Australia’s second largest listed investment company is Adelaide-based Argo Investments remains well cashed up and alert to any value that might emerge from the current market instability.
The company said yesterday that with volatility on the rise, the Australian economy slowing, management would be looking closely at the current reporting season getting underway to identify attractive opportunities.
The company has nearly $230 million in liquid reserves and yesterday it posted a large rise in 2008 earnings, boosted by asset realisations.
The company said that including asset realisations, earnings jumped 71.5% to $294.116 million, while net operating profit, (excluding gains made on the sale of shares from its investment portfolio), rose 23.3% to $182.292 million.
The company said the rise in underlying profit was based on company profits and dividends remaining strong throughout the year.
But the stockmarket crunch produced a negative 15.3% fall in total returns from the company’s investment portfolio, which is the second largest in the country after Australian Foundation Investment Co.
Argo chairman Chris Harris said in a statement to the ASX there had been "dramatic volatility" in financial markets over the past year as the US sub-prime mortgage crisis triggered a halt to a five-year bull market.
"The key factor which will determine the way forward is whether the developed countries can avoid recession," Mr Harris said.
"The key factor which will determine the way forward is whether the developed countries can avoid recession.
"Volatility in the Australian share market is likely to continue due to the uncertain environment that lies ahead and Australia’s economy was slowing under the weight of very high energy prices and interest rates.
"Developing countries’ demand for Australia’s natural resources and agricultural products should underpin those industries.
“On the other hand, the resulting strong Australian dollar is hurting some exporters and currency translation of U.S. dollar earnings is adversely affecting many companies with international operations.
"Argo’s management will be closely monitoring the current company reporting period to see how individual companies are faring in this environment and to identify attractive investment opportunities.
“With no debt and $228 million in cash assets available for investment at 30 June, 2008, Argo remains in a strong position to benefit from the current uncertainty in financial markets, Mr Harris said.
Argo holds investments in about 180 Australian listed companies.
Managing director Rob Patterson said although market conditions became tough last year, Argo’s operating profit relied more on the continuing profitability and dividend paying prospects of its stock picks.
He said the company also benefited from a 12-month contribution from a $446 million rights issue and a tight rein on costs.
In the year to June 30, the return on the company’s portfolio was negative 15.3 per cent.
Exposure was increased to the better-performing blue-chip resources sector, with BHP Billiton and Rio Tinto now the group’s top investments. They replaced Macquarie Bank because of the latter’s sharp drop in value in the year.
During last year Argo made significant purchases of QBE Insurance Group Ltd, Westpac Banking Corporation, Fairfax Media Ltd, BHP and Westfield Group.
The company said the purchases were: QBE Insurance Group $29.8m; Westpac Banking Corporation $21.6m; Fairfax Media $20.3m; BHP Billiton $18.9 and Westfield Group $17.6m.
The Company said for the last 10 years its investment portfolio has produced a compound annual return of 12.4%, as measured by the movement in net asset backing per share plus dividends paid, compared with 11.5% from the ASX All Ordinaries Accumulation Index.
As a result of the significant decline in investment values during the year under review, the total return from the Company’s portfolio was negative 15.3%.
Significant investment purchases made by the Company during the year were:-
While there were no major sales during the year, Adelaide Bank Ltd., Alinta Ltd., Coates Hire Ltd., Coles Group Ltd., Consolidated Minerals Ltd., Dyno Nobel Ltd., Macquarie Private Capital Group, Rinker Group Ltd., Southern Cross Broadcasting Ltd. and Symbion Health Ltd. were taken over.
That’s similar to the roll call of sales by AFIC and Milton Corporation during the year.
During the year, the Company said it purchased an unlisted investment company with total assets of approximately $62 million which were mainly cash. As part consideration, 5,963,879 shares were issued for the acquisition.
It holds $307.7 million of BHP stock, $189.1 million of Rio Tinto, $183.9 million of Macquarie Group, $151 million of fellow LIC Milton Corporation and $142.1 million of Wesfarmers Ltd.
Argo declared a final dividend of 16 cents per share, fully franked, up from 15 cents in the fiscal 2007 second half. The annual dividend was 30 cents, up from 27 cents.
Argo shares ended up 3 cents at $6.59.
