TOL - 14th Aug, 2024
Listed managed investments: Plenty of interest in LICs/LITs that are delivering
There was a number of LICs/LITs taking advantage of trading at or above NTA/NAV to raise capital with plenty of interest for those LICs/LITs that are delivering strong risk-adjusted returns. Below we take a look at the key news flow for listed managed investments in July as well as take a look at the early FY24 results that have been released.
LMI Market News
1) PCI Raise $66.2m and Announces UPP
On 9 July 2024, Perpetual Credit Income Trust (ASX: PCI) announced it was looking to raise capital through a Placement to wholesale investors and a Unit Purchase Plan (UPP) to eligible unitholders.
The Placement was completed shortly after the capital raising was announced with 60.2 million new units issued at $1.10 per unit, raising $66.2 million.The UPP was scheduled to close on 6 August 2024. Eligible investors were able to apply for up to $30,000 worth of PCI units. New units will be issued at $1.10 per unit. The maximum number of units that can be issued under the UPP is 120.4 million, which equals 30% of the units on issue at the date of the announcement. If the UPP was fully subscribed this would equate to $132.4 million.
The capital raised will increase the size of the Trust with investors potentially benefiting from increased liquidity and greater diversification in the unitholder base. The Manager has identified numerous opportunities where additional capital can be deployed, including an attractive pipeline of corporate loan and securitised asset deals, which are expected to complement the relative value opportunities identified in investment grade and high yield credit and fixed income assets. The Trust will seek to deploy the capital raised as quickly as possible to reduce the impact of cash drag on the portfolio.
2) PAI and PMC Propose Conversion to Active ETFs
During the month, Platinum Capital Limited (ASX: PMC) and Platinum Asia Investments Limited (ASX: PAI) completed their strategic reviews and will be pursuing a scheme of arrangement with the relevant Active ETFs. PMC will propose a scheme of arrangement with the Platinum International Quoted Fund (Quoted Managed Hedge Fund) (ASX: PIXX) and PAI will pursue a scheme of arrangement with Platinum Asia Fund (Quoted Managed Hedge Fund) (ASX: PAXX).
If the scheme of arrangements are implemented, shareholders will receive PIXX and PAXX units in exchange for their PMC or PAI shares, respectively. Conversion to units in the Active ETFs will allow PMC and PAI shareholders to continue to gain exposure to the respective strategies while removing the impediment of the discount at which the companies have traded. There will be some changes with regards to the dividends. PIXX and PAXX pay an annual distribution and distributions are not franked. This compares to the semi-annual dividends paid by PMC and PAI, which the Company seeks to fully frank.
The scheme of arrangements are subject to a binding scheme implementation deed between the respective companies and Platinum, the Responsible Entity for PIXX and PAXX, as well as shareholder and court approval. The companies will provide a further update by the end of
September.
3) PGF Announces Placement & SPP
On 30 July 2024, PM Capital Global Opportunities Fund Limited (ASX: PGF) announced a non-underwritten Placement to sophisticated and wholesale investors to raise up to $100 million and a Share Purchase Plan (SPP) to raise up to $20 million. Shares under both the Placement and the SPP will be issued at $2.19 per share, which represented the estimated NTA per share at the time of the announcement and a 6.4% discount to the share price prior to the announcement.
The Company raised $135 million from the Placement, in excess of the original placement size of $100 million. $135 million was the maximum placement capacity for PGF. 61.45 million new shares were issued under the Placement.
The SPP will provide eligible shareholders the opportunity to acquire up to $30,000 worth of PGF shares. The SPP is scheduled to open on 9 August 2024 and close on 28 August 2024.
The Company has announced the intention to pay a final dividend of 5.5 cents per share, fully franked, for the FY24 period. The Company also provided forward dividend guidance for FY25 of a minimum semi-annual dividend of 5.5 cents per share, fully franked, for a total FY25 dividend of 11 cents per share. New shares issued under the Placement and SPP will be entitled to receive the final dividend for FY24.
4) BTI Invests in DASH Technology Group
During the month, Bailador Technology Investments Limited (ASX: BTI) announced it had invested in DASH Technology Group, a cloud based financial advice and investment management software platform used by independent financial advisers (IFAs) and financial institutions. The investment involves an upfront investment of $15 million and an additional $5 million investment in January 2025. Both David Kirk and James Johnstone will join the DASH Board as part of BTI’s investment.
