MLT - Milton Corporation

[drsmith]

Booring might be coming back into favour but the current bidding on this listed managed investment is interesting. Yesterday Milton released it's NTA for the end of October and it stood at $15.93 per share before taking into account tax on unrealised capital gains.

The overall market is at a similar level to the end of October but there are bidders (and trades) up to $17.50 per share or a 10% premium to pre tax NTA backing.

 

[drsmith]

Booring stock I know but I took advantage of the above premium to NTA and sold some at $17.40.

I used the proceeds to buy back in today at $12.90.

 

[Judd]

MLT reported today. Profit (excluding specials) up 6.7%. Dividend 8.2cff up 5.1%. Cash now at $148M. DRP has been introduced. MER (based on fixed costs not FUM) is 0.13%.

 

[Judd]

Another ho hum share. Again a share purchase plan but this one has a $4.45 per share price. Closes 19 September.

 

[sptrawler]

Just bought in at $4.58, my guess is LIC's will become a goto share for SMSF's, that are interested in an income stream over capital gain.
Allocating a percentage of the portfolio, to dividend stream, while interest rates are terrible seems logical.
I'll see how it goes.

 

[Dona Ferentes]

Milton have announced their Half Yearly; ticking along fairly well, though dividend held steady at 9.0c ff and commentary at some odds with its core stated aim,:

Milton invests for the long term in well managed companies with a profitable history and the expectation of dividend growth, and its key objective is to pay increasing fully franked dividends per share.

With $3.3 billion in assets under management, it has $158 million in cash and anticipates opportunities in the future, attributing multiples expansion rather than earnings growth to the current market and expecting future volatility to throw up opportunities.

Among purchases, MLT bought more Macquarie MQG, TransUrban, Sydney Airport and BHP. Disposals were 20% more at $153million and included Bank of Qld ($43mill), Bendigo & Adelaide Bank ($39mill), Dulux (T/Over), Westpac ($15mill) and ANZ Bank ($15mill).

It's interesting there has been a decision to lighten off on Banks, now 21.8% of portfolio, and that was more towards the regional players rather than Big 4. This signals a weakening economy, to my way of thinking. At 31 Dec 2017, Financials were 31.7%, twelve months ago at 28.2% and 6 months ago represented 28.0% of total assets.

 

[Dona Ferentes]

it is hard to turn a ship around, even when the storm clouds appear. then along comes Covid.

Milton declared a fully franked final dividend of 8.5 cents per share bringing the full year ordinary dividends to 17.5 cents per share. The full year dividends represents a payout ratio of 105.5% of underlying profit.

Sharply lower dividends were received on Milton’s investment portfolio in 2020 as many companies reduced dividends to preserve cash. These cash flow concerns arising from COVID19 mandated business lockdowns and elevated uncertainty. Proactive measures were taken by Milton’s investment team to reduce exposures to banks and make other targeted portfolio adjustments to reduce this impact. Reduced liquidity income was received on Milton’s cash balances due to reductions in term deposit rates.

2020 was a transformative year for Milton’s investment portfolio with bank weightings reduced from 28% at 30 June 2019 to 17% at year-end. Bank investments were reduced due to concerns over weaker long-term earnings growth from declining credit quality, increased compliance costs and the effects of technology based disruption.

Milton’s $2.9 billion Australian listed equity portfolio is currently comprised of 71 companies. Investments were increased by $269.8 million over the year with increases in Macquarie Group, Transurban, BHP, Cleanaway, Sonic Healthcare, Amcor, Altium, REA and Qube and included new investments in Pro Medicus, Johns Lyng and Magellan. Disposals amounted to $276.2 million and included complete sales of Milton’s holdings in ANZ, Bendigo Bank, Bank of Queensland, Blackmores, New Hope and Adelaide Brighton. Holdings in Westpac and QBE were also reduced.

 

[sptrawler]

Preliminary final report from Milton.

https://www.asx.com.au/asxpdf/20200724/pdf/44kswkfwftl81j.pdf

I do hold

 

[Belli]

Preliminary final report from Milton.

https://www.asx.com.au/asxpdf/20200724/pdf/44kswkfwftl81j.pdf

I do hold

Thanks for that. I see it's dividend payout is greater than its underlying earnings. Still has a wad of cash at call and has actually increased it by end of FY. The small reduction in dividend pcp I can deal with.

I hold and added a little more in early April this year - which will go someway to mitigating the drop in the dividend.

Have to keep chipping away.

 

[Dona Ferentes]

From the AGM: In 2020 Milton added $269.8 million of long-term investments, funded by $276.2 million of sales. This represents approximately three times our normal turnover.

