The board of Mirrabooka, the Melbourne-based listed investment company, has made a big call.
In the company’s preliminary final profit announcement yesterday the directors indicated they saw good value in the market at current valuations.
So much so, that they have decided to run a share purchase plan to raise more capital from its shareholder base to invest in the market.
"Mirrabooka believes the recent fall in the market has driven valuations back towards more attractive buying levels," directors said.
"With the Company close to being fully invested Directors have decided to conduct a share purchase plan (SPP), details of which will be sent to shareholders on July 20."
Under the plan, shareholders will be able to buy up to $15,000 worth of shares each.
"The price of the shares issued under the SPP will be the lower of A$1.60 or at a 2.5% discount to the volume-weighted average price of Mirrabooka shares traded on the Australian Securities Exchange (ASX) over the 5 trading days up to, and including, the day on which the Plan offer is scheduled to close, being 9 August 2010, rounded down to the nearest cent.
"With the implementation of an SPP the Board has also decided to suspend the Dividend Reinvestment Plan for this final dividend."
The company is paying an unchanged final dividend of 6.5c a share, after the steady interim of 3.5c, making 10c for the year.
Mirrabooka shares fell 3c to $1.72 on the news of the proposed purchase plan.
Mirrabooka is the first of a clutch of associated listed investment companies based in Melbourne to report. Others include the country’s largest, Australian Foundation, Amcil and Djerrwarrah Investments.
Similar issues could follow from these groups when their results are announced later this month.
Mirrabooka said its portfolio return, including dividends paid, was up 23% in the year to the end of June, "well ahead of the 11.5% return experienced by the combined small to mid-cap sector".
Mirrabooka invests mostly in mid-cap stocks.
Directors said the market enjoyed a solid recovery over the year.
"However, towards the end of the financial year concerns about global markets, the impact of high debt levels in Europe and caution about the likely magnitude of uplift in company earnings over the next twelve months weighed on sentiment."
During the year to June directors said the company participated in selected capital raisings;
"The largest of these were in Australia Infrastructure Fund, Hastings Diversified Utilities Fund and Healthscope. Mirrabooka sold 20 per cent of its holding in Nufarm through participation in the tender offer by Sumitomo Chemical Company.
"The Company subsequently took up its entitlement in the capital raising by Nufarm which followed this tender.
"New stocks were added to the portfolio.
"The largest of these investments were in Ardent Leisure Group, CFS Retail Property Trust, Customers Limited, Eastern Star Gas, Tower Australia and Trust Company.
"A number of sales occurred; the largest were ABB Grain and Arrow Energy, both of which were under takeover offers at the time, Cedar Woods, Computershare, Gunns, Sonic Healthcare and, as a result of the exercise of call options, Toll Holdings and James Hardie Industries."
Net Operating Profit after tax declined to $6.6 million from $8.4 million for the corresponding period last year as the general decline in dividends impacted the dividend and distribution income received by Mirrabooka (that was the basis of a warning with the interim figures in February).
Interest income also declined as the company invested cash into the market.
"Net Profit as reported for the year was $9.9 million versus $7.6 million last year. These figures include realised gains up to 7 December 2009 which is the date of adoption of a new accounting standard," directors said in the statement.