BTI made four investments in FY24, two follow-on investments in Access Telehealth and RCTop Co and two new investments in Updoc and DASH with the portfolio currently comprising 9 investments. After the recent investments in Updoc and DASH, the Company had $62 million cash.
BTI’s pre-tax NTA delivered a 12.3% return for the FY24 period. Returns were driven by the listed investments, with SiteMinder (ASX: SDR) increasing $36 million in value for BTI, an increase of 74%. SiteMinder is the largest position in the portfolio, growing to $85.1 million with a gain of 511% on the capital invested.
The Company will pay a final dividend equivalent to 2% of the June pre-tax NTA, in line with the dividend policy. Based on the pre-tax NTA as at 30 June, the final dividend would equate to 3.44 cents per share. This combined with the interim dividend of 3.5 cents per share, the full year dividend is expected to be around 6.9 cents per share, representing a yield of 5.9% based on the share price as at 30 June 2024. We note that the NTA remains subject to audit. These figures are estimates only.
5) PL8 to Maintain Dividend for September Quarter
Plato Income Maximiser Limited (ASX: PL8) announced it will maintain the monthly dividend of 0.55 cents per share for the September quarter. The Managing Director of the Manager, Dr. Don Hamson stated that “ the Australian economy is slowing, but we expect to receive solid dividends from a diversified portfolio of Australian companies in 2024.”
As at 30 June 2024, the Company’s franking account was $13.3 million, equivalent to 1.8 cents per share and represents a fully franked dividend of 4.1 cents per share.
The Company continues to deliver on its objectives and delivers an attractive grossed-up yield despite trading at a premium to NTA. The fact that PL8 is the main point of entry for the underlying Plato Australian Shares Income Fund and the Company offers an attractive regular, fully franked monthly income has underpinned demand for PL8.
6) WLE’s Acquisition of QVE Complete
During the month, WAM Leaders Limited (ASX: WLE) completed the acquisition of QV Equities Limited (ASX: QVE). A total of 103.48 million new WLE shares were issued and $82.45 million was paid in cash. Post the acquisition, WLE has 1.37 billion shares on issue with a market cap of in excess of $1.7 billion.
In its July monthly update, which includes the implementation of the acquisition, WLE announced it had 3.4 years of dividend coverage with a Profits Reserve equivalent to 31 cents per share. The Company has already announced it intends to deliver a final dividend for the FY24 period in line with the interim dividend of 4.6 cents per share. This would take the full year dividend to 9.2 cents per share, up from 9.0 cents per share in FY23.
WLE has moved from a premium to a discount in recent months. We attribute this to a combination of short-term relative underperformance and the possibility of some selling pressure on the back of the acquisition.
7) Conversion of MGF Units to MGOC Units Complete
In July, the conversion of Magellan Global Fund (ASX: MGF) units to open class units in Magellan Global Fund (Open Class) (ASX: MGOC) was completed. MGF units were converted at a ratio of 0.736 MGOC units with 1.1 billion new MGOC units issued. Following the conversion, MGOC had 3.1 billion units on issue. As was to be expected there was some redemptions post the conversion. As at 31 July 2024, MGOC had 2.8 billion units on issue with net assets of $8.88 billion, the largest global equity ETMF on the domestic market.
8) SEC Announces Fully Franked Quarterly Dividend of 3.4 Cents per Share
On 18 July 2024, Spheria Emerging Companies Limited (ASX: SEC) announced a dividend of 3.4 cents per share, fully franked, for the June quarter. This is a 13.3% increase on the previous quarterly dividend and a 21.4% increase on the June quarter dividend in 2023.
The increased dividend reflects the increased dividend target which was announced in June, with the Company increasing the dividend target from 1.25% of post-tax NTA to 1.5% of post-tax NTA at the end of each quarter. The strong Profits Reserve and franking account allowed for the increase to the dividend target.
As at 30 June 2024, the Company’s franking account was $5.6 million (9.3 cents per share). This translates to fully franked dividends of 21.7 cents per share, representing over 1.5 years worth of fully franked dividends if you extrapolate out the June quarter dividend for the FY25 period.
