AFI - Australian Foundation Investment Company

[qldfrog]

It's in the announcement :
"In the case of Ansell, significant new supply has entered the industry challenging the sustainability of price as a driver of revenue growth."

Not the right thread but Ann has joined my list of ethernal disappointments, do not invest blacklisted...happy to see I am not alone....
Good interim dividends figures

 

[Belli]

It's in the announcement :
"In the case of Ansell, significant new supply has entered the industry challenging the sustainability of price as a driver of revenue growth."

Funny how reading announcements in full assists with comprehension. Then again, maybe not.

 

[Belli]

Acquisitions Cost ($’000)

This article may interest AFI holders. It is, however, behind a paywall.

"When the hype around anti-obesity drugs such as Ozempic ripped through global healthcare stocks in the middle of last year, AFIC used the opportunity to add to both positions, buying CSL at around $240 a share and Resmed at around $21.50 a share.

Freeman is alive to the potential threat posed by anti-obesity drugs, particularly to Resmed’s core sleep apnoea business, but says the stocks were caught up in a familiar hype cycle, where apparent winners are overbought, and apparent losers are oversold."

Why Australia’s biggest and oldest LIC defied the Ozempic sell-off

Australian Foundation Investment Company boss Mark Freeman says buying CSL and Resmed amid last year’s Ozempic rout was part of a tried-and-true strategy.

www.afr.com

 

[Dona Ferentes]

This article may interest AFI holders. It is, however, behind a paywall.

"When the hype around anti-obesity drugs such as Ozempic ripped through global healthcare stocks in the middle of last year, AFIC used the opportunity to add to both positions, buying CSL at around $240 a share and Resmed at around $21.50 a share.

Freeman is alive to the potential threat posed by anti-obesity drugs, particularly to Resmed’s core sleep apnoea business, but says the stocks were caught up in a familiar hype cycle, where apparent winners are overbought, and apparent losers are oversold."

Why Australia’s biggest and oldest LIC defied the Ozempic sell-off

Australian Foundation Investment Company boss Mark Freeman says buying CSL and Resmed amid last year’s Ozempic rout was part of a tried-and-true strategy.

www.afr.com

he goes on to say some very basic things that hold true. It's just that a shareholder has to work out AFI is a value investor and that is what they do...

Freeman says AFIC was able to pick up other quality companies on the cheap last year. Shares in online classifieds giant REA Group fell as low as $120 in early 2023 before surging more than 50 per cent to trade today above $180. Building materials group James Hardie, which was one of the best contributors to AFIC’s December half profit, got below $30 in April last year before surging more than 90 per cent.

It’s a pattern Freeman says is repeated every year – and one a fund like AFIC, which is a value investor focused on quality companies, can take advantage of.

“Sometimes you don’t need to chase the next fad,” Freeman says. “It’s about sticking with the good ones and looking for those moments where they’re out of favour."

 

[Belli]

I agree with you there @Dona Ferentes. If an investor doesn't wish, or doesn't have the ability, to get down in the dirt trying to build investment holdings, it's probably a better approach to outsource the task and go do other things which they enjoy. With AFI and the other older conservative style of LICs, it's the managers full-time job. And at 0.14% MER it's relatively inexpensive.

I don't hold AFI and at this stage of my life it is unlikely I ever will, however, this is an aspect I do like about LICs. A capital raising without going to shareholders to raise capital.

Page 11 of the report. "During the half-year 6.2 million shares were issued under the DRP and DSSP resulting in additional $37 million of capital (after costs)."

 

[Dona Ferentes]

“Sometimes you don’t need to chase the next fad,” Freeman says. “It’s about sticking with the good ones and looking for those moments where they’re out of favour."

now , if discount to NTA is a measure , then AFI is 'out of favour ' a bit .. not a lot, but this has been the case for the last few months.

.. went 11.5c ex dividend on 2/2. The monthly report just out has a NTA of $7.74 and that's cum divi.... trades are now around 7.39 (with back of envelope NTA around 7.60 ?).

Edit.. and, I wonder if they're trimming their top holding CBA
1. Commonwealth Bank of Aust. ... $904.7M ... 9.6%

 

[GlobeTrekker]

and, I wonder if they're trimming their top holding CBA
1. Commonwealth Bank of Aust. ... $904.7M ... 9.6%

AFI is pretty top heavy - its top 3 holdings make up 26.5% of its portfolio. In comparison, ARG's top 3 makes up 18.6% of its portfolio, it's top holding being MQG at 6.7%.

 

[InsvestoBoy]

Edit.. and, I wonder if they're trimming their top holding CBA

They can certainly top up on out of favour issues but I don't know how much they can trim stuff that's done well without narrowing the distance between the pre-tax NTA they quote everywhere and the significantly lower post-tax NTA (unless they have realised some offsetting losses).