The year saw quite a change, the biggest being a reduction in bank holdings from 28% to 17% of portfolio (mostly achieved pre Covid) including the complete sale of our holdings in ANZ, Bank of Queensland and Bendigo and Adelaide Bank. Milton in the year also completely exited Blackmores, Flight Centre, Janus Henderson, Regis Healthcare, Boral, Orica, Incitec Pivot, Adelaide Brighton and New Hope Corporation.

New positions in Magellan, Johns Lyng Group and Pro Medicus were added. Additions to existing positions included Macquarie Group, Transurban, BHP, Cleanaway and Sonic Healthcare.

The consensus EPS forecast for the ASX200 for the 2021 financial year is for growth of 4.1%. Dividends are forecast to fall by 2.1%, after a fall of 29.5% in 2020. Milton will continue to take a long-term approach, focusing calmly and clearly on earnings and the dividends that follow and take advantage of volatility should markets become turbulent. We will look to remain as fully invested in the equity market as possible, whilst keeping sufficient cash for flexibility.

Milton's balance sheet is strong. We have total assets of $2.9 billion, cash at 30 June of $114 million and no debt. Milton also has $98 million of franking credits available to support future dividend payments. We have confidence, in the absence of unforeseen circumstances, that the dividend for 2021 is well supported. Milton has paid a dividend every year since 1938. [/QUOTE

 

[Belli]

I purchased MLT at $4.58 in Dec 2017, it will be interesting to compare their performance over time.

Here is a chart using the ASX web-site over a five year period.

Unless, you have access to some other software, I wouldn't go back further using that web-sit as it does not appear to make adjustments for the 5 for 1 split about 7 years ago. Even longer I believe you would need to consder MLT absorbing CHO (which I held at that time) in December 2010. Another factor is the number of unlisted management companies which MLT has acquired over an extended period. You can view them here if you wish:

Milton

Not sure if AFI has been involved in similar activity.

We'll find out how MLT is traveling when it reports tomorrow 21 January.

 

[sptrawler]

Thanks for that @Belli, according to comsec, I'm up 7% on MLT and 15% on AFI, so both are travelling a lot better than my NAB and WBC holdings.
By the way that is just on price, not including dividends and franking, which makes them a whole lot better than NAB and WBC. ?

 

[Belli]

Thanks for that @Belli, according to comsec, I'm up 7% on MLT and 15% on AFI, so both are travelling a lot better than my NAB and WBC holdings.
By the way that is just on price, not including dividends and franking, which makes them a whole lot better than NAB and WBC. ?

Nice one @sptrawler.

I don't follow performance much and focus more specifically on buying shares as a form of an annuity via dividends. Sometimes to get that, it costs more and sometimes it costs less. You know how it goes with prices. I had a quick gander at some of my purchases of MLT - July 2002 @ $11.70; December 2003 @ $13.24; October 2013 @ $19.70 all pre-split and March 2019 @ $4.48 plus SPPs at various stages. So all I know about performance is this is one of those annuities sources which so far provides me with a goodly five figure income every year. That is the limit of this little black duck's knowledge about performance.

 

[sptrawler]

Nice one @sptrawler.

I don't follow performance much and focus more specifically on buying shares as a form of an annuity via dividends. Sometimes to get that, it costs more and sometimes it costs less. You know how it goes with prices. I had a quick gander at some of my purchases of MLT - July 2002 @ $11.70; December 2003 @ $13.24; October 2013 @ $19.70 all pre-split and March 2019 @ $4.48 plus SPPs at various stages. So all I know about performance is this is one of those annuities sources which so far provides me with a goodly five figure income every year. That is the limit of this little black duck's knowledge about performance.

That is the very reason I bought both MLT and AFI, for a steady income stream in retirement.
I looked at a lot of LIC's, but settled on these two, due to track record, management costs and portfolio's. As time moves on I will probably rotate out of individual shares and more into LIC's and maybe ETF's.

 

[Dona Ferentes]

A lower dividend from Milton, somewhat expected, of 5.75c ff. (it was 9c a year ago), which represents 104% of underlying earnings (normally aim for 90-95%).

... after an active 2020 when transformative changes were made to the portfolio.... limited changes were made this Half. Additional investments were made in Johns Lyng Group, Magellan, Cleanaway, Amcor, WEquity Trustees and IOOF; a new addition was IPH. Sold down completely was QBE and Sims Group.

 

[Belli]

A lower dividend from Milton, somewhat expected, of 5.75c ff. (it was 9c a year ago), which represents 104% of underlying earnings (normally aim for 90-95%).

Nice point @Dona Ferentes.

Company earnings, and therefore dividends, were hammered last year. While it is disappointing I take the view the management is cautious about conserving funds which would then be able to sustain a dividend for a longer period. Far better from my perspective than emptying the bucket with an extreme payout ratio say 200% or more.

 

[Ferret]

I've held AFI since the mid 90s and MLT since 2015.

