At our 2024 Annual General Meeting (AGM) held recently, our investment team outlined AMCIL’s general investment philosophy, our annual financial results, and implications of the current economic market. Shareholders asked some insightful questions driving important discussions. In this article, we recap the key discussion points and questions from the AGM.
FY24 Performance Recap & Portfolio Changes
Our portfolio continued to adapt to the changing market as we closed the fiscal year ending 30 June 2024. Despite some challenges, we delivered a profit of $7.5 million, slightly down from last year’s $7.6 million.
We delivered a total dividend for the year of four cents per share, which included the special dividend of 0.5 cents, slightly reduced from five cents the previous year.
Through the year we exited positions in CBA (as valuation reached a record level), Domino’s Pizza, and Pexa. Specifically, Domino's was impacted by increased debt levels, making it a less attractive holding given our preference for strong balance sheets. We selectively reduced our holdings in CSL, Seek, and Wesfarmers, amongst some others, driven by historically high price-to-earnings ratios that suggested stretched valuations.
We increased our holdings in companies with strong growth potential, such as ARB, Redox, and BHP which are well-positioned for long-term success. Additionally, we established new positions in Auckland International Airport, Region Group, Sigma Healthcare, and Life360.
How does AMCIL identify quality companies?
We’re focused on investing in quality companies that can deliver good compound returns and as such we aim to have a relatively low turnover of holdings.
Investing is all about identifying characteristics in a business that our experience tells us will lead to success. We look for companies with sustainable competitive advantages, strong balance sheets, and effective management teams. This approach allows us to invest in businesses that can navigate different market cycles while delivering steady returns to shareholders.
We aim to invest in companies that either hold or are developing industry leadership positions. These businesses often possess unique assets that are difficult to replicate, giving them an edge in their respective markets. We also take care to avoid companies heavily exposed to external factors, such as regulatory changes or market volatility, and instead favour those that can generate consistent earnings over time. We are also attracted to founder- led businesses.
What is AMCIL doing to address the current discount to NTA?
AMCIL’s share price relative to the net tangible asset (NTA) figure remains at a discount, however this is a challenge many Listed Investment Companies (LICs) are facing. We know over the longer-term that the NTA for LICs moves in and out of trading at a discount vs a premium, this pattern is likely to continue, but the Board has taken several steps to address the current persistent discount.
We are now producing weekly NTAs to increase awareness across the market of the value of the assets and movement in NTA between the monthly formal reporting. We want to ensure our shareholders are well-informed about what the NTA is doing and that prospective investors understand the opportunity, which is essentially to buy a dollar’s worth of assets at less than $0.90.
There is also a share buyback in place that has been utilised, and we’ve enhanced our marketing and engagement efforts to all stakeholders including brokers and financial planners to ensure they understand AMCIL’s investment philosophy and performance over all time periods.
Is pre-tax or post-tax a more accurate valuation of the portfolio?
Both pre-tax and post-tax valuations serve a slightly different, yet relevant purpose. The pre-tax valuation looks at the value of the whole portfolio before we know where the tax will land from various positions. The pre-tax valuation has historically been regarded as the most accurate measure as it compares the portfolio to the market value of the underlying securities.
The post-tax valuation is an accurate statement of what the embedded tax position is at that moment in time, it is the value if we were to liquidate the entire portfolio. However, it doesn't include the value of the franking credits that would thus be generated and presumably passed on to shareholders.
We report both the pre-tax and post-tax valuation, but generally in the market when comparing AMCIL to the ASX 200 Index, we use the pre-tax valuation because that is how much money we have in the market working for our shareholders.
Will AMCIL consider increasing its dividend?
Our dividend strategy until comparatively recently was that we would pay out 100% of franking credits. We have now moved to a position of paying a dividend that is more consistent with 6 monthly distrbuitions. We believe there is merit in some degree of predictability around the dividend and future dividend flows.
The Board reviews dividends at both the half year and full financial year results and makes the decision about special and final dividends based on circumstances at the time. It's relevant to note that since FY22, the ASX 200 Index has seen a reduction in the dividends that it pays out, which has had an impact on the dividends that we receive.
One of the advantages of a LIC, particularly one with some scale as we have, is the ability to build up profit reserves over time to be able to continue paying dividends during times of market volatility. We can use reserves to smooth out dividends over time, in comparison an ETF generally has to pay out all their profits in the form of distributions to their shareholders every year, preventing them from building reserves and increasing the risk of not being able to pay dividends through more turbulent economic times.
What is AMCIL’s outlook on market conditions?
We are taking a cautious view on the market, noting that both Australian and US equity markets appear fully valued. There has been a shift towards easing in central bank policies, with rate cuts in the US and economic stimulus measures in China. However, valuations remain high leading us to slightly increase our cash holdings to manage potential volatility.
As we look ahead, our disciplined investment process positions us to manage short-term challenges effectively while keeping our focus on long-term value creation. By emphasising companies with strong fundamentals, we are confident in our ability to continue delivering consistent returns and enhancing shareholder value over time.