Be fully invested in this market at the moment and it seems hard to go wrong.
Just take the listed investment companies. They may have some tidy cash piles waiting to be invested, but they are small compared to the size of their portfolios which are riding the boom nicely
The Goldman Sachs JB Were-linked Mirrabooka did very well earlier this week with a near 20 per cent rise in earnings and now its larger Sydney-based rival, Milton Corp, has posted a 25 per cent gain in underlying earnings.
And although the market was pretty strong in the December half, both Mirrabooka and Milton have done better.
Milton said yesterday that healthy dividends from its bank-dominated portfolio of Australian shares helped drive earnings and the company expects to have a better second half thanks to expectations of stronger dividend income from the first half reporting season which is about to start.
Milton said yesterday that net profit for the six months to December 31 rose to $41.6 million while underlying operating profit, which did does include realised gains on stocks sold out of its portfolio, jumped 25 per cent to $34.5 million.
The shares jumped 45c to $23.45, down on the all time high of $23.90 a share and the net asset value at the end of December of $21.15 before unrealised capital gains.
Around half of Milton’s top-20 investments are banks, with Westpac, National Australia Bank and Commonwealth Bank its favourites but the ANZ, Bank of Queensland, Macquarie, Bendigo, St George Bank and Suncorp are also held.
Managing director Frank Gooch said increased dividend payments across its stock portfolio, which also contains insurers such as IAG (Suncorp), and QBE, drove the rise in earnings.
He said the acquisition of five small, unlisted investment companies in the half provided a $120 million capital boost, which also lifted underlying earnings.
Milton, which usually holds stocks long term, realised gains from stocks sold of $4.7 million – a figure largely boosted by the takeover of DCA Group by linked private equity firms, CVC and CVC Asia. They also bought half of PBL Media from PBL.
Milton believes the weight of cash flowing into the market and busy merger activity will help keep dividends growing.
Milton announced a fully franked 2007 interim dividend of 38 cents per share, up from 35 cents in the previous corresponding period.
Mr Gooch, said the company’s weighted average earnings per share based on “Underlying Profit after Tax was 46 cents, 18.5% higher than the previous corresponding period.
“As this measure adjusts for the additional capital and excludes one off effects of the special dividends and realised profits, it provides a reasonable base for making projections of future results and for year to year comparisons.
“During the half-year Milton invested $29 million directly in 43 companies and through its acquisitions it increased its investments by a further $89 million.
“Individual direct investments over $1 million were AMP, Boral, IAG, Just Group, Rural Press, Telstra Instalment Receipts, United Group and Westfield Holdings. Through the acquisitions, Milton increased its investments in 60 companies across many sectors with the more significant investments being in the banks, materials and diversified financials sectors,” Mr Gooch said.
At the end of last December Milton had total assets valued at $1.6 billion which included investments of $1.5 billion and liquid assets of $100 million.
Net asset backing, before provision for tax on unrealised capital gains at the end of December was $21.15 per share compared with $18.66 per share at the end of 2005.
The company said that “when the fully franked ordinary dividends of $0.70 per share and the special dividend of 10 cents per share, which were paid during the year, are taken into account the Total Portfolio Return for the year ended 31 December 2006 was 18.1% per annum”.
Chairman Robert Millner said, “The market continues to receive many mixed signals which make it difficult to make predictions. However with the significant liquidity to be invested and with the prospects of increased corporate activity, the share market continues to move upwards.
“The economy has generally continued to perform well over the last six months but it is expected that recent interest rate rises may slow growth in the future. We would expect that this upcoming reporting season should see increased profits and dividends from the majority of companies in Milton’s portfolio.
“On this basis your directors expect to be able to increase the fully franked final dividend to be paid in August 2007.”
