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Amcil Echoes Valuation Challenge

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Like its much larger peer and stablemate, AFIC (Australian Foundation Investment Company), Amcil is finding it hard to see value in the present market at these price levels.

Amcil is much smaller than AFIC but they share the same management team and their views have been consistent - unless there is a sharp price fall for the markets that exposes value, big investors like themselves (both are so-called LICs or Listed Investment Companies) are going to have a tough time investing.

Amcil said in yesterday’s half year report that it is close to fully invested in the market, so it is going to have to wait it out:

"Current market conditions make it difficult to find great value in the quality companies AMCIL looks to invest in. We will be patient and look for any market opportunities to adjust the portfolio.,” the company said yesterday.

Directors said yesterday profit for the half-year was $2.57 million, up 9.1% from the previous corresponding period on revenue from investments up more than 24% to $4.12 million. This excludes capital gains on investments.

Directors said the improvement was primarily due to increased distributions from stocks that the Company owns, plus the addition of some higher-yielding stocks to replace those sold.

"It was a challenging investment environment over the period as quality companies with good growth prospects generally traded at very high levels. AMCIL through this time looked for opportunities to generate enhanced income from selling call options against part of the portfolio,” directors said yesterday.

"This activity covered a number of holdings, including Westpac Banking Corporation. The Company also added Rio Tinto to the portfolio early in the half year as well as building on the position in BHP. Westfield Corporation (now subject to a takeover offer) was added to the portfolio during price weakness.

"Holdings were sold where the investment case had become less compelling against our original investment thesis or because of high valuation levels. Major sales included the complete disposal of holdings in QBE Insurance, TPG Telecom, ResMed and Mayne Pharma. The position in Treasury Wine Estates was reduced.”

"Over the six month period the energy and materials sectors have driven strong market returns. Energy was up 27% over the period and materials increased 20%.

"AMCIL’s exposure to these sectors is through companies with long life assets and low cost production. It is consequently underweight the more speculative components of these sectors. During the half, BHP, Oil Search, Iluka Resources and Rio Tinto were strong contributors to portfolio performance.

"AMCIL also seeks to have smaller companies make an equally important impact on portfolio returns as large companies. In this context, there were strong contributions from Lifestyle Communities, Objective Corporation, CYBG (Clydesdale Bank), Treasury Wine Estates and Fisher and Paykel Healthcare,” directors said

"AMCIL’s total portfolio return over the half year was 6.9%. Given AMCIL’s dividend policy seeks to maximise the distribution of franking credits, including those arising from taxable realised gains, it is appropriate to add franking credits to total returns. On this basis, assuming the full benefit of franking credits, AMCIL’s portfolio delivered a return of 8.4% whereas the S&P/ASX 200 Accumulation Index return was 9.2% on the same basis over the half year.”

In line with the Company’s practice, no interim dividend has been declared in respect of the half-year ended 31 December 2017. Management expense ratio of 0.66%.

The shares rose 1.1% to 91.5 cents.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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