AFI, AMH, DJW & MIR Update Reports

November 8, 2023

We have published update reports for Australian Foundation Investment Company Limited (ASX: AFI), AMCIL Limited (AMH), Djerriwarrh Investments Limited (ASX: DJW) and Mirrabooka Investments Limited (ASX: MIR). The outcomes for each of the LICs are summarised below. Note, all ratings should be read in conjunction with the full reports which are accessible in the Listed Managed Investments section of the IIR website.

  • Australian Foundation Investment Company Limited (ASX: AFI): Independent Investment Research (IIR) has maintained its Highly Recommended rating for Australian Foundation Investment Company Limited (ASX: AFI). AFI has a long history of delivering on its investment objectives of delivering a growing stream of fully franked dividends and long-term capital growth from an investment in a portfolio of large cap focused quality companies. As the largest LIC on the ASX, AFI provides high levels of liquidity and with the pull back in the share price, which is attributed predominantly to a rotation to other asset classes, offers investors an attractive entry point. The investment team is experienced and is supported by a highly experienced Board.
  • AMCIL Limited (ASX: AMH): Independent Investment Research (IIR) has maintained its Recommended Plus rating for AMCIL Limited (ASX: AMH). AMH provides investors a differentiated exposure to its sister companies (AFI, DJW and MIR), through the concentrated exposure to an all cap portfolio. The Company has achieved its objective of delivering shareholders total returns in excess of the market over the medium-to-long term. IIR views the amendment to the dividend policy to be a positive for shareholders and expect the changes will result in reduced volatility in the annual dividend, increased frequency of dividend payments and provides the Company the ability to reinvest income and capital gains in the portfolio to potentially improve the long-term NTA growth. The Portfolio Manager, Mark Freeman, is highly experienced and has been a long standing member of the investment team, being with team for 16 years and appointed Managing Director of AICS in 2018. Mark is supported by the team as well as a strong Board.
  • Djerriwarrh Investments Limited (ASX: DJW): Independent Investment Research (IIR) has maintained its Recommended Plus rating for Djerriwarrh Investments Limited (ASX: DJW). After a period of dividend declines and portfolio underperformance, DJW recalibrated the options strategy, repositioned the portfolio to achieve the enhanced yield objective as well as provide the potential for capital growth, and amended the dividend policy to align the dividends with the Net Operating Result per share. The changes made have been a positive for the Company. The revised dividend policy of paying out a dividend broadly in line with the Net Operating Result per share has the potential for the dividend to go up and down, however IIR views the policy to be a much more prudent and sustainable approach to dividend payments and provides the potential for the Company to generate capital growth through the reinvestment of capital gains, in addition to delivering an enhanced yield. The dividend has improved over the last two financial periods as the Net Operating Result has improved, however there’s no getting around the fact that dividends remain below historical levels with the Net Operating Result per share still below the highs reached in FY15, and the Company has some way to go to make up for the underperformance in previous years. While we have maintained the rating as a result of the renewal of a number of the Directors on the Board combined with the expected positive impacts of the changes implemented in recent years, the rating will be impacted by a number of things including: (1) the ability of the Company to consistently deliver an enhanced yield to the market; (2) the ability of the Company to deliver NTA growth over the long-term to shareholders; (3) the Company implementing the new dividend policy effectively and not supplementing the dividends unsustainably with realised capital gains and retained earnings to maintain the dividend; and (4) effective management of the options overlay to ensure the portfolio performance is not substantially hindered by options positioning.
  • Mirrabooka Investments Limited (ASX: MIR): Independent Investment Research (IIR) has maintained its Highly Recommended rating for Mirrabooka Investments Limited (ASX: MIR). The portfolio is managed by an experienced team supported by a strong board. The Company has delivered on its investment objective and for the most part the portfolio has delivered returns with lower volatility than the benchmark due to its underweight exposure to the Materials sector, providing an attractive risk-adjusted return. In addition to outperforming the benchmark over the long-term, the portfolio has performed strongly when compared to its peers with MIR’s pre-tax NTA on a total cumulative return basis being the best performer of the peer group over the long term. The Company relies heavily on realised capital gains for the payment dividends. The Company has managed the realised capital gains reserve effectively to date with the Company having a healthy level of dividend coverage to withstand any market weakness and sufficient franking credits to maintain the ordinary annual dividend for over two years without the accrual of further franking credits. The recent sell off in LICs as investors rotate into other asset classes has seen MIR trading closer to pre-tax NTA and at times at a discount providing an attractive entry point for investors in a Company that has traded at a premium for prolonged periods of time.