AFI - Australian Foundation Investment Company

[Austwide]

@Dona Ferentes I have long ago given up trying to calculate percentage returns. My returns vary depending on how I look at them.

So, I've used your numbers as a guide; $9,900 to $43,800 to get my the return. Tax excluded as that complicates issues even more.

Based on the 6000 buy and current price (no DRPs etc included) I get a compounded return of about 5.5% or a flat percent return of about 15% on the initial investment.

I then don't know what to do with bonuses and DRP shares. Do I leave it as above or perhaps subtract the bonuses off the initial cost or what etc?

Lowering the cost would greatly increase the return.

I believe CGT remains at 50% whether held for 1 year or 30 which makes no sense to me at all.

What do you take into account to get a percent return?

 

[Dona Ferentes]

@Dona Ferentes I have long ago given up trying to calculate percentage returns. My returns vary depending on how I look at them.

What do you take into account to get a percent return?

Hi @Austwide . I used XPlan software and basically treated it as a black box. All buys, sells and dividends were accurate.

Internal Rate of Return IRR is a common measure, though why it is more meaningful than others is beyond me to explain.

Internal Rate of Return (IRR): Formula and Examples

The internal rate of return (IRR) is a metric used in capital budgeting to estimate the return of potential investments. Here is the formula for calculating it.

www.investopedia.com

 

[Belli]

I then don't know what to do with bonuses and DRP shares. Do I leave it as above or perhaps subtract the bonuses off the initial cost or what etc?

Essentially the bonus shares lowers the cost-base. If no dividend or any other income is attached usually the date of purchase of the bonus shares is taken to be the date on which the original shares were purchased. DRP has it's own cost-base on the date the shares were allotted.

WHF, which has a similar arrangement as AFI, has on it's web-site details of this plus the Class Ruling from the ATO. AFI has the same sort of links if I recall correctly.*

*Yep it does. Scroll down the link below to DSSP Rules and the Class Ruling from the ATO.

Shareholders

Discover an easy way to invest in Australian companies with AFIC. Find security and dividend history, performance data, and reports for shareholders, advisors, and new investors.

www.afi.com.au

 

[So_Cynical]

Sept 2015 entry for me $5.76 average price with the 6 div reinvestments 2016, 17 and 18, interestingly the div yield on my original investment is only about 4.2% five years later. AFI is a nice little winner but lets not get silly here.

Looking at the chart one really needed to be buying the 2012/13 low at about $4.50 or so to do really well, or before of course.

 

[Belli]

Mirrabooka was close to fully invested and has therefore announced a Share Purchase Plan

DJW and also a SPP announced for Feb

What are the odds AFI will also announce a Share Purchase Plan when it reports which should be due soon?

 

[Dona Ferentes]

What are the odds AFI will also announce a Share Purchase Plan when it reports which should be due soon?

Pretty high.. DJW are in for one, as announced today.

edit: although with the Market Cap at $9bill, is there any point in getting bigger? .... Maybe the hinted-at International LIC instead?

 

[Belli]

Pretty high.. DJW are in for one, as announced today.

edit: although with the Market Cap at $9bill, is there any point in getting bigger? .... Maybe the hinted-at International LIC instead?

Yes, it is a consideration but possibly depending on the amount raised, it could replace or substitute for those funds AFI has allocated towards its international trial.

And a thought just came to mind. If MIR are new shares and eligible for 50% of the EoFY dividend, I'm guessing no DRP or DSSP will apply and should the same apply to DJW - and AFI - I wonder how many holders who participate in the DSSP will appy under the SPP. After all, they have determined they will give up income to obtain shares to be sold at a later date with favourable CGT or withdraw from the DSSP at some stage to obtain a dividend income stream.

All will be revealed in the fullness of time and in due course - as usually happens.