Early FY24 Results
There have been a number of LICs that have already announced their FY24 results. Strong equity markets buoyed both domestic and international equity portfolios, while revenue was down for LICs with a domestic large cap focus with the decline in dividends received from some of the large mining and energy companies as was expected. We provide a summary of the results released below.
Australian Foundation Investment Company (ASX: AFI)
AFI announced its FY24 results on 29 July. The Company reported Revenue of $334.4 million, down 2.8% on the prior year due to reduced dividends from mining and energy stocks, and a Net Profit of $296.4 million, down 4.4% on the prior year. The management expense ratio increased marginally to 0.15%.
The Company announced an increased final dividend of 14.5 cents per share, fully franked. This takes the full year dividend to 26 cents per share, an increase of 4% on the full year dividend for the FY23 period. The Board sourced 4.5 cents per share of the final dividend from capital gains, which may provide additional tax benefits for certain shareholders.
In its results the Company acknowledged the international portfolio that the Company had been trialling for over 3 years now. The international portfolio has performed well with the capital invested increasing 42.2% since the strategy commenced in May 2021. The Company is considering the most appropriate next steps, including the option to establish a low cost global investment company. We believe a low cost global equity LIC would be a welcome addition to the domestic LIC market.
The Company continues to trade at an elevated discount to NTA, which has coincided with the earnings yield falling below the Australian 10-year Government Bond Yield. The discount provides the opportunity to gain access to a portfolio of quality stocks at a discount to par value.
AMCIL Limited (ASX: AMH)
AMH reported its results on 30 July. The Company reported Revenue of $9.5 million, down 2.5% on the prior year resulting from lower dividends received, and Net Profit of $7.5 million, down 1.0% on the prior year.
The portfolio performed strongly over the FY24 period, with a total NTA return of 17.5% compared to the S&P/ASX 200 Accumulation Index return of 12.1%. Relative outperformance was driven by the strong performance of a number of positions including Goodman Group, Gentrack, Macquarie Technology Group and CAR Group and was despite the underweight exposure to banks.
The Company announced a final dividend of 2.5 cents per share, fully franked, and a special dividend of 0.5 cents per share, taking the total full year dividend to 4 cents per share, fully franked.
The Company remains cautious given the economic and geopolitical backdrop. While the Company acknowledges the portfolio will not be immune from downside risks, the focus on quality means the Company believes it is well placed to navigate the potentially challenging period ahead.
Argo Investments Limited (ASX: ARG)
ARG announced its FY24 results on 5 August 2024. Income from Operating Activities was down 5.9% to $285.5 million, due to a much smaller contribution from the trading portfolio compared to the prior year and reduced dividends from the portfolio, and NPAT was down 6.9% to $253.0 million.
The total NTA return underperformed the S&P/ASX 200 Accumulation Index. While some holdings, such as Clarity Pharmaceuticals, performed extremely well, this was offset by other Healthcare positions, the performance of companies not held by ARG such as Goodman Group and the underweight exposure to banks which performed strongly over the period.
The Company maintained the final dividend for the FY24 period of 18 cents per share, fully franked, with a full year dividend of 26.5 cents per share. The final dividend includes a LIC capital gain component of 3 cents per share.
BKI Investment Company Limited (ASX: BKI)
BKI announced its FY24 results on 23 July. The Company reported Revenue of $68.3 million, down 6% on the prior year and NPAT of $64.4 million, down 8% on the prior year. Revenue was impacted by the reduced dividends received form mining and energy stocks, as was expected.
The MER as at 30 June 2024 was 0.169%, down from 0.184% in the previous corresponding period. The Company announced a final dividend of 4 cents per share, fully franked, in line with the prior year. The full year dividend for the FY24 period was 7.85 cents per share, up from the ordinary dividend of 7.7 cents per share in the FY23 period.
As at 30 June 2024, the portfolio comprised 40 stocks. During the FY24 period, the Company invested a total of $126 million with $96 million worth of sales. In addition to adding to some of the existing holdings, the Company initiated positions in Mirvac Limited (ASX: MGR) and Dalrymple Bay Infrastructure (ASX: DBI). During the period, the Company fully exited its position in Rio Tinto (ASX: RIO) primarily due to the reduced dividend, and Treasury Wine Estates (ASX: TWE) with the Company believing that while the removal of the Chinese import tariffs is a positive development the return to previous export volumes is expected to be some way off. The Company had 7.5% of the portfolio in cash as at 30 June 2024, providing the ability to take advantage of opportunities as they arise.
