Hello, and welcome to AMCIL Half Year Financial Results briefing. At this time, all participants are in a listen-only mode. There will be a presentation followed by question and answer session. All questions will be taken via the webcast. If you'd like to ask a question at that time, please enter your questions in the Ask a Question box at the bottom of your webcast screen. I would now like to hand the presentations over to Mark Freeman, Managing Director of AMCIL. Thank you. Please go ahead.
Well, good afternoon, everyone. I'm Mark Freeman, the CEO and Managing Director of AMCIL Limited. I'm also the Portfolio Manager for AMCIL. Welcome to this half year result briefing. I'd like to begin by acknowledging the traditional owners and custodians from all of the lands we are gathered on today, and pay my respects to the elders, both past, present, and emerging. I have joining me today on the webinar, Jaye Guy, from the investment team, Andrew Porter, our CFO, Matthew Rowe, our Company Secretary, and Geoff Driver, our General Manager of Business Development. Before we start the presentation, a bit of housekeeping on the webinar. This briefing is based on the material available on the company's website. If you are using your computer to access the presentation via the webcast, the slides will change automatically.
Finally, please note, following the presentation, there will be time for questions and answers. You can ask a question via the webcast using the tab at the bottom of the screen. I'll now move to slide two of the presentation, which is a disclaimer, just to say, we're here to talk about the company. We're not giving any advice as such. Then we'll move on to the results for the half year, and I'll pass over to Andrew Porter, our CFO, to talk through Slide four.
Thank you, Mark, and good afternoon, ladies and gentlemen. So the profit for the half year, which is the first box on the top left, AUD 4.1 million, in line with last year. The revenue we actually received was down. We did anticipate that and talked about it last year at the AGM and various shareholder presentations. We strongly expected that the major resources companies, like BHP, would be reducing their dividends. That proved to be the case. In this time last year, BHP paid AMCIL AUD 1.1 million in dividends, and this year it was AUD 540 thousand. So there's a big difference there. And the main reason, though, why the profit is fairly consistent, two things. First of all, other companies did increase their dividends, and secondly, there was a one-off reduction in expenses, and I'll come to that in a minute.
The interim dividend at one was maintained at AUD 0.01, same as last year, and the portfolio return of 11.7%, that was above the market of 8.3%. We'll come into that in more detail later on. Moving over to the next column, 8.5% was the share price return. Again, that's an accumulation return, so it includes the dividends reinvested plus franking. And as you can see, that was below the portfolio return, slightly above in line with the ASX 200. And that difference has produced an increase in the discount, and again, I'll come on to that later. The management expense ratio, which is the expression of the costs of running the company as a percentage of the average portfolio value, down to 0.46%, so AUD 0.46 for every AUD 100 invested.
Now, this was discussed at the AGM last year, when the MER was much higher. The performance, as I'm sure many shareholders will remember, was below the market at the end of the previous financial year. Not the portfolio movement over five and ten years, that's the one that excludes tax and costs, but the others were below. So what happens there is the portion of incentives for staff that are based on the AMCIL performance, was not paid out, and that was refunded this year. So that's led to that reduction in costs, and the reduction in the MER. The major driver of the MER, of course, will be what the portfolio does between now and the end of the year.
But with other costs currently being in line, if the portfolio stayed the same as it is in December, which won't happen, we'd expect the MER to be about 0.59%. So more in line with historical norms. Portfolio at the end of the year, just under AUD 370 million, so up from AUD 324 million last year. If we move to the next slide, which is the premium discount slide, and you'll see that the discount grew slightly to 13.1% from 9.9% at the end of June. And that's that difference that I talked about earlier between the portfolio return and the shareholder return. Many LICs at the moment have moved to a discount or increased their discount.
We can't control the market, but we do think it's important to let shareholders and potential shareholders have the information that they can see whether they are buying or selling shares at a premium or a discount to their underlying value. And with that, I'll hand back to Mark.
Okay, thanks, Andrew. So moving into the presentation. On Slide seven, we've got the portfolio performance returns. As Andrew touched on, for six months, the portfolio was up 11.7 against the index, 8.3. These all include franking, both in the performance of AMCIL and the index, so it's a like-for-like. And then one year, you can see up 21.2%, against the index up 14%. The portfolio's ahead of the benchmark over five years, and also noting that our performance numbers are after all costs and tax. We're just behind the index on ten years, but obviously, the index doesn't have tax and fees taken out of that.
Just to note, this is, including franking credits to the extent we've actually paid it out, but noting that we still have franking credits that haven't yet paid out, and so they are yet to come into our performance numbers. Again, reiterating, Andrew, just the franking credits that we haven't paid out again.
