Unlike some of its rivals among the ranks of listed investment companies, Adelaide-based Argo Investments was a buyer of shares (including Rio Tinto) in the December half year and not a seller.
In fact the overwhelming majority of its purchases were bank shares: nearly $30 million worth in the half.
Argo said yesterday that significant investment purchases made by it in the December half year were: $13.2 million worth of Rio Tinto; $12.4 million of National Australia Bank shares, $12.2 million worth of Commonwealth Bank of Australia stock, $9.6 million of Westpac stock, $8.1 million of Orica and $7.1 million worth of QBE shares.
Argo’s principal equity investments as at the end of the latest first half period were headed by BHP Billiton, Westpac Banking Corporation and Telstra Corporation Limited. Macquarie Group was down to number four.
There were no major sales during the period; however, Queensland Gas Company and St. George Bank were taken over.
(Some of the Goldman Sachs JBWere associated LICs sold off shares in infrastructure related stocks in the half. They also sold Suncorp Metway in at least one case).
But Argo is realistic to know that it had better be prepared for the worst in coming months.
"While governments around the world are working very hard to resolve the global credit crisis, unfortunately the economic fallout which is well underway internationally is really only just beginning in Australia, directors said in the outlook part of yesterday’s interim profit statement.
"This will place downward pressure on company profits and dividends in the period ahead.
"The global economic headwinds have been strong enough to interrupt the growth of China and India; however, at this stage it is unclear to what extent and for what length of time.
"It is still too early to predict the extent of the economic downtown in Australia and the Federal Government seems intent on doing what it can to limit the effect on employment.
"On a brighter note for consumers, commodity prices, interest rates and petrol prices have all fallen sharply, negating recent fears of an upsurge in inflation and assisting to underpin the ability of households to weather the storm.
"We remain confident in the long-term outlook for the Australian sharemarket, while acknowledging that the immediate outlook will remain difficult.
"With cash reserves of about $170 million and no debt, Argo remains ready to take advantage of opportunities as they present themselves in the market."
Argo held its interim dividend at the fully"franked 14 cents per share of last year (Other LIC’s Like Australian Foundation held their interim payouts steady.)
Argo lifted operating profit after tax and before net realised gains and unrealised impairment losses on long-term investments to a record $93.8 million compared with $93.1 million in the previous corresponding half-year.
The steady fully franked 14 cents per share interim dividend, absorbing $81.1 million, which, the company said takes Argo into its 63rd successive year of paying dividends.
With cash reserves of about $170 million and no debt, Argo says it remains ready to take advantage of opportunities as they present themselves in the market.
Managing Director, Mr Rob Patterson, said in a statement that Argo’s operating profit relies on the income received from its diverse Australian investment portfolio and was influenced by the profitability and dividend paying capacity of the investments held.
“The income generated from our portfolio was strong in the period under review and this is reflected in our higher operating profit which is the most accurate gauge of our latest first half performance,” he said.
Mr Patterson said that while Accounting Standards require net realised gains on the sale of long-term investments to be included in the reported profit, due to Argo’s long-term investment philosophy, the company does not consider these gains are part of the ordinary operating activities and they have been identified separately from its operating profit.
Net realised gains on the sale of long-term investments after tax amounted to $17.3 million, compared with $103.7 million in the previous corresponding period.
“Due to inconsistent levels of corporate takeover activity and volatility in financial markets, this item can vary markedly from year to year.
“Accounting Standards also require us to assess whether there is any objective evidence that any of our investments are impaired.
“In view of the severity of the global financial crisis, a number of the company’s long-term investments are having their business models challenged to the extent that we are not currently satisfied that the cost of these investments will be recovered in the future,” Mr. Patterson said.
“The accounting cost base of these investments has therefore been reduced to their market value at 31 December, 2008, resulting in unrealised impairment losses after tax of $30.1 million, compared with nil in the previous corresponding period.
“As the Company’s policy is to revalue its investments continuously through the Investment Revaluation Reserve, the impairment losses have no effect on Argo’s net assets,” he said.
Profit for the half-year, represented by the Company’s operating profit, the net realised gains and unrealised impairment losses on long-term investments, amounted to $81.0 million, compared with $196.8 million in the previous corresponding period.
The net realised gains and unrealised impairment losses on long-term investments have been transferred to th