AFI has been the better performer and also has a significantly lower MER (AFI 0.1%, MLT 0.15%).

I think I might get out of MLT at a suitable point and pick up ARG as a second LIC holding. At nearly $5, MLT is near it's all time high of $5.08, so maybe now isn't a bad time to exit.

 

[sptrawler]

I've held AFI since the mid 90s and MLT since 2015.

AFI has been the better performer and also has a significantly lower MER (AFI 0.1%, MLT 0.15%).

I think I might get out of MLT at a suitable point and pick up ARG as a second LIC holding. At nearly $5, MLT is near it's all time high of $5.08, so maybe now isn't a bad time to exit.

AFI seems to be the pick, but ARG and MLT have similar MER, so I worked it out on price/dividend.
When I bought MLT was better than ARG so I chose them, but it was a bit of a toss of a coin.
If I had my time over I would have just bought AFI, but time will tell, I'll stick with MLT for now, but may move all to AFI at some stage.

 

[Belli]

I think I might get out of MLT at a suitable point and pick up ARG as a second LIC holding.

Of course it is a matter how you see it but ARG did also reduce its last dividend and had a similar payout ratio to MLT

Are we confident ARG when it reports will not do something similar to MLT? I don't know the answer obviously as some dastard nicked the magic mirror which forecasts the future.

 

[Dona Ferentes]

One of the issues, which doesn't necessarily escalate to a worry, for Milton is that can be seen as a dynastic vehicle for certain players. There is nothing inherently wrong with this, as similar inferences can be pointed towards the JB Were "stable", of AFI, DJW, MIR and Acmil all emerging, over the years and decades from what was an old school 'Collins St' investment house. Argo prides itself on stable management and steady hands on the tiller, and is proud of its independence. Milton has links with WHSP and various families that have been involved in managing investments for generations.

A common refrain from what are called the older style of LIC is the conservative management, no or little debt, internal management and low fees. Milton, for example, "maintains a strong balance sheet with no debt and cash on hand to respond to new and existing opportunities identified by our investment team. Milton also has substantial profit reserves and franking credit balances".

Soul Patts is an "investment conglomerate that has been listed since 1903. Its leadership has consisted of successive family members who value the history of the company. More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families".
Milton has directors aligned with SOL, the Millners for example. Top holding in MLT is SOL, with Brickwoks and New Hope features in the top 20. Now, this isn't a bad thing in itself if the companies perform; and the Directors would have good insight into that. Going the other way, SOL holds a 3.3% stake in MLT, and an 8.5% holding in the smaller BKI investment (BKI).

At 31 December 2020, Milton holds some 70 companies, and the top 20 (as listed below) account for 72% of the portfolio's $3.24 billion under management. Note, as well as equities, MLT holds interest bearing securities and real property.

Company .................. Value $m... % Total Assets ...Total Return %
W H Soul Pattinson ........ 276.1 ...... 8.5 ...... 55.9%
Commonwealth Bank .... 257.9 ..... 8.0 ....... 19.7%
Macquarie Bank Ltd ...... 225.2 ...... 6.9 ...... 17.9%
BHP Group Limited ....... 206.0 ...... 6.4 ...... 20.6 %
Westpac Banking Corp...193.4 ...... 6.0 ......... 9.6%
CSL Limited .................... 170.2 ...... 5.3 ....... (0.8)%
Wesfarmers Limited ......145.0 ...... 4.5 ....... 14.5%
Woolworths Limited .....115.5 ....... 3.6 ......... 6.7%
National Aust. Bank .....110.0 ....... 3.4 ....... 25.7%
A P Eagers Limited ........ 90.3 ....... 2.8 ....... 96.9%
Transurban Group ........ 79.4 ...... 2.5 ....... (2.3)%
Rio Tinto Limited ........... 76.2 ...... 2.4 ....... 18.4%
Brickworks Ltd ............... 62.1 ...... 1.9 ....... 23.8%
ALS Limited .................... 58.4 ...... 1.8 ....... 47.8%
Coles Group Ltd ............ 52.2 ...... 1.6 ......... 7.3%
Telstra Corporation ...... 45.4 ...... 1.4 ....... (2.2)%
Amcor Limited ............... 44.2 ...... 1.4 ........ 6.8%
Perpetual Limited ......... 42.8 ...... 1.3 ....... 18.8%
AGL Energy Limited ...... 42.7 ...... 1.3 ...... (26.9)%
ASX Limited .................... 39.5 ...... 1.2 ...... (14.2)%

I wouldn't angst too much over MLT versus ARG, or AFI for that matter. Their mandates are similar. Perhaps a point of differentiation would be to also look at small to mid cap LICs as a complement to the blue chips. Fund size may be smaller, and fees higher, but smallness can equate to nimbleness.