AFIC announces first half FY2020 results

AFIC announces first half FY2020 results

Profit is one of the measures to describe the performance of a business in the era of diversified financial systems. A business becomes profitable when the total revenue of the business surpasses the expenses, costs, and taxes (total expenses). Profit is a reward for the business owners for investment in the organisation. It is the company’s discretion whether it wants to give a dividend to its shareholders in order to reward and motivate them or reinvest the amount into the business for future growth. On the other hand, if the company has more expenses as compared to its revenues, it indicates that the company is making a loss in that specific time period.

Now, let’s have a look at one of the ASX-listed companies, Australian Foundation Investment Company Limited (ASX:AFI), which has recently updated the market with its performance for the first half of the financial year 2020.

Key Highlights of H1 FY2020 Results

• The company reported revenue from operating activities of $157.5 million, reflecting a fall of 37.1% as compared to the prior corresponding period ($250.3 million). AFI highlighted that the revenue excludes capital gains received on investments. However, the fall in revenue was due to demerger dividend received following the Coles demerger from Wesfarmers as well as participation in the Rio Tinto and BHP off-market buy-backs in the prior corresponding period, income that was not repeated in the present year.
• Increase of demerger dividend negatively affected the profit as well with the company reporting a decline of 39.1% in H1 FY2020 ($146.1 million vs. $239.8 million in H1 FY 2019). Barring one-off items, the first half profit declined by 1.6%.
• For the six months ended 31 December 2019, the net profit per share of the company stood at 12.1 cps.
• The fully franked interim dividend of the company stood at 10 cents per share, with no change compared to last year.
• The fully franked final dividend for FY 2019 stood at 14 cps which was paid to shareholders on 29 August 2019.

Decent Rise in Portfolio against S&P/ASX 200 Accumulation Index

• The company mentioned that while decelerating, the Australian equity market has continued to witness a rise over the six months ended 31 December 2019, even though concerns about trade tariffs, and low growth in many developed markets excluding the US.
• AFI has continued to decrease the number of companies held to focus further on quality businesses with a competitive advantage, robust returns on invested capital, adjust the portfolio as well as robust balance sheets.
• For the six months to 31 December 2019, the portfolio of the company experienced a rise of 5.4% against the S&P/ASX 200 Accumulation Index, which witnessed an increase of 3.8% during the same period.
• Considering the competitive and regulatory issues this sector is facing, the portfolio approach of the company has witnessed a lower proportion of the portfolio, which is dedicated to the major banks. Over the last four years, significant bank exposure has substantially declined from around 28% to 19% of the portfolio.
• For the half-year ended 31 December 2019, the investment income of the company stood at $153.9 million, reflecting a fall from the income of half-year ended 31 December 2018 ($246.7 million). Numerous one-off items had increased investment income in the prior corresponding period, that was not repeated in the current period. The company added that this included participation in the Rio Tinto and BHP off-market share buy-backs, and the receipt of a dividend due to the Coles demerger from Wesfarmers.
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AFI offers a varied portfolio of quality stocks. The company looks for some specific characteristics in the stock such as

• Sustainable competitive advantage with unique assets, which are producing strong returns on capital.
• A formidable management team and board.
• Stocks with financial strength reflected in strong cash flow and balance sheet
• Ability generate stable earnings
• AFI also looks for companies, whose business can grow over the long term, producing growing dividends

On the outlook front, the company stated that the US and Australian equity markets are either close to or at all-time highs. The company remains alert to the potential for increased volatility which reflects the inherent risks in the market, considering the price for many other asset classes also at or near extremes. AFI is confident that its portfolio is placed well, which include the availability of enough funds, with an expectation of good buying opportunities to arise in the second half of FY2020 from any increase in market volatility.

The company possesses a very powerful portfolio with high quality companies reflecting strong returns on invested capital, which have robust balance sheets that decrease risk and provide strategic flexibility for businesses.

Stock Performance

The stock of AFI was trading at $7.210 per share on 21 January 2020 (at 02:39 PM AEDT), reflecting a fall of 0.552% as compared to its previous closing price. The company has a market capitalisation of $8.75 billion, and the total outstanding shares stood at 1.21 billion. AFI’s 52-week low and high price are $5.840 and $7.320, respectively. The company has generated a total return of 12.40% and 13.46% in the during the last 3 months last 6 months, respectively.