So at the end of June, after we'd paid out the final, special dividend, it was equivalent to about AUD 0.055 worth of franked dividend that we could pay out. And earnings per share over the six months have been roughly just over 1%, so you'd expect that the current level to be fairly consistent once we've paid out the interim account with that figure of about AUD 0.055.
Okay, thanks, Andrew. So then moving on to Slide eight, just to remind investors, what we're about in AMCIL. So it's a focused portfolio. We target quality companies. We're not making the positions in line exactly with the index. We do look at the index weightings, but the AMCIL intent is to be high conviction around the stocks that we invest in. There's alignment of interest, so for a high conviction managed fund like this, what we see it as a fairly low-cost vehicle. There are no performance fees, and there's strong equity ownership by directors and staff, so there is alignment with shareholders. We also aim to be low turnover and therefore tax effective. I think the turnover in the half was around 7%.
And again, when you look across the industry, that would be seen as pretty low turnover, and we are taking a long-term investment approach. So moving to Slide nine, a bit more about that investment approach. We like to reiterate what we're looking for in the stocks we invest in. We said we target high-quality companies, so what do we mean by that? We prefer companies that have unique assets that are very hard to replicate, or another way we talk about that is businesses that have a leadership position or a developing one. We want companies that have an enduring, sustainable competitive advantage. We're wary of companies that have external factors beyond the company's control that can disrupt the business.
Conservative balance sheets are important, and we keep seeing this time and time again, when companies take on too much debt, it can really get the business into trouble and, certainly the share prices as well. We prefer companies with more consistent earnings streams. The people are critically important, so we want businesses that are run by effective, passionate management teams with ownership alignment. We prefer our businesses to be, or what we call, have a positive business operating trends. We're wary of companies that have significant headwinds on their businesses, whether they be industry, or operating issues. Why this matters? Our experience tells us that these factors drive competitive advantage over the long term, which leads to higher return on capital.
High-returning businesses have the ability to reinvest in their business to drive growth, capture market share, and further enhance their leadership position, and ultimately producing good profit growth, which drives shareholder value creation. When we identify these companies, we want to buy them when we see long-term value, so we talk a lot about finding dislocations in share prices to add to our holdings or introduce new stocks. If businesses start failing on these criteria, we look to reduce or exit, as this often leads to poor performance. On to Slide 10. We just wanted to highlight that AMCIL is diversified across sectors. Obviously, when you look at the index weight, if you look at the ASX 200, it is dominated by banks and resources. We try and have a more balanced approach to our sector exposure, and also by market capitalization.
You can see there's a sort of reasonably even spread when you look at splitting the businesses by market cap, less than AUD 5 billion, AUD 5 billion- AUD 15 billion, AUD 15 billion-AUD 50 billion, and above AUD 50 billion. I would say that our exposure to what you classically call mid and small cap stocks is probably close to 40%. The index would be around 20%, so we've got a much higher exposure to mid and small caps. And our large caps would be around 60% compared to the index at more like 78%. Probably in the past, we've had periods where we've had higher exposure to mid and small caps. However, we look to where we see the best opportunities and the best investment criteria.
If we see those in more of the larger, mid and larger cap stocks, we're happy to bias the portfolio there. I think what we try to note is that we give a bit more balanced across those sectors compared to the index. Then moving on to Slide seven, just some of the recent activity, and it's good to talk through this so investors understand our investment approach. We did exit two stocks, and we talked a lot about our buying at Medibank. When they had a cyber event, we saw that as a significant dislocation in share price. We didn't think it would be an event that would damage the business long term. The stock passed our process in terms of backable people, strong balance sheet, high return on capital.... sustainable business model.
We're a little bit wary on it was long-term growth. The dislocation in share price gave us an opportunity, and when the share price recovered, we exited that position. We still like the company. We'll keep watch of it, but it achieved what we wanted to achieve, so we exited. And we're just seeing some better opportunities, so we exited our holding in FINEOS. It hasn't quite hit what we'd want in terms of profitability. It still has some interesting characteristics in being an owner-driver, establishing a leadership position in what they do, and annuity-type revenue streams. But the lack of profitability means the financial strength is not there for us, and as I said, we've had other opportunities, so we've exited that position. We also took a bit off the top.
James Hardie's been very strong and a very large position. Probably should have held what we trimmed for a bit longer, however, it is still a large position in the portfolio. Morewest was just looking very expensive to us. Auckland Airport, as you remember, we added a lot to that, during COVID, when the stock had a sell-off. It's now recovered, that, in terms of the share price, and there are a few issues around, the regulator and the like, so which we would say is an external factor on the business, so we took a little bit out of there. We did reduce our Domino's. We took about a quarter of our position. Again, going back to the factors I talked about at the start, the balance sheet is not in the shape we want it to be.
