Unlike its smaller stablemate, Mirrabooka, Djerriwarrh Investments lifted earnings in the first half of 2007-08 and says it has entered the second half well placed, despite uncertainty in world markets putting the profitability of companies in Australia under pressure.
Djerriwarrh said net operating profit before net gains on investments was $23.86 million, up 8.7% and after adding in those investment gains, was up 115.5% at $56.22 million.
Realised gains in the investment portfolio were $29.5 million for the half, up from $7.3 million during the prior corresponding period, before tax.
Revenue from operating activities, excluding capital gains, was $23.9 million, up 13.5%.
The company declared an interim dividend of 10c per share, fully franked, unchanged from the prior corresponding period.
Mirrabooka last week revealed a drop in earnings in the first half. MIR said net after-tax operating profit fell 3.5% to $4.6 million compared with the corresponding 2006-07 period. After adding in $6.9 million in gains net profit dropped 7.3% to $11.6 million.
Djerriwarrh chairman, Bruce Teele said it was very hard to predict the likely direction of markets over the rest of the financial year.
"Given our caution towards the market, the Trading Portfolio has been reduced. At December 31, there was $36 million of securities in the portfolio, or 3.1% of the total assets. This was down from $50.8 million at 30 June 2007," he said.
Mr Teele said there was significant concern about a potential slowdown in the United States as a result of disruptions in credit markets, the falling housing market and the consequent effects on consumer confidence.
"There were also signs that Europe and Japan may encounter more subdued growth.
"In Australia, company profitability which had been very strong may come under some pressure because of higher costs of debt funding, capacity constraints and higher inflation.
"On the other hand, the outlook for growth in China and other emerging markets which had boosted Australia's economy remained positive.
"Djerriwarrh enters the second half well placed with a higher level of written option premium than this time last year. Market conditions will ultimately dictate how much of this premium will flow though to net operating profit by year end."
Djerriwarrh said that since December 31, the market had experienced a significant correction and increased volatility.
"As has been the case with such corrections in the past, while this has resulted in a decline in the value of the company's investments, it has also provided opportunities to add to our holdings in quality companies and to write further options to enhance income," the company said.
Djerriwarrh said that despite the fall in markets toward the end of the 2007 calendar year, the resources, energy, health and consumer staples sectors all provided double-digit returns over this period.
The strongest contributors to the investment portfolio during the first half were Rio Tinto, BHP Billiton, Westpac, Commonwealth Bank and Woolworths.
Major sales from the investment portfolio as a result of takeovers were Coles Group by Wesfarmers, Rinker because of the bid by Cemex, and Southern Cross Broadcasting by Fairfax Media & Macquarie Media Group.
Total portfolio return after tax and management fees over the half year (change in net asset backing per share plus dividends reinvested) was an increase of 1.6%; and 15.0% over the twelve months to 31 December 2007.
The company said that total shareholder return measured by change in share price plus dividends over the six month period was 10.0%; and 16.6% over the twelve months to 31 December 2007. Management expense ratio on an annualised basis was 0.24%.
Its shares were 4c higher at $4.80.
