AFIC “Waiting For Better Prices”

Australian Foundation Investment Co, the largest listed investment company (LIC) in Australia is maintaining interim dividend at 10 cents a share after reporting a modest improvement in the six months to December 31.

New boss, Mark Freeman (who replaced Ross Barker in the half year) says “it is hard to find stand out value in the current market”.

AFIC is struggling to find value because so many good shares are fully priced and suspects other investors are in the same position as AFIC in “waiting for better prices”. In other words AFIC reckons it and a host of other investors would like a ’nice’ market correction to produce value in the market.

AFIC grew net profit after tax (NPAT) by 15.6% from $118.3 million to $136.6 million, thanks to an increase of investment income by $18.5 million from major investments, led by the big miners which as Rio Tinto and BHP which returned to profitability in 2017, especially in the second half (the finals for 2016-17 were all paid in the six months to December. But the company confessed that it had missed the rebound by small and mid level resource stocks – they rose 41% and 21% in the half year.

And with the big miners and oil companies all expected to either repeat the dose, or report higher figures for the six months to December 31, AFIC will be looking for another solid performance in the current six months to June 30.

Interim dividend at 10 cents per share will be fully franked while AFIC’s annualised management expense came in at 0.11% in the half year.

The performance of the portfolio over six months delivered a return of 6.9% and including franking credits it was 7.9%.

The twelve-month portfolio return was 9.9% and including franking credits it was 11.8% (for Calendar 2017).

AFIC said the major contributions to the performance were Rio Tinto, BHP Billiton Limited, Wesfarmers Ltd, Westpac Banking Corp, Treasury Wine Estates Ltd and Transurban Group.

AFIC topped up holdings in Macquarie Group Ltd, Westfield Corp Ltd (which will be sold after the bid from the big Dutch fund), Boral, Origin Energy, Transurban, Scentre and CSL Limited.

Its three largest sales were Incitec Pivot Ltd, Coca-Cola Amatil Ltd, Japara Healthcare and QBE Insurance Group Ltd – that was a vote of no confidence from AFIC which is one of the most conservative of investors in the country.

It is now out of Australian Agricultural Company completely, while it participated in the off market buyback by Rio Tinto “given the high level of franked income available”

At the end of 2017 its largest five holdings were Commonwealth Bank of Australia, Westpac, BHP, Wesfarmers and National Australia Bank Ltd.

Glenn Dyer

About 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.

View more articles by Glenn Dyer →