Also, we see the businesses having significant operational headwinds; therefore, it is worrying us on a couple of our factors. That indicated to us that we should reduce. We did that. In hindsight, we probably should have sold a bit more, but we're pleased we took some out of that stock. Westpac, we touched on before, that we probably had in terms of quality, a bias towards NAV. We added that to add a NAV to the portfolio and built our position, and that gave us an opportunity to reduce Westpac. We're still holding onto some Westpac. We see some value there. We think management at least looking more stable, produces extremely strong franking dividends. And so with the valuation where it is, we're comfortable at this point to keep holding some.
And Transurban, again, a very large position, and we took the opportunity just to trim the holding. Just in terms of additions, we'll come back to some of those shortly in terms of... Most of those acquisitions are covered on the next few slides, so we'll perhaps come back to those. But just back to the trimming again, if you think back to what we've done over the last 12 months or so, reminding everyone, we did exit our positions in IRESS, PEXA, and Nanosonics, as well as reducing Domino's. The basis for that was failings against our process, and all of those stocks have fallen away a fair bit since we've sold it.
It probably just, again, highlights to us, in looking to fund future acquisitions, the best selling is always stocks that are not quite hitting our frameworks, and in some, in the case of some of those, we're on high multiples. The trimming we've done in the good quality stocks, where they didn't have any issues, perhaps hasn't been the best selling for us. So to keep moving up, the quality is always the best way to run the portfolio. So if you move to Slide 12, just picking up on some of those acquisitions, I'll get Jaye to, to talk through, three of the stocks, that are in the portfolio now.
Thank you, Mark. So on Slide 12, we've provided some detail on three new positions that we added to the portfolio during the half year. We recognize that these might not necessarily be household names, so we thought it might be helpful to provide a bit of background in our thinking behind these companies. With Altium, Mineral Resources, and Objective, we've followed and admired each of these businesses for some time, as they demonstrate many of the characteristics Mark has outlined earlier in the presentation. In the case of Altium, they play an important role in the electronics industry globally, as the market-leading software provider for the design of printed circuit boards. Printed circuit boards are a fundamental component in most electronic devices.
The trend towards an increasingly smart and connected world via electronic devices is a positive tailwind for Altium, and we can observe the company winning customers and taking share in what is a growing market. Importantly, Altium is profitable while fully expensing their substantial research and development spend. The management team is closely aligned with shareholders, and the balance sheet is well positioned with net cash of AUD 200 million at the last result, which in our mind, creates significant optionality to reinvest back in the business at a high return on equity or inorganically. Mineral Resources is a diversified resources company with operations in mining services, iron ore, and lithium.
Their model is somewhat unique to other resource companies, in that their core mining services business is integrated and provides services to their own mining operations rather than outsourcing, and also provides this offering to external customers as well. The company is led by founding CEO and substantial shareholder, Chris Ellison. Chris has a strong track record of creating value through a number of commodity cycles.... While we do expect volatility in the share price, due to the nature of the underlying commodity markets that Mineral Resources is exposed to, in the medium to long term, we are attracted to the quality of their Australian-based asset base, combined with an agile management team and their sharp focus on returning invested capital in what can be a capital-intensive industry. Moving on to Objective.
Objective provides best-in-class software that enables local councils, governments, and regulated industries in Australia, New Zealand, and the United Kingdom to digitize and operate more efficiently, transparently, and securely. Objective is led by founder and significant shareholder, Tony Walls, who hasn't sold a single share since listing the business on the ASX over 20 years ago. The company has a demonstrated track record of profitable growth. We can observe significant investment in product-led research development, and expect this to support future growth for the business. From a financial strength perspective, Objective has a strong balance sheet with over AUD 72 million of net cash. The business boasts very high customer retention rates and a recurring subscription revenue at attractive margins, which leads to a high degree of earnings consistency. I'll now pass back to Mark to talk through further examples of our investment approach in practice.
Thanks, Jaye. So moving to Slide 13, just continuing our trend of showing shareholders where we've acquired stocks and some of the logic for it. So here we talked about looking for price dislocations in established companies. IDP, we touched on this at the last update we did to shareholders, talking about the opportunity we're seeing in that company. I guess the key risk of this stock, which has a leadership position in English language testing globally, but more importantly, the student placement market into universities, they've got a strong position globally, and we've been attracted to the potential for them to grow market share. The global business is very fragmented, but they have a leadership position with less than 10% market share. So we think there's strong opportunity for growth over the long term.
