No change in the price of Argo Investments (ARG) shares yesterday after the Adelaide-based listed investment company reported a modest rise in interim profit and an equally modest rise in interim dividend.
The company said yesterday net profit rose 2.9% to a record $104.8 million in the six months to December 31, from the same half year in 2013.
As a result the interim was listed half a cent to 14 cents a share – hardly earth shattering, and similar to the result reported last month by its bigger Melbourne based rival in Australian Foundation Investment Co (AFI).
Argo shares ended off 0.1% yesterday at $7.98, only a few cents lower than where they were last September and their most recent high point ($8.06). That’s despite the obvious weakness in many sectors of the market since then.
ARG YTD – Argo posts record first half profit of $104.8 million
Driving the higher result was increased dividends and distributions from its portfolio of more than 100 stocks – a move which helped the company offset the impact of greater market instability in the closing months of the half as oil prices fell and doubts about the heath of the local economy spread.
That was partially offset by a slight decline in interest income on cash deposits, due to lower balances of cash on hand and the lower interest rates available during the half-year.
But the result was a bit better than it looked on paper and you had to drill down into it to get the detail.
The company said the latest result included $4.0 million of special dividends from Harvey Norman, Suncorp Group and Wesfarmers.
This compares to $2.1 million of special dividends and $6.9 million of non-cash, one-off income items in the previous corresponding half-year.
"Excluding these special dividends and one-off items, profit increased by 8.5%,” Argo told shareholders yesterday.
The Australian share market fell more than 5% during the December quarter, and expectations of company earnings were being downgraded as commodity prices, led by oil and a still falling iron ore, fell.
But January saw a 3.3% rise, thanks to a solid rally over the last six trading days, which continued yesterday with a rise of around 0.8%. That’s still slightly less than where the market was at the end of last August.
Argo CEO, Jason Beddow said the US economy was strengthening, leading to a stronger US dollar and potentially higher interest rates, compared with the continued aggressive easing of monetary policy in the European Union and Japan.
“These events have created a volatile and more-difficult-to-navigate investment environment,” Mr Beddow said in a statement to the ASX yesterday with the results.
“Whilst the defensive, higher yielding sectors such as banks and utilities, and offshore earners, are trading at or near all-time highs, other sectors have lagged significantly,” he said.
Mr Beddow said business activity and investment in Australia would continue to rotate towards the non-mining sectors as mining-related capital expenditure continued to fall.
He said Australia’s rising unemployment rate posed a risk to consumer spending, but the housing market was robust and the fall in the Australian dollar was potentially positive for the Australian economy in 2015.
Argo said the stocks in its portfolio which contributed most positively to performance during the half-year were Twenty-First Century Fox, Ramsay Health Care, Lend Lease Group, APA Group, Medibank Private and Sydney Airport.
Stocks that did not do so well were largely energy or resource-related, including Santos, MMA Offshore, Origin Energy and ALS.
In addition to Medibank Private, which was the largest portfolio purchase made during the half-year, Argo said it acquired new long-term positions via the IPOs of Australian Careers Network, Regis Healthcare and SurfStitch Group.
During the half-year, Argo said it spent $215 million on long-term investment purchases, partly funded by $61 million in disposals.
The largest purchases were Medibank Private, APA Group, Santos, Commonwealth Bank of Australia, Asaleo Care and Telstra Corporation.
The largest sales were a reduction in the Milton Corporation holding, the acceptance of the takeover offer for David Jones, and the fully exited positions in News Corporation and Orora.
The cash balance at the end of the calendar year was $89 million. The number of stocks held in the portfolio increased slightly to 104.
