The Melbourne-based small company specialist fund manager Mirrabooka Investments has taken advantage of the Federal government’s cut to company tax by increasing the amount of money it plans to pay to shareholders.
The investment company yesterday became one of the first listed Australian companies to frank its shareholder payouts at the government’s new lower corporate tax rate of 27.5% cent, which the Turnbull Government passed into law earlier in 2017.
Under the Turnbull government tax cut plan for companies with turnover under $50 million, companies with a turnover of less than $10 million receiving a reduction in their tax rate to 27.5% for 2016-17.
Mirrabooka said yesterday it will pay a special 4 cents a share dividend, along with holding its final payout steady at 6.5 cents. That brings the full-year payout to 14 cents a share.
“The special dividend was set taking into account the lower rate of franking credit at 27.5 per cent because of the recent changes to corporate tax legislation,” CEO, Ross Barker said.
“The directors have taken this new rate into consideration when setting the dividend,” he added The results revealed a 14% slide in net earnings in the year to June to $7.6 million. Turnover dipped from $10.3 million to $9.43 million, meaning it dropped under the $10 million cut off for the lower tax break.
Mirrabooka manages around $172 million in investments in small to medium Australian companies. It is part of the Australian Foundation Investment Company group of investment companies that were associated with the old JB Were broking house in Melbourne. AFIC manages Mirrabooka and the the companies such as Djerriwarrah Investments and Amcil.
The higher shareholder payout came despite an 18% side in net profit per share. After profits rose 24.4% in 2015-16, Mirrabooka said the small and mid-cap sector produced lower returns in 2016-17.
Mirrabooka also missed out on the huge rally in small resources companies, which gained 76% over the year as global commodity prices rebounded.
The company tends to avoid these cyclical and unpredictable companies in favour for more stable earnings.
“In contrast, many higher priced industrial companies in the mid and small-cap sectors experienced sharp declines in valuations as investors reassessed their growth opportunities and profit expectations,” Mr Barker said yesterday.
And with many companies cutting their dividends amid falling profits, Mirrabooka suffered a fall in income from its holdings.
With stock valuations at high levels, the company said it was having trouble finding quality investments. The number of companies in its portfolio fell to 73 from 89 over the course of the year. Mirrabooka says it is holding cash at an “elevated: 9.4%, or $36 million, of the portfolio.
Over the year, Mirrabooka consolidated a number of its shareholdings. The largest purchase was in media group iSentia, while the group took on new holdings in Computershare, Carsales, Clydesdale Bank and Macquarie Telecom Group.
The group sold shares in a number of companies which were the subject of mergers, or where groups grew large enough to enter the ASX50 largest listed stocks “where in our opinion a company had become more risky because of overly high share prices or a negative change in outlook,” Mr Barker said.
Mr Barker said it was “interesting” that there was an absence of new floats onto the markets, particularly through the second half of the financial year”.
“Mirrabooka has not been a large participant in this market but nevertheless this meant there was little opportunity to consider new investments from this area of the market,” he said.
News of the higher payout saw the company’s shares rise 3.6% to $2.83 in a market that dropped by more than 55 points or 1%.