The issues that have been hitting the share price really come under the bracket of the category outside influence. So that is the key risk with this stock. There are issues out of their control, government decisions that can impact the business. And so this is the time when you actually look at a stock like this, when that factor is playing out. It is continuing to cop bad news, as it were, but we think over the long term this business has been around for some time. We think it's a real established company, and if they reinvest in technology ahead of their competition, we think they can gain share. And so we have a position now in this portfolio, but because of the risks of outside influences, it's never gonna be a position that will be too large.
ASX has certainly been out of favor. There's been a lot of operational headwinds, but we saw the deal they did to replace their CHESS. So they've basically chosen an alternate system. We think it's a very clean approach, and for us, it's the first time you start to see some good news out of the company, and we'll see more attractive valuations. So very much a stock that was out of favor, but a business that characteristics suit us in terms of its monopolistic nature. Then onto the next slide, we added a bit more to NAB. We were seeing value there, some strong franked dividends, good management, attractive return on equity, so it was hitting our criteria, so we added to that. And then more recently, we topped up our Woodside holding.
We see Woodside's been very much out of favor. If you look through the market presently and say: Well, what sectors are out of favor? Certainly the lithium stocks have been copping it, but also Woodside. The market's been very nervous about approval processes in Australia. The oil price has been weaker than perhaps people were thinking, all this negative news. And the other factor, too, is that's been talked about, is Woodside potentially merging or taking over Santos, depending on how you view it. So all these factors have meant that there's net negative news on the stock. We're actually starting to see some value there, again, producing nice franking dividends, which we're attracted to, so we've added slightly to our holding. So just moving on to S lide 15, just to sum up some of the buying we've been doing.
We added to Macquarie Technology Group. It's another owner-driver business. The Tudeh ope brothers run this business. Just to remind everyone, they're expanding their data center business in Sydney. They've actually been now getting their approvals, and the stock is moving up quite nicely, so we've been attracted to that company. They've kept a very strong balance sheet, and we think that project's gonna be a very good one for them. We've touched on Objective and Mineral Resources. Gentrack, we added to that again. Again, very passionate management. They have a software or a range of software products they sell into utilities, globally, so it's a global business. They expense all their R&D. They've got a very strong balance sheet. So again, the characteristics we like. They had a good result, so we added to that. And IPD, we participated in a capital raising.
This is a small position. They're an electrical distributor here in Australia. They've done very well since listing. Management and board members have very strong equity exposure, so it's got that alignment that we look for again. We think that company's in a bit of a sweet spot at the moment, so we took a position there, and that's been very good for us. We just wanted to talk about what happened with healthcare stocks during the year. Again, a significant dislocation in share price. Healthcare stocks globally got sold off. There's concerns around the weight loss drugs that seemed to impact every healthcare stock. It didn't matter whether they were gonna be impacted by weight loss or not. We saw this play out in CSL and ResMed. We already had a very significant position in CSL.
We talked about adding more, but we felt like we had enough, but we certainly identified as an opportunity. And ResMed, we did net add a small amount into that share price weakness. Both those share prices now have pretty much recovered. And so it just shows you the process in action of finding temporary pieces of bad news in good quality companies, because we don't think CSL and ResMed... We don't think the long-term stories really change for those two companies. And then we talked about trimming stocks when valuation becomes less appealing, but as I said, the best trimming you can do is in stocks where valuations are high, but where they have issues. As I said, the Hardies and Netwealth, they really don't have any issues with their businesses.
They have become bigger positions, but in fact, it probably would have been better to hang on to those stocks, because they've got plenty of long-term growth ahead of them. But we don't get them all right. So moving on to Slide 16, it just sums up the portfolio. We think about stocks in terms of growth companies. We're very happy to hold stalwart businesses. These are large, established companies that we still think can steadily grow and have very strong market positions. We're happy to have stocks that provide us with great franked dividends when we can buy them at good prices, and I touched on Woodside and NAB. And then we have asset play companies, so these are businesses that we think are just fundamentally undervalued, and Santos has been positioned within that.
We tend to have more in the growth companies sector because some of these will be smaller companies, so you have your exposure and growth spread across a, a broader range of businesses. The stalwart companies tend to be larger companies, so a smaller number of those. Moving on to outlook, and then we can get into questions. Slide 18, the big movement over the year has been people's expectations of inflation, to a point now where markets are expecting inflation to decline, and ultimately interest rates to fall. This has driven a strong response from growth stocks or quality stocks, where we're exposed. You could have a view that, in fact, it's that view, the interest rates might fall, has driven strong performance from quality companies.
