Melbourne-based listed investment company; Mirrabooka Investments expects financial markets to remain cautious for some time, after posting a fall in annual operating profit in the year to June, a period described by the chairman as "turbulent".
Mirrabooka is associated with the broking and investment bank, Goldman Sachs JBWere. The main company is Australian Foundation Investment Co which reports shortly.
The 2008 results from AFIC and its peers, like Milton Corp and Argo Investments, won’t make pretty reading because of the market slump.
The listed investment company booked a 19% rise net profit including realised gains on asset sales, to $29.1 million, but the more accurate profit figures which exclude those gains showed a 17% fall to $8.3 million.
That fall in earnings was better than the 23% drop in the company’s total return for the year.
Despite the fall, the shares bounced back 3c to $1.70 from the 52 week low reached Monday of $1.67
Chairman, Terry Campbell described the 2008 year as "turbulent" and the company "was expecting markets to remain cautious for some time".
"The impact of the shake out in credit markets in the United States and the full flow-on effects on the economies of the US, Western Europe and Asia at this point in time still remain unclear."
He said concerns about inflation combined with stagnant economic growth were also emerging and "While the Australian economy is not immune from all these concerns, it does have the enormous benefit of being well exposed through its resources, energy and agriculture to the growth in developing countries.
"The Australian economy appears to be in far sounder conditions than those of the UK and the US."
Mr Campbell said Mirrabooka entered fiscal 2009 in a strong position. "We will, however, continue to closely watch the portfolio and take a sensible and cautious approach to reinvesting the funds on hand," he said.
Mirrabooka’s has 80 companies in its portfolio.
The total portfolio at 30 June 2008 was $254.0 million, including cash of $39.2 million.
"Total portfolio return during the twelve months to 30 June 2008 (change in net asset backing per share plus dividend) was a decrease of 23.3%. The return before allowing for tax & expenses was down 18.7% for the year. Total shareholder return measured by change in share price plus dividends over the twelve months to 30 June 2008 was negative 20.8%."
The return before tax and expenses was down 18.7% against a 19.3% drop in the S&P/ASX mid 50s and Small Ordinaries Accumulation Index.
Realised gains worth $14.6 million were booked from sales of holdings in Incitec (the funds best performing share), Alinta, Smorgon Steel and Southern Cross Broadcasting.
"We have been moving out of a prolonged period of growth and market stability into a completely new environment," he sad.
While returns had been down significantly in the financial and industrial sectors, resources stocks rose strongly on demand for commodities from emerging economies, Mirrabooka said.
To adapt to changed market conditions, Mirrabooka exited holdings with exposure to deteriorating sectors or with complex structures and high debt levels.
Mirrabooka said it was looking to redeploy cash to companies it believes represent good long term value.
Mirrabooka raised $12.6 million from a rights issue early this calendar year.
It declared a final, fully franked, dividend of 6.5c per share, in line with the previous corresponding period.
Net asset backing per share before the provision for deferred tax on the unrealised gains in the Company’s investment portfolio as at 30 June 2008 was $1.98 (before allowing for the final dividend), down from $2.69 at the end of the previous corresponding period (also before allowing for the final dividend).
With the share priced at $1.70, the company is trading at a significant discount, even after allowing for the deferred tax provision.
