The Australian Foundation Investment Co Ltd (ASX: AFI) share price has risen sharply this Monday after the ASX listed investment company (LIC) reported its half-yearly earnings for the six months to 31 December 2022.
AFIC shares are up a healthy 0.93% at the time of writing to $7.57 each. That is a substantial outperformance of the broader S&P/ASX 200 Index (ASX: XJO), which is up by a far more anaemic 0.09% at present.
Image source: Getty Images
AFIC shares lift after solid half-year results
- AFIC has reported revenues of $178.1 million, up 10.1% over the previous corresponding period
- Profit after tax lifted 12.2% to $163.7 million
- Net tangible assets (NTA) per share were $6.90 as of 31 December, a slide of 11.1% from where they stood on 31 December 2021
- For the six months to 31 December, AFIC's NTA rose by 7.1%, including the value of franking credits
- AFIC has declared an interim dividend of 11 cents per share, fully franked, for the period – a 10% hike from the 10 cents per share interim dividend from the previous corresponding period
- This will lift AFIC's 12 monthly dividends to 25 cents per share, which will be a rise over 2021's 24 cents per share
What else happened in the half?
AFIC told its investors that its lift in profits was largely a result of "an increase in dividends across several holdings". Those included Woodside Energy Group Ltd (ASX: WDS), Transurban Group (ASX: TCL), National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA).
Further, AFIC built out a larger position in BHP Group Ltd (ASX: BHP) over the half, which has helped to boost profits and dividends as well.
Over the half, AFIC added to its Santos Ltd (ASX: STO), Goodman Group (ASX: GMG), Seek Ltd (ASX: SEK) and Woolworths Group Ltd (ASX: WOW) positions. It also initiated a new position in the home appliance company Breville Group Ltd (ASX: BRG).
Making way for these ASX shares were Orica Ltd (ASX: ORI) and Reliance Worldwide Corporation Ltd (ASX: RWC). AFIC stated that "we exited Orica and Reliance Worldwide considering long-term prospects for these companies will be increasingly challenged as competitive intensity increases".
What did management say?
Here's some of what AFIC's management told investors about the half-year just gone:
Short term portfolio performance was impacted by adjustments in the market resulting from rising interest rates which produced a fall in the share price of many quality companies in the portfolio which had been trading at very robust valuations.
These companies are core holdings for the portfolio and have contributed strongly to long term portfolio performance. Geopolitical events also produced strong returns in the more cyclical stocks such as energy and utilities, where AFIC is generally underweight given its long term investment focus.
Portfolio return for the half year was 7.1%, including franking. The return for the S&P/ASX 200 Accumulation Index was 10.8% including franking. Over 10 years, the corresponding figures are positive 9.4% per annum for AFIC and positive 10.2% per annum for the Index.
What's next?
Looking forward, AFIC hasn't made any concrete guidances or predictions. The company noted that "the outlook for economic activity remains uncertain with subdued consumer and business sentiment and persistent cost inflation leading to higher operating costs for most companies".
Management also flagged that "expectations are that interest rates will increase in the near term with the quantum and timing of rate increases remaining unclear".
However, the company also reiterated that "our strategy of owning a diversified portfolio of quality companies well positioned to deliver earnings growth over the medium to long term remains appropriate".
AFIC share price snapshot
AFIC shares have had a decent start to 2023, up almost 1.5% since the start of the year. However, as you can see above, the AFIC share price remains down by more than 11% over the past 12 months. Over the past five years, investors have enjoyed capital gains worth almost 20%.
At the current AFIC share price, this ASX LIC has a trailing dividend yield of 3.18%.
