CANBERRA: The nation’s largest listed investment company, Australian Foundation Investment Co, has warned that with many sectors of the sharemarket trading at or close to the top of their long-term valuation ranges, the upcoming reporting season will be important in providing support for the high share prices of many companies. It also lashed the Federal government’s recent tax on the big four banks and Macquarie Bank as an “opportunistic approach to policy” and no substitute for a full and proper approach to considered economic reform. AFIC (AFI) has more than $1.6 billion invested in Australia’s big banks.
AFIC also remains concerned about rising levels of household debt in Australia and its impact on consumption. But on a positive note, AFIC, which has nearly $7bn invested in equities, said global growth may continue to deliver a better-than-expected outcome for commodity prices, which should help its portfolio of mining stocks, which includes its third biggest holding, BHP, and its 8th largest holding Rio Tinto. “There has also recently been a pick-up in non-mining investment. However, as a counter to these trends, high levels of household debt relative to real wages growth is producing a weak outlook for consumption,” AFIC said as it released its full-year result which showed a profit of $245.3 million, down 7.7 per cent from last year. Revenue from operating activities was $277.7m, 5.4 per cent down from the prior year. The LIC’s management expense ratio — a key measure of its efficiency and cost of running its equities portfolio and funds management operations — was 0.14 per cent for the year, against 0.16 per cent in 2016. Investors, many of which are self-funded retirees and pensioners, hoping for a better dividend than what was paid in 2016 were disappointed, with AFIC declaring a fully-franked final dividend of 14 cents per share, the same as last year’s final dividend. It will be paid on August 30 to shareholders on the register on August 9. The shares are expected to trade ex-dividend on August 8. AFIC had previously declared an interim dividend of 10 cents per share. The total dividend for the financial year is 24 cents per share, fully-franked, the same as last year.
AFIC said in its statement to the ASX that there remained a number of risks to the health of the Australian economy and the business environment. “Heightened taxation risk from federal and state governments in an environment where budgets are under pressure has unfortunately also become a recent feature of the Australian economy. “The latest move to tax the five larger banks is in our view symptomatic of an opportunistic approach to policy. It is not a substitute for a more well-considered comprehensive approach to taxation and budget reform. “Reforms are a difficult task for any government, but we believe they are necessary to create a more robust foundation for the Australian economy going forward.” For the year, AFIC’s portfolio was up 11.7 per cent for the 12 months to 30 June 2017 compared with the S&P/ASX 200 Accumulation Index, which increased 14.1 per cent. New acquisitions to the portfolio (above $10m) included; Link Administration Holdings, CSL Limited, Carsales.com, Brambles, Clydesdale Bank (CYBG) and Isentia Group. Portfolio disposals (above $10m) included; AGL Energy, Cover-More Group and Vocus Group. AFIC invests in Australian equities, and its top investments include; Commonwealth Bank of Australia ($654.2m), Westpac Banking Corporation ($474.3m), BHP Billiton ($328.6m), National Australia Bank ($294.9m) and Wesfarmers ($269.7m).