Microsoft PowerPoint - ASA PRESENTATION

Argo Investments Limited Listed Investment Companies, Argo Investments and Market Challenges: An Overview. Presentation: Australian Shareholders Association. Presenter: Christopher Hall – Investments Executive. 19th December, 2007 Argo Investments Limited “Argo Investments Limited has prepared the information contained in this presentation in good faith. However, Argo does not warrant or represent that the information in this presentation is free from errors or omissions or is suitable for your intended use and no warranty (explicit or implied) is made as to the accuracy, completeness or reliability of any statements. Subject to any terms implied by law and which cannot be excluded, Argo accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by any one as a result of any error, omission or misrepresentation in any information in this presentation. The information in this presentation is intended as general information only and is not a securities recommendation or statement of opinion that is intended to influence any person in making an investment decision in relation to a particular financial product or class of financial products. If you are considering making an investment decision, you should seek independent professional financial advice which would take into account your personal needs and individual financial circumstances.” Argo Investments Limited Growth of Listed Investment Companies Liste d Inve stme nt Companie s Growth 35 30 25 20 15 10 5 0 Source: Australian Stock Exchange Argo Investments Limited Some features of a LIC. • A listed financial institution that professionally invests in and manages a portfolio of assets. • LIC’s are “closed-end” vehicles – enables long-term investment policy. • May trade at a premium or discount to the value of the underlying portfolio (NTA). • No front end fees, only brokerage. • Low cost - MER’s between 0.12% - 1.00% p.a. However, most ‘new’ LIC’s also have performance fees. • Traditional LIC’s use a long-term buy and hold strategy to harvest dividends. Argo Investments Limited A Comparison With Unlisted Managed Funds • No front end fees, only brokerage. • Low management costs, less than 0.12% of assets. • Share Purchase Plan $5,000 each year, at a 2.5% discount and free of transaction costs. • Dividend Reinvestment Plan at a 2.5% discount. • A readily marketable investment. • An entirely different structure enables long term investment policy to be maintained. • Executive team dedicated to asset management with no need to attract additional funds. Argo Investments Limited Which NTA ? • Pre-tax NTA - Should be used as an indicator for LICs with low portfolio turnover, typically ‘traditional’ LIC’s e.g. AFIC, Argo. • Post-tax NTA – Should be used as an indicator for LICs with high portfolio turnover, typically ‘new’ LICs e.g. Century Australia, Premium Investors. • Why ? Portfolio turnover increases the likelihood of the tax being paid. Source: Australian Stock Exchange Argo Investments Limited Benefits of a traditional Listed Investment Company. Cost effective diversification. Low portfolio turnover. Experienced management team. Low cost structure – Internalised management structure. • Tax Management – Fully franked dividends, LIC gains. • • • • Argo Investments Limited Company Profile A leading LIC established in 1946 Experienced directors and stable management A diversified portfolio to reduce risk An excellent performance record Fully franked dividends Group funds under management $4.6 billion as at 30 June, 2007. • 61,000 shareholders • • • • • • Argo Investments Limited Board of Directors • Chris Harris, Chairman – company management, corporate finance. • Robert Rich, Deputy Chairman – chartered accountant, Stoddarts Holdings Ltd. • Robert Patterson, Managing Director – over 37 years experience in investment industry. • Marina Darling, Non-Executive – commercial, legal & corporate advisory. • Ian Johnson, Non-Executive – mining industry. • Ian Martin, Non-Executive – economics, investment management & investment banking. Argo Investments Limited Executive Team Rob Patterson Managing Director (Adelaide) Adelaide Office Brenton Aird CFO & Company Sec Sydney Office Jason Beddow Investment Executive Chris Hall Investment Executive Richard Colquhoun Investment Analyst until October 2007 Brydie Lloyd Investment Analyst Roly Michelmore Investment Analyst Andrew Hill Accountant Argo Investments Limited Investment Process • • • • • • Internal Research Database Fundamental Analysis Value / Price for Growth focus Dividend Growth Capital Growth Security of Capital Argo Investments Limited Fundamental Analysis – What we look at. • • • • • • • The industry structure the company operates