I think that is a contributing factor, but I think the other key factor, as we saw throughout the half, was the operating results that most of our companies produced, that we saw around August for the full year results. And then we had updates through the AGM period. Generally, the good quality stocks produce good quality results. There's always gonna be an exception, and obviously, the Domino's update we had the other day was disappointing, but most of our other companies continued to produce strong results, and that also has been a key driver of share prices. As a result, though, we're seeing the market pretty fully valued at this point. We're finding it harder to see value. We go into the reporting season now in February, keen to hear updates, but happy with the portfolio settings as they stand.
Potentially, we're still thinking that the rise in interest rates that we've had will impact the consumer at some point, and therefore, potentially earnings, and it's another reason why we have a bit of caution. However, we still think that our investment approach, which is to focus on quality companies, be patient, and look to execute and add to positions when we see value, and we test ourselves on that. Backing aligned management teams is important. Ultimately, share prices are driven by earnings growth in the long term, and as always, balance sheet strength creates resilience and protects against rising interest rates. So with that, I hope you're hearing a consistent approach, to the way we're running AMCIL and developing a good understanding of what we're doing with the portfolio, and we're happy to open up to questions.
All right, thanks, Mark. So I'll coordinate the question and answer session. Just to remind shareholders, participants, I should say, you can ask a question by using the tab at the bottom of the screen. So the first question here is, was there a capital gain, LIC gain attached to the dividend, Andrew?
It's a good question. There wasn't this year, no, but that does make me think that in future, we should probably point that out when we do that release, so thank you for that. But, no, there was none this year.
Has the recent Domino's earnings downgrade impacted AMCIL?
Well, it was a smaller position in the portfolio, but clearly, when a stock falls 30%, it has an impact. And I think you'll see, the position was just over 1%, and we're pleased that we took a quarter out, but I think you can do the sums and work out the impact. From that, and it probably, it more than anything, it just confirms the process we go through is weak balance sheets is really a recipe for pretty volatile performance, and more than not, underperformance.
There's a couple of related questions here. What are the options available to try and reduce the discount to NTA? Is this a liquidity issue? And I guess the other part of that question is, what are we doing to reduce the share price discount to NTA? Are we thinking about buying shares back on the market, the DRP?
Yeah, sure. So, yeah, I think the best way to reduce discount is consistent, good performance, and for the market to understand what you're doing. So we've sort of been on that journey. Well, we do have a buyback in process, but we're reluctant to do that. We're, we're trying to grow the company. So in that regard, having a larger company, and we were ... A couple of years ago, we were starting to do some more consistent share purchase plans. It's something like we'd like to do more. We talked about that, we could have a bigger company still be able to invest in the positions that we like. That would certainly help as well.
If we saw the discount blow out, that's something we could look at, but generally, what we see is buying back shares doesn't usually fix the problem. I think just more consistent performance and educating the market on what we're doing is probably the best thing.
I think that's right. Mark, we've seen across the industry, really, particularly for smaller companies, buying back shares hasn't really been the panacea for reducing the discounts, really, of our performance at the end of the day-
Yep
... and dividends, and that's what we're obviously working on.
Yeah.
So there's a question here about Objective Corporation. Are you expecting Objective to grow revenue and earnings in financial year 2024 after reporting the setting results in financial year 2023, i.e., the increased earnings, excluding any benefit arising from Objective change in accounting treatment of-
Yeah
Research and development?
Yeah. Yeah, so they are starting to capitalize some of their R&D, probably more aligned with the rest of the market, really. So we take that into consideration. In terms of earnings growth, look, the Objective is really a business you do take a true long-term view. I've always said this before, when and with Objective, where you could have periods of investment, and there are periods where your profits may not move much, but when the business kicks in and you start winning some new customers and growth kicks in, then you can have periods of very strong growth. So we're not in it for what they're gonna do over the next year.
What we see is this business has all the characteristics that our experience tells us will lead to a good long-term investment, but it may not happen in the next year. But we're confident that over the long term, this business will be a good investment for us.
Thanks, Mark. So again, just encourage participants to ask any questions via the box at the bottom of the screen. Question here about: Do we ever transfer securities from the trading portfolio to the investment portfolio?
That's a very interesting question. In AMCIL, it's rare, it's not unknown, but in order to maintain purity of accounting and tax, I can go into as much detail as people would like on this, but in order to maintain purity of accounting and tax, we actually sell stock once we think, once the team have identified a stock that they think is going to be a trade, it's undervalued, and they'll want to sell it for a quick profit. If after a time they say, "Actually, this does fit the AMCIL model for the longer term," we will actually do a sale from the trading portfolio to the investment portfolio, as if it had been on market. But that's in order that we don't tarnish the investment portfolio or indeed the trading portfolio. Hope that's clear.
