BKI Investments Limited (ASX: BKI) (“BKI” or the “Company”) is a listed investment company (LIC) with a track record of over 20 years. Since listing, the Company has grown from a market capitalisation of $171 million to $1.4 billion as at 31 August 2024. As the Company has grown so has liquidity, which has been a key component to the narrowing of the discount over time. The portfolio is managed by Contact Asset Management (the “Manager”) who were appointed as the Manager of the portfolio in 2016. The Manager is 100% employee owned with the founders, Tom Millner and Will Culbert, involved in the investment team of BKI prior to taking over the management of the portfolio. The Company seeks to deliver an increasing fully franked income stream and capital growth over the long term. The Company seeks to achieve this through a long only portfolio of quality ASX-listed securities with a focus on companies paying regular and sustainable dividends. The Manager has a research driven, bottom-up, fundamental investment approach with the portfolio typically having 40-50 positions. The portfolio is concentrated to the top 20 positions, which generate the majority of the portfolio’s income. While the Company can
invest in companies of all sizes, the portfolio is typically concentrated to large cap (ASX 50) stocks. This reflects the concentration of the domestic market to large cap stocks with the Manager needing to take sizable positions in large cap stocks to show a level of conviction. While there are limited formal limitations with regards to portfolio diversification the Company seeks to provide exposure to a portfolio that is diversified by both company and sector. The Manager is aware of the benchmark with regards to position sizing, however the portfolio is managed in a benchmark unaware manner with no individual stock or sector limitations. The Manager has a long-term investment horizon, which is reflected by
a low level of annual portfolio turnover, and will remain largely invested at all times with a 10% limit on cash holdings. The fee structure is competitive with the Company paying a management fee of 0.10% p.a and no performance fee.
An investment in BKI is suitable for those investors seeking exposure to a portfolio of quality ASX-listed companies and a fully franked income stream. The Company seeks to deliver a growing income stream to investors and long-term capital growth, with the Company distributing 90%-95% of its net profit after tax to shareholders. The Company will endeavour to outperform the S&P/ASX 300 Accumulation Index over the long-term, however there is no specific mandate to do so. Given the investment style of the Manager,
an investment in the Company is suited to those investors with a long-term investment horizon and is not suited for those seeking to generate alpha over the market. BKI could form part of an investors core exposure to quality and earnings generating companies. The portfolio is managed in a tax aware manner and therefore is suitable for those investors seeking to maximise the tax benefits with the long-term investment horizon and low turnover of the portfolio reducing transaction costs incurred by the Company.
IIR has maintained its Recommended Plus rating for BKI Investment Company Limited (ASX: BKI). The Company now has a track of over 20 years over which time it has largely delivered on its objective of delivering a growing fully franked income stream and capital growth over the long-term. There have been a number of positives over the years, including the increase in the size of the Company and shareholder
base which has increased liquidity, narrowed the discount and reduced the MER. In January 2022, the Company also improved corporate governance with the appointment of a third independent director with the Board now majority independent. We view this as important given the conflicts of interest that exist with some of the investments in the portfolio. In addition to conflicts management policies, offsetting the conflicts to some extent is the strong alignment of interest with members of the investment team and Board (including the Chair) having a significant interest in BKI. The portfolio has underperformed the broader market and its peers over the long-term, however has offered capital preservation in down
markets and the focus on dividend paying companies has seen the Company provide an above market dividend yield for most of its history.
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