 

[Dona Ferentes]

• Difficult operating conditions arising from the COVID-19 pandemic meant investment income for the six months to 31 December 2020 was $95.2 million, down from $164.1 million in the corresponding period last year. The biggest reductions came from the major banks, BHP, Macquarie Group and Transurban, while a number of companies in the portfolio did not pay a dividend during the half.
• Despite the fall in the half year earnings per share to 6.9 cents, the interim dividend for the half year is 10 cents per share, fully franked, the same as the previous corresponding period. Part of the interim dividend this year has been funded from reserves.
• The six-month portfolio return, including franking, was 15.2% compared with the S&P/ASX 200 Index, including franking, which was up 13.7% over the same period.
• For the 12 months to 31 December 2020, the portfolio return, including franking, was 5.8%. The return from the S&P/ASX 200 Accumulation Index over this period, including franking, was 2.4%.
• The management expense ratio for AFIC is 0.10% (annualised), with no performance fees.

Acquisitions ......... Cost ($’000)
Woolworths Group .... 25,158
Fineos Corporation ... 20,998
Sydney Airport ............ 18,986 (1:5.15 entitlement issue)
Nanosonics ................18,518
CSL .............................. 15,071
ASX .............................. 14,808

Disposals ................ Proceeds ($’000)
South32 ................. 35,848 (Complete disposal from the portfolio)
Alumina ................... 22,869
Oil Search ................ 21,471
James Hardie Ind. .... 18,949
Cleanaway Waste Mgmt ... 17,961
National Australia Bank ....15,456

New Companies Added to the Investment Portfolio
Fineos Corporation
Nanosonics

 

[Ferret]

DRP will have a 5% discount for the interim dividend.

I think this is the biggest discount for some time. I guess they want holders to participate, since they are having to dip into reserves to keep the dividend at 10c.

 

[Belli]

Do you know the payout ratio and how are they situatied for cash? When I looked at MIR, it had reduced its cash position by a substantial amount which is why I suspect it offered an SPP.

 

[kenny]

Nice that the BSP also has a 5% discount

BSP price calculation methodology

The price will set at a 5 per cent discount to the Volume Weighted Average Price of AFI shares traded on the ASX and Chi-X automated trading systems over the 5 trading days commencing on the ex-dividend date.

 

[sptrawler]

• Difficult operating conditions arising from the COVID-19 pandemic meant investment income for the six months to 31 December 2020 was $95.2 million, down from $164.1 million in the corresponding period last year. The biggest reductions came from the major banks, BHP, Macquarie Group and Transurban, while a number of companies in the portfolio did not pay a dividend during the half.
• Despite the fall in the half year earnings per share to 6.9 cents, the interim dividend for the half year is 10 cents per share, fully franked, the same as the previous corresponding period. Part of the interim dividend this year has been funded from reserves.
• The six-month portfolio return, including franking, was 15.2% compared with the S&P/ASX 200 Index, including franking, which was up 13.7% over the same period.
• For the 12 months to 31 December 2020, the portfolio return, including franking, was 5.8%. The return from the S&P/ASX 200 Accumulation Index over this period, including franking, was 2.4%.
• The management expense ratio for AFIC is 0.10% (annualised), with no performance fees.

Acquisitions ......... Cost ($’000)
Woolworths Group .... 25,158
Fineos Corporation ... 20,998
Sydney Airport ............ 18,986 (1:5.15 entitlement issue)
Nanosonics ................18,518
CSL .............................. 15,071
ASX .............................. 14,808

Disposals ................ Proceeds ($’000)
South32 ................. 35,848 (Complete disposal from the portfolio)
Alumina ................... 22,869
Oil Search ................ 21,471
James Hardie Ind. .... 18,949
Cleanaway Waste Mgmt ... 17,961
National Australia Bank ....15,456

New Companies Added to the Investment Portfolio
Fineos Corporation
Nanosonics

I purchased quite a lot ( IMO) in Sept 2019 @$6.50, which wasn't long before Covid hit, I certainly am not disappointed with their performance.
As it was my first venture into LIC's, I purchased MLT at $4.58 in Dec 2017, it will be interesting to compare their performance over time.

 

[Ferret]

Do you know the payout ratio and how are they situatied for cash?

At 31/12/20 they had $103,222,000 cash and 1,216,722,000 shares on issue.

So if everyone opted for a cash dividend this would be $121,672,200 which is more than their cash on hand!

 

[Dona Ferentes]

At 31/12/20 they had $103,222,000 cash and 1,216,722,000 shares on issue. So if everyone opted for a cash dividend this would be $121,672,200 which is more than their cash on hand!

but there isn't a call for cash (SPP or otherwise) (which would be silo'ed into new investments anyway). DRP pulls in a bit....

