After an initial burst of enthusiasm in yesterday’s euphoric trading, investors went cool on the 2008 annual results from Goldman Sachs JBWere associate, Djerriwarrh Investments Ltd.
The shares peaked at $4.38, but then eased to $4.22 before a late bounce took them to $4.30 where they closed for an 11c gain on the day.
Perhaps it was the fall in both headline and net earnings excluding one off items.
The company said that Net Operating Profit after tax was $45.6 million (last year $53.6 million) with dividends received from the investment portfolio and option income both up over the year, offset by the fall in value of the Trading Portfolio.
As a result earnings per share based on Net Operating Profit were 22.4c compared with 28.1c in 2007.
The company’s reported Profit after tax was also lower at $66.7 million (last year $90.7 million). This includes realised gains on sales of investments.
The company will pay a fully-franked final dividend of 16c per share, unchanged from 2007. That brings total dividends for the year to 26c per share, the same as in 2007.
Chairman, Mr Bruce Teele said in a statement accompanying the report that “Equity Market conditions have been extremely volatile during the 2008 financial year".
He said he expects market conditions to remain uncertain at least in the near term.
"The continuing problems in the banking and financial sector in the US and Europe and the pervasive impact of higher oil and other commodity prices is likely to continue to have a negative effect across a number of economies.
"These conditions are fuelling concerns about subdued economic growth or even recession in developed countries whilst at the same time creating inflationary concerns.
"As a result, equity markets remain wary. Australia has also been impacted by these conditions, as a result higher input costs are likely to place pressure on corporate profitability across a range of industries and businesses other than those able to readily pass on their cost increases to customers.
"However the direct exposure of its resources and energy markets to China and other developing economies has meant economic activity has been generally sound. In fact these sectors of the market have helped cushion the impact of a slowdown in other areas of the Australian market, particularly discretionary consumer spending and parts of the housing market," he said.
Mr Teele said Djerriwarrh enters the new financial year with a very good level of written option premium.
"We are also conscious that a number of companies in our portfolio have suffered large falls in their share prices. We will be selective in increasing the level of options written against the portfolio, taking care not to lock in exercise prices that are too low.
"In addition, whilst Djerriwarrh is close to fully invested, it has available to it some borrowing capacity to further invest in selected companies that are starting to present good long term value at current prices.”
He said the underlying income from investments of $46.1 million increased marginally over last year’s contribution of $45.8 million.
"This was a strong performance given the absence of income from special dividends and buy backs which last year contributed an additional $7.1 million of income to Djerriwarrh’s total income.
"Income from the Company’s option writing activities was also up given increased level of option premium because of the heightened levels of market volatility evident throughout the financial year.
"Income from options written was $19.8 million for the twelve months to 30 June 2008 in contrast to $7.9 million over the corresponding period last year.
"Despite the rise in income from the Investment and Options Written Portfolios, the Net Operating Profit after tax was down from $53.6 million from last year to $45.6 million this year.
"This decline was primarily as a result a fall in contribution from the Trading Portfolio given negative capital returns in the majority of the market over the last six months of the financial year.
"Last year the Trading Portfolio contributed $13.8 million before tax whereas for the financial year ended 30 June 2008 the contribution was negative $5.7 million.
"It should be noted that the Trading Portfolio is marked to market on an ongoing basis and the changes in value are taken directly through the Company’s income.
"The total return of the portfolio after tax and management fees over the twelve months to 30 June 2008 (measured by the change in net asset backing per share plus dividends reinvested) was a decrease of 13.9%.
"This was against a fall in the S&P/ASX 50 Leaders Accumulation Index of 11.8% over the period. However the market had very divergent components. The S&P/ASX 200 Industrial Accumulation Index and the S&P/ASX 200 Bank Accumulation Index produced negative returns in excess of 25%, whereas the S&P/ASX 200 Resources Accumulation Index delivered a very strong positive return of just over 27%.
"In this environment the best contributors to Djerriwarrh’s Investment Portfolio over the twelve month period to 30 June 2008 were BHP Billiton, Rio Tinto, Woodside Petroleum, Oil Search, Santos, Origin Energy and Queensland Gas.
"Major net acquisitions for the Investment portfolio over the year were Commonwealth Bank, National Australia Bank, QBE Insurance, Brambles and ANZ Banking Group. Major sales from the Investment Portfolio arising from takeovers were Coles Group by Wesfarmers, Dyno Nobel by Incitec Pivot and Rinker because of the bid by Cemex S.A.B. de C.V.
