Here’s a trend or two that will become common to many listed investment companies (LICs) this reporting season, especially those in the old JBWere stable in Melbourne.
The first trend is cash retention because the management of the various companies think markets are a bit febrile – in other words, the sharemarket is facing some volatility according to the companies management.
As well, there’s a feeling the market is a bit too expensive, with value hard to find.
The second will be a possible special dividend as some LICs cashed out some of their stocks through takeover activity, or sold because the management thought the investments were fully valued and profits should be taken.
In the case of Mirrabooka (MIR), it’s going to pay a special dividend of 10c a share to investors for the full year, and a steady final dividend of 6.5c a share.
The special dividend stems from $26.7 million of after-tax realised gains made during the year to June.
All up the company will pay shareholders a total of 20c a share for 2013-14, including the 10c a share special payment.
MIR 2Y – LICs start reporting with Mirrabooka paying a special final div
That is likely to be repeated by other LICs – Australian Foundation for example and the Adelaide based Argo Investments, plus Sydney’s Milton Corporation might be candidates for similar announcements.
The storylines emerged in yesterday’s annual profit report from Mirrabooka Investments, the first of the quartet JBWere-related LICs to report for the 2013-14 year.
The three others, Djerriwarrh Investments, Amcil and Australian Foundation (the biggest of the four), will release their reports in the next fortnight.
Mirrabboka said it had $30.6 million in cash at June 30 and would sit on it because the outlook is uncertain, with some heightened risks in Australia and globally.
Mirrabooka posted a healthy 22.8% return for the year to June thanks to higher share prices for some of the companies it has invested in, plus some healthy profits based on merger and acquisition activity.
Mirrabooka, which has a market value of $386 million, said it beat its target – the combined small and midcap market index’s 16.9% return for the year to June 30.
That was thanks to solid price rises for companies such as James Hardie and iProperty Group, Bega Cheese, REA Group and Tassal Group, which enbaled Mirrabooka to take profits (by selling holdings such as REA Group, which is 61% owned by News Corporation).
Mirrabooka managing director Ross Barker said the company had net profit of $7.8 million for the year to June 30, down from the $10.3 million last year.
But Mirrabooka benefited $1.9 million after tax from the takeover of Hastings Diversified Utilities Fund in 2013.
“The net operating result, which measures the underlying income generated by the portfolio, was $7.8 million, down marginally from $8.3 million last year. This was as a result of slight reduction in dividend income due to changes in the portfolio,” Mr Barker said in yesterday’s statement.
The gains of more than $26 million came from adjustments to the portfolio, including the sale of the entire holding in REA Group and the partial sale of holdings in Austbrokers, Bega Cheese, Ramsay Healthcare and iProperty Group, the company said in a statement. That was up from the $18.1 million received in the 2012-13 financial year.
Mr Barker said the company had bought new holdings in annuities group Challenger, aged care operator Japara Healthcare and Washington H. Soul Pattinson.
“The largest additions to existing holdings were in Equity Trustees, Qube Holdings, Incitec Pivot and Treasury Wine Estates,” he said in yesterday’s statement.
But there should be a cautionary word about Mirrabooka – its shares trade at a considerable premium to net tangible asset backing – the shares rose 1.8% to $2.82 yesterday. That’s a hefty premium (before tax) of nearly 15%.
Net tangible asset backing at June 30 was $2.41. Other LICs are likely to be in a similar situation. You are paying a big premium to access the company’s undoubted conservatism and expertise.
Based on the $2.83 share price and including the special dividend, the 20c a share in payout for the year represents a dividend yield of a fat 7%. After tax that’s up around 9%, and a lot better than bank deposits.