Thanks. Question here about: Can we give an indication of the acquisition costs of IPD and also of Objective and the size of the current holdings?
Yeah, so these, these sort of companies, we generally, we're certainly, they're probably positioned, they're certainly less than 1%, probably closer to more like 0.5%. But we still think, we wanna have a position in these businesses because we, if, if they succeed and get better, you can get share price appreciation, but often we'll add to positions over time, the more we get comfortable with the business. In terms of the price, well, we don't talk about the exact price, but I did mention in IPD, we, we bought in through a capital raising, so the outcome from that is we've done very well out of it so far. And then we've talked about Objective being a newer position to the portfolio, so that would suggest that's somewhere around the current share price, I guess, without bringing a number on.
Thanks, Mark. Views on the value of Woolworths going forward, particularly the government inquiries that are being undertaken, and also view on gold companies and the likelihood of AMCIL investing in those companies?
Yeah, well, as you can see, you know, we still think Woolworths is a quality operator. There's no question about that, but we did scratch our head a little bit on some of the multiples. I'm very happy to hold onto our positions in companies that we have no issues around our criteria, even if they get a bit expensive. If the prospects are still sound, we're happy to hold, but Woolworths, given that it's more of a stalwart, lower growth, they're the businesses that we're more inclined to trim a bit if they get fully priced. But we still think they're a quality business, so it's still in the portfolio. Just in relation to some of the more recent activities, I guess...
You know, clearly we want our business to be focused on running the business, running the company well. We'll be catching up with the company soon, so I guess they're some of the questions I'm keen to talk to management about, to make sure that they're really focused on the company and making sure the operational business is strong, and that's where we'd like to see the focus of the company.
Thanks, Mark. I only got a couple more questions here, so I encourage participants to ask questions if they have them before we end the presentation. So what are you thinking about the banking sector at the moment? You've touched on the holdings we have, but you know, the share price has obviously gone up a reasonable amount. So what are you thinking there?
Yeah, well, look, look, we think the banks are in better shape than perhaps where they were, say, five years ago. You know, the capital positions are really strong. A lot of them have exited what you call non-core businesses. We've seen an improvement in ROE. Return on equity is really important. We want to be in companies that generate a good return on equity. So certainly in that camp, certainly CBA are hitting the mark and now NAB are. That's why we've been keen to own those two. I think what's underestimated in the banks is the value of the franking credits. So when you take the dividends, add the franking credits, they don't have to grow a lot for them to be a good, sound investment.
This is a case with some of our more stalwart companies or sometimes our growth companies, where we can sell call options against our position to bring further income to that, and certainly the banks would sit in that group. Yes, CBA looks pretty fully priced to us, but it's still... They produce good quality results, and everyone's been talking about, or certainly the market for a long time, that they're just too expensive, but they keep performing. We've built up NAB and as I said, and Westpac, it's really a valuation story that keeps us there, but they're financially just very strong. And in fact, the payout ratios are very manageable at the moment, so we don't see a lot of risk in terms of the dividends. Population growth in Australia is still strong.
I guess the only headwind that we see is that we're just not expecting a lot of earnings growth. For example, if you look at Westpac, you know, the yield is about 6%, fully franked. If you gross up that for franking credits, you're getting sort of nearly 8.5%. If they can just grow at 2% a year, it's a good, sound investment. So, it's not gonna be a sector that we would have an index-type weight in. But the value of the frank credits and the opportunity to sell call options when they run means that we should get a pretty good return out of them.
Thanks, Mark. So there's a question here about the views on insurance companies and the insurance broking businesses within the market.
Yeah, well, look, insurance companies take you on a rollercoaster road ride. I actually thought... About a year ago, IAG was looking like there was some good value there, but we didn't invest. It's gone up. But it's just hard to get comfort around it. QBE's been in favor more recently, but it's had a pretty good run now. So again, I did look at that one a while ago because there was potentially some value there, but I didn't buy it.
But from where these stocks are now, it's just hard to get the confidence about the future. And in terms of the criteria, what that we're looking for, there might be opportunities in the future to take more of a trading view, but both IAG and QBE have had pretty good runs where you could really see deep value. I think that point has passed us, so, you know, probably more on the watchlist, but acknowledge that, you know, certainly QBE, the management team is looking much better and the business is looking much better than it was. And the insurance brokers, look, they're quite good businesses, and Austb rokers has done incredibly well. The market was pretty cautious on the acquisition they made in the U.K., but it's been a huge success. But they do produce pretty good returns.
