Mirrabooka Investments Ltd was quick off the mark with its 2007-08 interim earnings yesterday but the news for shareholders was poor.
It revealed a 7% dip in earnings, thanks to the impact of the credit crunch on share markets, especially in December.
The listed investment company is associated with the Melbourne-based broker and investment bank, Goldman Sachs JBWere. Its stablemates include the bigger, Australian Foundation Investment Co which is due to report its interim figures at the end of this month.
It specialises in small and mid-cap shares on the ASX, which have been shaken by the worldwide repricing of risk triggered by the US sub-prime mortgage crisis and associated credit freezes.
Mirrabooka was cautious about the immediate outlook in its profit announcement yesterday.
It said it expects investors to remain cautious over the coming months as they assess the extent of the damage inflicted on the wider US economy by the sub-prime fallout.
"At this point there is a significant amount of uncertainty across a number of markets," the statement said.
Mirrabooka said earnings fell 7.3% to $11.57 million for the six months to December 31, while net operating profit, which excluded gains on the sale of investments, fell 3.5% to $4.63 million.
Revenue from operating activities (excluding capital gains on investments) was $5.41million, 0.3% down from the previous corresponding period.
On the upside, Mirrabooka also said current market volatility had presented it with cheap buying opportunities, particularly in the industrial sector.
But the company is close to fully invested so it has announced a rights issue to raise about $30 million in new spending money.
The offer price of $1.95 per share represents a discount of 13.7% to Mirrabooka's share price of $2.26 on January 11, the company said.
News of the issue and the cautious outlook hit the shares which fell 11c to $2.15, or more than 5%.
That's under net asset backing at the end of the half which was $2.46 before providing for deferred tax on the unrealised gains on the long-term investment portfolio, up from $2.28 at the end of the previous corresponding period.
Chairman Terry Campbell said returns from the small and mid sized company sectors were about negative 5% over the half as investors became more cautious about corporate earnings outlooks.
Mirrabooka said it observed more confidence in commodity markets, however, with the small and mid-cap resources sectors providing returns of between 13% and 21% over the six months.
"Mirrabooka's portfolio is weighted more heavily to dividend producing stocks and, accordingly, we did not participate in the strong run enjoyed by some of the more speculative parts of the markets such as the resources sector," it said.
Mirrabooka's top four investments as at December 31 were the agricultural stocks Incitec Pivot Ltd, Nufarm Ltd, ASG Group Ltd and Tassal Group Ltd.
Mirrabooka declared an interim dividend of 3.5 cents per share, in line with the corresponding period last year.
The total portfolio at 31 December 2007 was $293.5 million, including cash of $7.9 million. The top 20 shares accounted for 50.7% of the portfolio at December 31, compared to 48.9% at the end of the September quarter.
Total portfolio return during the six months to 31 December 2007 (change in net asset backing per share plus dividend) was a decrease of 6.1%. The return before allowing for tax & expenses was down 3.95%. Over the twelve months to 31 December 2007 the return after tax and expenses was 12.3%.
The company said total shareholder return measured by change in share price plus dividends over the six months to 31 December 2007 was negative 1.3%. Over the 12 month period the return was 16.6%.
The company said larger positions new to the Investment Portfolio during the half year were OneSteel (as a result of the Smorgon takeover and some additional buying), Coca Cola Amatil, Service Stream a supplier to telecoms companies, Prime Financial Group, a national diversified financial services and advisory group, Alesco Corporation, concentrating on the building and home renovation markets, Molopo Australia Group, which is involved in the energy industry and Aevum, which is involved in the retirement and aged care sectors.
"We also added to our existing holdings in James Hardie Industries, Becton Property Group, Dyno Nobel, Oaks Hotels and Asciano Group during the period.
Major sales of holdings from the Investment Portfolio during the period were Alinta, Smorgon Steel and Southern Cross Broadcasting, all of which were subject to takeover activity.
Other sales included Transpacific Industries, BOOM Logistics, Transurban Group, Macquarie Communications Group, DUET Group and Australian Education Trust. In total, realised gains produced $12.8 million before tax.