 

[Dona Ferentes]

They can certainly top up on out of favour issues but I don't know how much they can trim stuff that's done well without narrowing the distance between the pre-tax NTA they quote everywhere and the significantly lower post-tax NTA (unless they have realised some offsetting losses).

The beauty of being a LT investor could be that it focuses the mind on LT investments. That would help management decisions.

I'm sure their beancounters could allocate efficiently if and when profits and losses are made.

Post tax NTA could be lower because these LICs have been around for decades, and would likely hold assets with a lower capital base.

Post tax NTA seems to be quoted
everywhere, too. Small print seems interesting.

and, what do ETFs report?

 

[InsvestoBoy]

Post tax NTA could be lower because these LICs have been around for decades, and would likely hold assets with a lower capital base.

It is exactly, I'm only saying, if they trim something like CBA (or anything that's done well, in general), the pre-tax NTA number loses some value as a reference of the value of the underlying portfolio.

Post tax NTA seems to be quoted everywhere, too. Small print seems interesting.

They quote it where legislation forces them to but if you go to their front page it only shows one value, that's the value they advertise and want customers to think of.

and, what do ETFs report?

Depending entirely on the ETF and the index it tracks. If it tracks a cap weighted index like the XJO, there's no capital gains or losses except when something gets bought out, drops out of the index, or goes bankrupt, simply due to the mechanics of cap weighting. Speaking even more generally, ETFs are open ended and can be redeemed by market makers against a basket of the underlying asset, so all lumps are taken as they come. The mechanics for closed end funds like LICs is a bit different.

 

[Dona Ferentes]

yawn

 

[Belli]

yawn

You're overthinking it. It may help if you try to calm down and then step back in order to focus your thoughts.

 

[Garpal Gumnut]

You're overthinking it. It may help if you try to calm down and then step back in order to focus your thoughts.

yawn

I hope we never lose sight of one thing, It all started from aggregating assets together in to a tight little vehicle.

ASF seems to having been overrun by beancounters of late. I will say this once and once only. A green or a red for this little monster ? Then again it really depends on timeframe, which is an element of good fortune aka luck and where and when misfortune strikes.

fwiiw ... The public bar says . Shorterm Red ... Mediumterm Red ... Longterm ... Green.

Which is where support and resistance lines come in handy.

gg

 

[Belli]

ASF seems to having been overrun by beancounters of late. I will say this once and once only. A green or a red for this little monster ? Then again it really depends on timeframe, which is an element of good fortune aka luck and where and when misfortune strikes.

I will say this once and only once that is until I say it again at some point in the future.

The "older" LICs such as ARG, AFI, WHF, AUI, etc are generally suited to those investors who are not interested or do not have the ability to select specific shares, don't get involved in watching squiggly lines on a computer screen and are mainly interested in dividends/distributions to fund expenses. That's me on all counts by the way.

The larger LICs have a trading volume of around 350k to 400k per day which is bugger all really. Indeed AUI barely trades on some days with a very low turnover. So I don't think they are really suited to trading. Of course, I could be wrong and some may do that and I wish them the best.

I do hold LICs, and have for many years, as well as VAS & VGS. The only direct share I hold is SOL and that's more by accident than by design.

To date my dividend/distribution income is in the six figures with more to come, so I consider that, for my purposes, both LICs and ETFs serve me well and I expect they will continue to do so. Given ASF is only a very small micro-cosim of investors, I would not be surprised there are those we don't even know about who are doing even better than I ever will and are chugging on without regard to share prices and the like.

 

[Dona Ferentes]

11.5c dividend paid today. ... and a few dollars in the kitty

Number of +securities to be quoted
.. 4,292,040
What is the issue price per +security?
AUD 7.39
Ordinary Shares issued under the Dividend Reinvestment Plan


Number of +securities to be quoted
...728,724
What is the issue price per +security?
AUD 0.00
Ordinary Shares issued at nil cost under the Dividend Substitution Share Plan

 

[Belli]

Number of +securities to be quoted
.. 4,292,040
What is the issue price per +security?
AUD 7.39
Ordinary Shares issued under the Dividend Reinvestment Plan

So that's $37.1m of new capital in line with the comments in Post #145. And $36k in franking credits retained with DSSP.

 

[Dona Ferentes]

I will say this once and only once that is until I say it again at some point in the future..

you can say that again.