Reserves are one thing AFI has

Part of the interim dividend this year has been funded from reserves.

and from the Outlook statement

AFIC has sufficient funds available should good buying opportunities arise in the second half of the financial year during any market weakness.

 

[Belli]

At 31/12/20 they had $103,222,000 cash and 1,216,722,000 shares on issue.

So if everyone opted for a cash dividend this would be $121,672,200 which is more than their cash on hand!

Thanks for that. So it means it's well over a 100% payout ratio I assume.

Sometimes, which isn't often, to get a feel of how the LICs I hold are going, I look at any large variation of teh EPS compared with teh previous corresponding period. In AFIC's case I'd be also looking at how much cash it retains as a result of both the DSSP and DRP as indicated by @Dona Ferentes. I don't think the hald year profit reserves state to what extent dividends can be supported (the annual report normally advises of this.) and to what extent the franking balance can be used to provide the tax credit (there isn't any cash in franking accounts by the way.)

Overall I wouldn't be concerned with any of the older LICs. They have been around the block a few times and, in any case, if investors don't have confidence in the people they employ, ie the mangers, then don't put money with them.

 

[Belli]

I will apologise for the spelling errors in my posts. Pretty shoddy I know but, to be honest, I'm rather indifferent if some are offended by them. Have had sufficient number of years on this earth to now not care about what others think of me and my assults on the English language.

 

[Ferret]

Overall I wouldn't be concerned with any of the older LICs.

Yes, I don't have any concern over the payment of the dividend or the general running of AFI.

Income should recover significantly in the next half with banks paying dividends again etc. I think AFI maintaining the 10c by using reserves is quite prudent.

I was actually expecting they would do a SPP, so that surprised me.

 

[Belli]

I was actually expecting they would do a SPP, so that surprised me.

If the company has a heap of cash ($103M), having an SPP isn't necessary or warranted. If the managers are cautious about how they are investing funds, having more can create issues and, in effect, it's dead money for those investors who took up an SPP.

And you may be interested in this calculator

Dividend Payout Ratio Calculator

This dividend payout ratio calculator can help you measure the percentage of net income that is distributed by a company to its shareholders in the form of dividends during the year.

www.thecalculator.co

I had a look at the accounts and the EPS is down by close to 50% pcp to 6.9c. With the dividend of 10c that makes the payout ratio 145%.

 

[Dona Ferentes]

edit: although with the Market Cap at $9bill, is there any point in getting bigger? .... Maybe the hinted-at International LIC instead?

and, it would seem, first steps toward an International LIC has been taken

From the May NTA statement, out this afternoon:

As first signalled at the AGM in October 2020, a small part of our funds, $45 million (which represents approximately 0.52 per cent of the portfolio) has been invested into a diversified global equities portfolio during May. This consists of what we have assessed as high-quality companies with strong competitive advantage, good growth potential and across a broad range of industries.

 

[Dona Ferentes]

and AFI slowly leaking out the good dope on the company.

AFIC | Succeeding over the long term

Find the latest news and updates from AFIC. Read now.

www.afi.com.au

Succeeding over the long term​

AFIC has held investments in blue-chip stocks such as miner BHP Billiton, the major banks and retailers Coles and Woolworths ‒ throughout their evolution as companies - since AFIC was established in 1928. That’s over 90 years.

We’ve also held investments in a host of other companies for 20 years or more, including Transurban, Wesfarmers, Rio Tinto, Computershare, and Telstra. We’ve held many of these stocks because we assess a company’s growth potential over at least a 10-year period, not six months, and this approach has delivered long-term value.....

AFI understands that there will be economic cycles and ups and downs. Sometimes a downturn in stocks presents an opportunity to add to a holding in a particular company. Nonetheless, AFIC is not against sometimes trimming or selling some positions. We are prepared to exit a stock when we believe the time is right, even after holding it for 80 to 90 years.

For example, over the last 18 months, AFIC sold its holding in energy provider AGL when the AGL share price was a lot higher than it is now. Using our long-term framework, we observed the industry structure was changing and likely to continue to change which would negatively impact AGL’s earnings potential. Even though AGL is looking to adapt to changing market conditions, we need to consider influences that have real impacts on long term business model