Australia’s largest listed investment company, Australian Foundation (AFI), says it is cautious, but confident about the outlook, despite experiencing the anticipated slump in earnings for the December half year as public companies cut dividends to preserve cash.
"Market conditions improved over the period as the impact of monetary policy and the large government stimulus package fed through to better short term outcomes than originally anticipated," directors said yesterday in their half year announcement.
"Conditions also reflected China’s continued strong growth and the ongoing development of Australia’s major resources.
"The Australian equity market is now looking for a sustained improvement in the economic environment and uplift in future company earnings to justify current valuations," according to directors.
However AFIC said it had entered the new calendar year with more caution than perhaps the market is exhibiting at this point.
"Rising interest rates are likely to test the present levels of consumer and business confidence in Australia with global conditions still vulnerable to major shocks.
"We are close to fully invested.
"In the upcoming reporting season we will be particularly interested in comments companies make about the outlook for earnings and the likely restoration of dividends over time" directors said.
They company said that net operating profit was $94.1 million, down 13% from the corresponding figure last year of $107.8 million.
"In line with general conditions evident in the market where companies substantially reduced their dividend payments during the year, income from investments which includes franked dividends, fell 27%."
But AFI said the profit was bolstered by a "substantial turnaround in the contribution from the Trading Portfolio as equity markets experienced more positive conditions helped offset some of this decline.
"For the six months income from the Trading Portfolio was $12.4 million whereas last year there was a loss of $21.6 million."
Net profit after tax for the half was $93.6 million, down from $110.2 million last year.
These figures include realised gains and losses up to December 7, 2009 which is the date of adoption of a new accounting standard dealing with, among other things, the treatment of realised gains, this being the earliest possible date for adoption.
The interim dividend has been maintained at 8 cents per share fully franked. The discount on the Dividend Reinvestment Plan has also been maintained at 5%.
Earnings per share were 9.6c, down from 11.3c in the previous corresponding period.
Net tangible assets per share before any provision for deferred tax on the unrealised gains on the long-term investment portfolio as at December 31, 2009 were $5.04, up from $3.81 at the end of the previous corresponding period (both before allowing for interim dividends).
"AFIC’s portfolio benefited from the continued market recovery that occurred over the period and particularly from the improvement in the share price of companies that had large capital raisings during the global financial crisis," directors said.
"As a result over the 6 months to 31 December 2009 AFIC’s portfolio return was positive 27.6 percent whereas the S&P/ASX 200 Accumulation Index return was up 25.6 percent.
"There was a strong recovery in the banking stocks as well as solid contributions to the portfolio performance from BHP Billiton, Rio Tinto and Wesfarmers.
"During the period the Company participated in selected capital raisings and dividend reinvestment plans at discounted prices.
"The most notable of these were in Hastings Diversified Utilities Fund, Oil Search and Amcor.
"The Company also purchased a new holding in Eastern Star Gas."
AFI shares fell 6c to $5.26.