 

[Dona Ferentes]

> Net Profit attributable to members (excluding minority interests) was $296.2 million, down 4.4% from the prior year.
> Revenue from operating activities was $334.4 million, down 2.8% from the prior year.
> The Management Expense Ratio
calculated as the net expenses of managing the Company as a percentage of the average value of its investments including cash over the year, was 0.15% for the year (2023: 0.14%).
> Net tangible assets as at 30 June 2024, before allowing for the final dividend and before the provision for deferred tax on unrealised gains in the investment portfolio were $7.88 per share (2023: $7.19).
> A fully-franked final dividend of 14.5 cents per share, an increase of 0.5 cents per share on last year’s final dividend, will be paid on 30 August 2024 to shareholders on the register on 15 August 2024. The shares are expected to trade ex-dividend on 14 August 2024. There is no conduit foreign income component of the dividend.
> NZ 4.0 cents of the final dividend carries a New Zealand imputation credit.
> The Board has elected to source 4.5 cents per share of the final dividend from capital gains, on which the Group has paid or will pay tax. The amount of this pre-tax attributable gain, equals 6.43 cents per share. This enables some shareholders to claim a tax deduction in their tax return.

and a DRP , at nil discount (currently AFI shares are trading under NTA)

 

[Dona Ferentes]

The majority of purchases during the year were focused on increasing positions in existing holdings at what we felt were appropriate levels. This included Woodside Energy, Telstra Group, BHP, CSL and ResMed.

In managing the portfolio, we endeavour to hold a diversified portfolio of quality companies with an appropriate mix of income and growth attributes to achieve our long term investment objectives.

We continue to be attracted to quality “owner driver businesses” where management and board members have significant shareholdings. These companies are attractive as there is a strong alignment between management and shareholder interests. These owner-driver companies are typically smaller but deliver strong long term returns. In this regard we initiated positions in Mineral Resources and Macquarie Technology Group during the financial year.

Mineral Resources is a diversified resources company with operations in lithium, mining services, iron ore and energy. Mineral Resources seeks to maintain low-cost mining operations while the mining services division is market leading with a strong growth pipeline backed by internal projects. It was founded by the current Managing Director, who is also a large shareholder.

Macquarie Technology Group is a data centre, and cloud and telecommunications business focussing on enterprise, corporate and the Australian Federal Government. Data centres and cloud end-markets now represent around 80% of operating earnings. The company was founded 30 years ago by large shareholders, the Tudehope brothers, who continue to manage the company.

Delivering income is also an important part of constructing the portfolio. In this context we added Ampol and Region Group during the financial year at prices that provide attractive dividend yields. Ampol is Australia’s leading integrated energy company engaged in refining, supply and marketing of petroleum and convenience retailing. The company owns strategic infrastructure assets while investing to grow convenience retail away from fuel. Region Group owns a portfolio of high-quality grocery anchored neighbourhood and sub-regional shopping centres. The predominant tenant offering is focused on every day needs of non-discretionary retail spend.

We exited IRESS Limited and Ansell over the 12-month period. We are observing structural industry challenges for these companies and an environment where competitive intensity has materially increased. We consider growth prospects to be increasingly challenged as a result.

 

[Dona Ferentes]

AFI put up some slides and held a conference call after the results; after working through the story, CEO Mark Freeman mentioned he is working through two valuation conundrums as he gears up for the 2025 financial year.

The first concerns the largest holding in the portfolio of Australia’s biggest and oldest listed investment company: Commonwealth Bank.

The second is the NTA challenge.

.....
(excerpts from the AFR );
...with 10.1 per cent of the portfolio (just under $1 billion) tied up in CBA stock, the rise and rise (and rise) of the world’s most expensive bank is a key talking point for the AFIC team.

Freeman says AFIC was early to the bank trade, and was buying the sector a year ago when it was out of favour. But the jump in the shares of the big four – and particularly those of CBA – has left the LIC more cautious.

With CBA on a price-to-earnings ratio of 24, and with analysts predicting next to no growth in earnings in the next four years, Freeman says investors are essentially betting on a further re-rating for the stock to get a return.

AFIC would have tax considerations should it sell down a big chunk of its CBA position, but Freeman is watchful given bank valuations have “gone from one extreme to another”. The LIC has already trimmed its position in National Australia Bank.

"It does make us a bit more cautious,” he says. “CBA is a great company that’s probably going to have to tread a bit of water.”

The other .... for AFIC is how its own valuation stacks up.

Despite another solid year of returns, and a portfolio that contains the bluest of blue chip Aussie stocks, Freeman is struggling to close the gap between AFIC’s share price and its net tangible asset value (which is the actual value of its stock holdings, divided by the shares on issue).

Its NTA at June 30 was $7.88, and is probably hovering around $8 or a touch above right now. And yet the stock is trading around $7.38.

Many of the country’s top LICs find themselves in the same predicament. AFIC has a share buyback running and is considering publishing its NTA on a weekly basis to better highlight the good deal investors can get, as Freeman works to close a gap which he admits is puzzling.

“People will pay fair value for an index ETF, but the discounts on these LICs are extreme,” he says.