within. The company’s position in the industry. Quality of management and the board. Credit quality of the company. Cash flow generation potential. Level and sustainability of dividend growth. Stock valuations. Argo Investments Limited Drilling down further… • Industry growth rates relative to GDP. • Market share and number of players in the industry. • Board member experience and workload. Management quality and depth. • Balance sheet strength of a company. • Profit growth and free cash flow generation potential of the company. (Focus on capital expenditure, working capital requirements of the company). • Payout ratio and dividend per share growth rate. • Valuation metrics (PER, P/CF, Yield, P/BV) Argo Investments Limited Operating Profit $ millions 160 140 120 100 80 60 40 20 0 Jun06 Jun07 $147.8M $123.1M Argo Investments Limited Profit for the year $ millions 200 180 160 140 120 100 80 60 40 20 0 $171.5M $144.3M Jun06 Jun07 Net realised gains on sale of long-term investments Operating profit Argo Investments Limited Operating Earnings Per Share $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Jun06 Jun07 28.9 cents 25.4 cents Argo Investments Limited Net Tangible Assets Per Share $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 $8.28 $6.85 Jun06 Jun07 Argo Investments Limited Dividends Per Share $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Jun06 Ordinary 27 cents 24 cents Jun07 LIC capital gain Argo Investments Limited Total Dividends $ millions 160 140 120 100 80 60 40 20 0 Jun06 Ordinary $141.8M $115.1M Jun07 LIC capital gain Argo Investments Limited “Argo’s objective is to maximise long –term, secure returns to shareholders through a balance of capital and dividend growth from a diversified Australian investment portfolio” Argo Investments Limited Total Portfolio Return Compound Growth to 30 September 2007 % per annum 25.0 20.7 22.4 20.0 15.0 10.0 5.0 0.0 5 years 17.7 15.0 14.4 13.5 7 years 10 years Argo NTA growth plus dividends All Ordinaries Accumulation Index Source: Goldman Sachs JBWere Argo Investments Limited Total Shareholder Return Compound Growth to 30 September 2007 % per annum 25.0 20.0 15.0 10.0 5.0 0.0 5 years 7 years 10 years Argo share price plus dividends All Ordinaries Accumulation Index 18.4 22.4 18.8 15.0 13.0 13.5 Source: Goldman Sachs JBWere Argo Investments Limited Share Price relative to NTA 20% 15% 10% 5% 0% -5% -10% -15% -20% Premium Discount Sep97 Sep99 Sep01 Sep03 Sep05 Sep07 Argo Investments Limited Capital Management • DRP September 2006, March 2007 raised $24.3m • SPP October 2006 raised $35.5m • 1 for 8 rights issue March 2007 raised $445.4m • Contributed equity up from $1,220m to $1,725.2m • Issued shares 30 June 2007 - 553.2m • DRP September 2007 raised $16.9m • SPP September 2007 raised $52.7m • Private investment company acquisition raised net $50m Argo Investments Limited Major Investment Purchases Year to 30 June 2007 $M BHP Billiton Telstra (including partly paid instalment receipts) Rio Tinto Woodside Petroleum Santos 33.2 22.8 20.3 20.1 10.7 Argo Investments Limited Larger New Investments Year to 30 June 2007 $M Oxiana Macquarie Media Boart Longyear Allco Finance Jabiru Metals Austar Westpac Office instalment receipts 5.6 5.0 4.5 4.4 4.3 4.0 4.0 Argo Investments Limited Investment Purchases Since 1 July 2007 • Total in excess of $200 million • Larger purchases - Westfield - QBE Insurance - National Australia Bank - Fairfax Media - Global Mining Investments - Brambles - Woolworths Argo Investments Limited Takeovers Year to 30 June 2007 Adsteam Marine Alinta Infrastructure Chiquita Brands DCA Group Excel Coal Gasnet Integrated Group Promentum Repco Sydney Roads UNiTAB Argo Investments Limited Investment Redemptions and Sales Year to 30 June 2007 Promina reset preference shares Publishing and Broadcasting income securities Southern Cross Fliers Angus and Coote Centro Retail Joyce Mayne Pharma Argo Investments Limited Takeovers Since 1 July 2007 Coles Alinta Rinker Southern Cross Broadcasting Pending Takeovers Coates Hire Consolidated Minerals Argo Investments Limited Principal Investments as at 30 November 2007 Macquarie Bank BHP Billiton Rio Tinto Milton Corp. National Bank Wesfarmers Aust. United Invest. Telstra ANZ Bank Woolworths $M 303.6 280.3 202.7 174.5 158.0 146.8 138.4 128.7 124.8 121.5 $M 118.9 Westpac Commonwealth Bank 104.9 91.8 St George Bank 70.8 QBE Insurance 66.9 Westfield 66.2 AMP 62.2 Woodside Petroleum 46.9 Foster’s 46.6 Brambles 46.2 Orica Argo Investments Limited Market Challenges • • • • • • • Sub-Prime issues in the US. Risk of US recession. China growth going forward. Rising interest rates in Australia. Change of Government. Acute labour shortages in industry. Market valuations.