As with many LICs and LITs, the Company is trading at a discount to NTA. As mentioned above, the increased interest rates and bond yields have been a contributor to expanding discounts with the Company also attributing the discount to strong equity markets and the cash position. The Company provides exposure to a portfolio of quality companies with a focus on generating income for investors with the Company providing an above-market yield and the benefit of a fully franked dividend.
Djerriwarrh Investments Limited (ASX: DJW)
DJW reported its FY24 results on 25 July. Income from operating activities was up 5.4% to $53.4 million with increased income from options being a large contributor to the increase. The Net Operating Result was $40.3 million, up from $39.0 million in the prior year.
A number of call options were exercised throughout the year as a number of portfolio holdings hit all-time highs. Average call option coverage for the year was 34%, with the option positions actively managed throughout the year. While typically only a small part of the option portfolio, the Company also selectively wrote put options throughout the year which contributed positively to option income. The options activity did not have an overly negative impact on the NTA growth with the NTA (after tax on realised gains) up 11.3% compared to the S&P/ASX 200 Accumulation Index of 12.1%.
The Company declared a final dividend of 8 cents per share, fully franked. The full year dividend of 15.25 cents per share was largely in line with the Net Operating Result per share of 15.35 cents per share. The Company continues to build its income profile, delivering an above-market yield.
MFF Capital Investments Limited (ASX: MFF)
MFF reported its FY24 results on 29 July. MFF’s portfolio performed strongly in the FY24 period with Total Net Investment Income up 37.6% on the pcp to $666.6 million, driven predominantly by the increased value of the portfolio. With expenses up only marginally by comparison, basic EPS was up 39.8% to 77.35 cents per share. This compares to 55.34 cents per share in the prior financial year.
The NTA (after tax on realised gains) return was 29.8% for the FY24 period with the narrowing of the discount over the period resulting in shareholder returns significantly outperforming the NTA.
MFF continued to increase its dividend with the Company declaring a final dividend for the FY24 period of 7 cents per share, fully franked. This is a 16.7% increase on the interim dividend and a 40% increase on the final dividend for FY23. The Company announced it intends to increase the semi-annual dividend to 8 cents per share for the period ending 31 December 2024. As at 30 June 2024, the Company had available franking credits of $146.8 million, which equates to 25.34 cents per share.
The portfolio is concentrated with the top 5 positions representing over 50% of the portfolio. Alphabet (including both class A and C holdings) was the largest holding as at 30 June 2024 at 14.7% followed by Amazon at 12.8%. While the portfolio holdings performed well in the FY24 period and the Portfolio Manager believes that companies in the portfolio are well positioned, the Company acknowledged that adaptation will be required to continue to generate results over the next decade with the Company expecting that the portfolio would have to be widened to include smaller companies with large addressable markets but less entrenched current positions and possible narrower verticals. The Company has not added any such businesses to the portfolio as yet although has searched for and considered many.
Mirrabooka Investments Limited (ASX: MIR)
MIR reported its FY24 results on 18 July. The Company reported Revenue of $12.1 million, up 3.2% on the prior year, and NPAT of $10.7 million, down 5.1% on the prior year. The decline was largely due to a lower contribution from the trading portfolio.
The portfolio performed strongly over the FY24 period, with a total NTA return of 14.9%, outperforming the benchmark which returned 8.0%. The relative outperformance was driven by a number of holdings including Gentrack, Macquarie Technology Group, Temple & Webster, Netwealth Group and ARB Corporation.
The Company continues to be mindful that valuations remain higher than long-term averages. This saw the Company reduce positions in a number of the larger portfolio holdings to manage the risk of elevated valuations, realising capital gains and facilitating the payment of a special dividend.
The Company announced a final dividend of 6.5 cents per share, fully franked, plus a special dividend of 2.5 cents per share, taking the full year dividend to 13 cents per share. The entire 6.5 cents dividend and the special dividend are sourced from capital gains which may provide additional tax benefits for certain shareholders.
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The views here are not recommendations and should not be considered as investment advice.
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