit for the financial year, excluding one-offs, was driven by higher fully franked dividends received.
Our final dividend was 2.5 cents per share fully franked which brought total dividends for 2021/22 to 3.5 cents per share. Last year’s total dividend was 4.5 cents per share, which included a special dividend of 2.0 cents per share.
FY22 portfolio performance
AMCIL’s 12-month portfolio return was negative 14.3% including franking. The return of the S&P/ASX 200 Accumulation Index was negative 5.1% including franking over this period. This was a significant turnaround from the first half of the financial year where AMCIL’s portfolio return was well ahead of the Index.
Heightened central bank concerns about inflation brought on interest rate rises over the second half of the financial year. This alongside falling consumer confidence and significant geopolitical events driving high energy prices, resulted in a large divergence in sector performance during this period. This impacted the relative short-term performance of the portfolio.
Underweight portfolio exposure to energy and utilities was impactful given energy was up 30.1% over the year and utilities increased 36.0% over the 12-month period. In addition, stocks in the portfolio such as Temple & Webster, FINEOS Corporation and Domino’s Pizza Enterprises were down heavily as valuations fell in response to rising interest rates.
Our three-year return to 30 June 2022 shows AMCIL has performed well, with 6.7% per annum, against 4.6% per annum for the benchmark, including franking. This is a better reflection of the strong operating performance of the companies in our portfolio.
Portfolio adjustments during the period produced significant realised after-tax capital gains of $22.2 million over the year. The sale of NEXTDC, Seek and Xero, takeover of Sydney Airport and reduction of positions in Objective Corporation, Mainfreight, ARB Corporation, BHP, Macquarie Telecom and Reece generated funds that were redeployed into preferred companies with strong long-term growth prospects.
Challenging market conditions where valuations were under continued pressure did mean purchases in Domino’s Pizza Enterprises, Netwealth Group and Nanosonics were at higher average prices than current prices, however our confidence in their long-term prospects remains strong.
One other material transaction driven by relative valuation saw a change in our major bank investments from National Australia Bank to Westpac.
Outlook for 2022/23
The equity market impact of higher inflation and interest rates is moving from a focus on valuation multiples, to concern over the outlook for corporate earnings. Cost-of-living pressure for consumers is driving many economic indicators sharply lower, a necessary condition for bringing inflation back to more sustainable levels.
While AMCIL will not be immune from downside risks, our focus on quality in stock selection provides relative confidence in the ability of our holdings to navigate the challenging economic period ahead.
The ability of companies to grow their market share against weaker competitors, pass on cost inflation in higher prices to preserve profit margins and rely on balance sheet strength to navigate volatile trading conditions will be particularly important in the year ahead.
We will continue to manage AMCIL with a strong preference for companies with these attributes and an eye for opportunities where long-term value emerges.