Australian Foundation Investment Company (AFIC) has seen profits rise by 45 per cent in 2019 to more than $400 million, as a result of ‘several one-off factors’, as it moves to cut its portfolio holdings.
In its results for the year to 30 June 2019, the firm said net profit was $406 million, up 45 per cent from $279 million in the previous year, while investment income increased by 43 per cent to $433 million.
This was due to, the firm said, participation in the Rio Tinto and BHP Billiton off-market share buybacks, receipt of special dividends and the recognition of a dividend from the Coles de-merger from Wesfarmers.
It highlighted the participation in the buybacks, in particular, generated significant franking credits for the company and provided a headwind to performance as the holdings were sold at a 14 per cent discount to the market.
Companies that performed strongly in the firm’s portfolio over the period included Commonwealth Bank, Telstra, Transurban and CSL while CYBG and Challenger both ‘significantly underperformed’. It was also hurt by the lack of gold stocks held in the portfolio as this performed strongly during the year.
A fully-franked dividend of 14 cents per share, unchanged from last year, will be paid to shareholders on 29 August, 2019.
Separately, the firm announced it had reduced the number of holdings in its portfolio from 91 to 76 over the year in order to ensure the quality of the portfolio. This included the sale of some Rio Tinto holdings and a reduction in AGL Energy. Excess cash held, it said, would be used to add to select holdings in the event of share price weakness.
“With the market reaching close to all-time highs and against the backdrop of an economy vulnerable to slowing trade and subdued consumer sentiment, the focus of adjustments to the portfolio was to ensure quality companies, with strong industry positions, formed the core of the portfolio moving forward.
“AFIC is typically close to fully invested, however we have some cash available to add to selected holdings should there be any short-term disappointments during the upcoming reporting season that produces resulting share price weakness.”