Despite an 8.5% slide in net profit, Argo Investments (ASX:ARG) is holding its interim dividend at 16.5 cents a share. The Adelaide-based listed investment company (LIC) informed the ASX on Monday that the lower result stemmed from a decline in distributions from some of its major investments. It revealed it had sold out of its holdings in Insurance Australia Group and Liontown and accepted bids for Estia Health and Invocare.
However, the company did admit that being underweight in Fortescue Metals and the big banks had impacted its performance for the half, while it also acknowledged that high rates on bank investment accounts were diverting investment funds from the market.
"Investment income received from companies in the investment portfolio declined, particularly dividends from mining companies BHP and Rio Tinto due to softer commodity prices. Income generated from option writing and trading activities was also lower compared to the previous corresponding period," the company stated on Monday.
Argo reported that its investment performance for the half, as measured by net tangible assets (NTA) return after management costs and adjusted for company tax paid, was +5.6%, lower than the ASX 200 Accumulation Index return of +7.6% over the six months to December 2023 (without any allowance for costs).
"Holdings in Clarity Pharmaceuticals (up more than +170%) and Stanmore Resources (up nearly +60%) contributed positively to performance. However, gains were offset by negative returns from other holdings, including pathology and imaging provider Healius. In general, Australian healthcare providers have lagged due to higher costs and lower utilization levels. Not owning Fortescue materially weighed on relative performance, as did our underweight exposure to the major banks," Argo admitted.
The share price performance was +5.4%, with Argo shares now trading at a slight discount to their NTA backing. Sharply higher returns from term deposits have decreased the comparative appeal of many equity investments, including listed investment companies (LICs). "We expect this trend to reverse as the monetary policy cycle continues and interest rates fall."
Argo said it made purchases in a range of stocks (in addition to the four exits detailed above). It mentioned larger purchases in the portfolio (now 86 companies, down from 89), a new position in Resmed, along with higher holdings of Santos, Woodside, Stanmore Resources, CSL, and Viva Energy.
Looking ahead, Argo directors said that "Australia’s economic fundamentals remain solid with the outlook underpinned by strong employment and moderating inflation. This broadly positive economic picture belies the impact that price increases and higher mortgage repayments are having on many consumers. As a result, we anticipate a significant dispersion in profit results this corporate reporting season, which underscores the benefit of Argo’s highly diversified portfolio. With a strong balance sheet, no debt, and cash on hand, Argo is well positioned as we enter the new calendar year," the company said.