And so their business is, we do look at, but once again, they've also had pretty good runs in the market, so probably not high on the watchlist just then.
Does Answer have any shares? Still have shares. We've never had any shares in Starp harma, so-
I think we may have at one point a while ago, but, no, we haven't had Starp harma for a while. So, no.
A question here about the performance. You have endured a period of underperformance that have recently turned around. Have you made a slight change in your decision-making to achieve this? And if so, are you confident the underperformance is a thing of the past?
Well, we hope so. I mean, we've got a pretty disciplined approach that hopefully you're hearing that consistent message through these briefings, if you've listened to the last couple that I've done. So, we're doing a bit of a deep dive. You know, I guess the performance looks okay for the last 12 months, but we need to keep focusing on looking at what's worked and what hasn't, and where we keep landing on is consistency against our process is the answer for producing those results. We've looked back at all the opportunities that perhaps were there for us with our approach, sticking with the better quality companies, making sure we capture value when they present, and weeding out the lower quality stocks is another avenue to do that.
So, from the long-term perspective, you know, I think the frameworks are sound. We just got to keep executing on it and not stray from this approach. You know, moving into lower quality stocks at any point, or shying away from what our frameworks are telling us, that's where you can get issues. So, to the extent you can have confidence, I can't say what's gonna happen in the next 12 months. But I can say when we look through our portfolio, you know, these are good companies. There's always gonna be some that don't work. But we think we've done a good job of actually managing down the risk in those ones where problems did come about, or actually exited some stocks.
We've just got to stick with the approach and let the performance as it turns out over the long term, just back what we've done for a long time, stick with the quality.
Right. So Andrew, you've got a question about financing costs, which is, on, I think, Page eight of the report that we released this morning. It says it's AUD 65,000, but there's no loan shown in the balance sheet on Page 16, so.
So that is an interesting question. It's actually on Page 14 of the release this morning. They does show finance costs of AUD 65,000. Finance costs are made up of two parts. First of all, there's the insurance type cost that you pay for actually having a line available for when you need it. So part of that cost is that. And also the cash flow statement, which is later on in the results, will show that we did actually draw down on that line during the year and then repay it. So that's why we pay for it. So it is there when we do need it, so we don't have to sell shares when we see an opportunity in the market. That comes with a cost, and during the period when we did have that loan, that also had interest costs attached to it.
So those two together make up that finance cost.
Thanks, Andrew. So a question about BHP. In light of the recent reporting regarding the Brazilian court's decision to fine BHP a large sum of money, obviously on the dam disaster some years ago, we'd be interested to hear on your view on the financial impacts in terms of BHP's ability to pay attractive dividend going forward.
Yeah, look, I mean, these issues seem to come back and bite these large mining companies, and it's been the case for decades now. But what's always shone through is the quality of the underlying assets and the cash flow they produce. So they've certainly got the ability to see through these difficulties. In the long term, I don't think it'll have an enduring impact on the dividend-paying capacity of the company. They've got a very strong balance sheet, producing good profits. I think more of the focus would be on what the iron ore price does. We don't own Rio at the moment. We've got more in BHP, because we like their copper assets and what they're producing there.
Fundamentally, they've such great assets that the cash flows over the long term, I think, supports an ongoing investment in the company.
Do we hold any shares in Suncorp?
Not at the moment. The share price has done reasonably well. But, you know, we said it's a more mature business and our focus is elsewhere.
So PWH is another owner-driver company with a great track record. Have we looked at it?
Yeah, we've looked at it, and we continue to look at it. It's one of these small cap stocks that trades on pretty rich valuations. So, it's something we'll just continue to track. You know, within our investment team, we've got people focused on small stocks, so it's certainly on our radar to watch, but we'd like to see the share price a bit lower than where it is now, before we buy.
Another question back to Domino's Pizzas. Based on the investment process, are we likely to exit that company?
Yeah, look, this is one where you, it ticks our criteria. It's that owner-driver company. There's certainly been some missteps over the last couple of years, but the CEO's created some pretty significant value over the long term. But I guess you always have to keep testing management to see if they can continue to run the business. So that certainly challenged us. The stock's now fallen. There's probably a fair bit of bad news, potentially, in the price. We're probably gonna hold for a bit longer. We'll look to see the business during reporting season. But again, just highlights the frameworks, we're saying, "We should hold less." We did reduce, but the frameworks were probably saying we should have exited, really. So, and it is really around that balance sheet issue.
If the company had a much stronger balance sheet, we'd probably be more comfortable holding the position, because it gives the company the ability to, I guess, reset the business, give franchisees a bit more time to make better profits. But when you're stretched on debt, there's so much focus on producing results for the now, and that puts stress on the business overall. So, we like the opportunity they have in Germany. That was always appealing to us. But the areas where they've got into a bit of trouble with Japan is really just not working for them. And they took on debt to buy into Asia, which we certainly had question marks in my mind.
