Adelaide-based investor, Argo Investments told shareholders yesterday that its earnings have been impacted by the equity market meltdown which will continue to squeeze its profits and dividends for the foreseeable future.
As one of Australia’s largest listed investment companies, that’s understandable.
So the market reaction was a bit odd: a loss of 3.8%, or 24c, to $5.95, 15c from its 52 week low of $5.80.
The market reaction was linked to the lack of any clear guidance at the meeting form the chairman, Chris Harris, or CEO, Rob Patterson.
But again that’s understandable, given the dramatic drops in the markets in recewnt weeks.
The market cliche "lack os visbility’ is certainly very apt at the moment.
Chairman Chris Harris told the meeting in Adelaide that global market volatility continued to make investment decisions difficult, with fundamental earnings and valuations being overwhelmed by macroeconomic events.
"Falling interest rates and input costs should provide some relief from slower revenue growth as the economy contracts but company profits and dividends are likely to remain under some pressure in the foreseeable future," Mr Harris said.
"With cash reserves of around $220 million and no debt, Argo remains in a strong position, well prepared to capitalise on opportunities as they present themselves in the market."
"The Australian economy will continue to slow in the foreseeable future as consumers deal with the uncertainties of credit tightening. In an attempt to restrict the economic slowdown, the Reserve Bank of Australia has begun cutting interest rates and the Australian government has foreshadowed spending part of its healthy budget surplus in an attempt to stimulate growth whilst keeping inflation under control," Mr Harris said.
"Corporate Australia recently experienced a mixed profit reporting season, with companies exposed to resources faring better than those with an industrial bias.
"Looking forward, falling interest rates and input costs should provide some relief from slower revenue growth as the economy contracts but company profits and dividends are likely to remain under some pressure in the foreseeable future.
"The market volatility, both domestically and offshore, has continued to make investment decisions difficult with fundamental earnings and valuations being overwhelmed by the macroeconomic events taking place globally," Mr Harris told the meeting
Managing director Rob Patterson said the company had spent about $80 million on investments since June 30, the largest being in explosives firm Orica Ltd, Commonwealth Bank of Australia Ltd, mining giant Rio Tinto Ltd and bauxite miner Alumina Ltd.
"Argo’s total portfolio return for the (2007-08) year was negative 15.3 per cent, mainly reflecting our underweight position in energy and natural resource companies, which considerably outperformed the overall market," Mr Patterson told the meeting.
"While we have increased our energy and natural resource exposures in recent years, we have also been mindful of the much lower dividend yields from these companies."
Mr Harris said there was "some cause for cautious optimism" despite slowing growth in the economies of Brazil, Russia, India and China.
"Over the longer term, the continued industrialisation and growth outlook for these developing countries, particularly China and India, remains solid and Australia’s proximity as a trading partner to Asia is of long-term strategic benefit.
"With sharemarket volatility at unprecedented levels, we will continue to cautiously look for sound long term investment opportunities," he told shareholders.