So, look, I think we have to keep reassessing it and unless we see those characteristics improving, if they can get some operational tailwinds happening, and there's a path to improve the balance sheet, I think it'll keep testing us as a stock of whether we should hold or not.
There's a related question here about whether you think it's well valued now?
Yeah, well, well, look, when, when you look at the PE, it's looking better, EV/EBITDA, but multiple looks more reasonable. But, you know, it's, it's the characteristics that we look for. And so it, it and until we can really understand, I, I need to get a better feel from meeting the company about where they sit on that balance sheet before. I mean, it, it looks better value than it ever has been, but, there's obviously, you know, the company never used to have the balance sheet risks that it has now.
Thanks, Mark. So we're getting towards the end of the session. So again, encouraging anyone who wants to ask a question, perhaps to do so in the next minute or so. I've got a question here: If you want to grow the company, how about doing a share purchase?
Yeah, well, what's... It's something we'd like to do. I guess the issue for us is always around when you do these, it's got to be fair for everyone, those that go in it, those that don't. And given the share price discount, we'd have to offer something at a fairly significant discount to the market. And there's a sort of debate over whether they'd be fair for those that don't go in it. So, I think our focus is producing good results and eventually, hopefully, get an opportunity to do more share purchase plans.
Any interest in lithium companies or copper-focused companies, or happy with BHP as a, as a, copper company?
Yeah, well, look, a copper, BHP is the quality play now. I mean, OZ Minerals obviously was taken over by BHP, and we want to be in the larger, more established businesses, so happy with BHP. I mean, the BHP have got the world-class, low-cost assets, and that's really our frameworks that fit that. And then lithium, we obviously get through our Mineral Resources, and we're focused on that one because of the owner-driver attributes that it has. And even more recently, I think we saw some of the... A lot, a lot of the mining companies have sort of disappointing quarterly updates, and Mineral Resources is one that actually produced a good quality quarterly update. And we sort of attribute to that, to the fact that, the company approved, and they're just really good at running mines.
And then, yeah, and so, but mainly gives us our exposure to that lithium.
Thanks, Mark. Do we have any view on travel stocks, like, like corporate travel?
Well, we keep looking at them because, you know, both of them have those owner-driver characteristics we like. So the people running the companies, the CEOs, certainly know their companies, because in each case, they're the ones that have built them up over time. But they are industries that, again, that they can get pushed around by external factors. Corporate Travel has built a very strong business. That's certainly one that we've probably looked at the most, particularly as they've grown overseas. It's a very fragmented industry. We were sort of interested in how they go in the U.S. because they've taken some acquisitions there. That market is a lot more fragmented than Australia. There's a good offering to be had, but they are very exposed to economies.
So, you know, they're probably stocks that sit around the fringes, but certain characteristics that we like, but we'll just keep watching them.
A couple of follow-up comments about the banking sector, particularly around Bendigo Bank and Bank of Queensland. Do they offer any investment opportunities? And also, is there any potential for banking rationalization within these companies as scale is obviously an issue to competitive, to be competitive in banking these days?
Yeah, it is, and yeah, that's really what's come through. So our focus really has been on the majors, and for that very reason, the regional banks just haven't produced the returns, particularly return on equity, that the majors have produced, and they just don't have the scale. So therefore, against our frameworks, you know, currently, Bendigo Bank and Bank of Queensland don't make, I guess, the frameworks that we're looking for. And we've seen that in their results over the long term. You know, CBA, NAB have produced better quality results, particularly CBA.
Mike, it's the last question. I notice the number of participants has started to fall away a little bit. So any plans to merge AMCIL and Mirrabooka, given Mirrabooka fits into the small space that, I guess, small space in terms of small company stocks that AMCIL holds? That might be a way to grow the fund.
Yeah. No, well, I mean, they're both independent companies. They've got independent board of directors. They make independent views on how the business is to be run. So, both have their own investment objectives that they're meeting to. You know, Mirrabooka is really focused on just meeting small cap stocks. It's probably got 50-60 stocks. AMCIL is about trying to pick the eyes out of the market in terms of small, mid, or large. They have a much more concentrated portfolio. We prefer something around mid-30s in terms of number of stocks. They're probably pushed towards 40, so there's an opportunity to reduce the number of stocks. So, you know, slightly different approaches, and I think each board will probably think there's a place for the style of fund they're running within the market they operate.
We'll make this the last... Well, I got a couple questions, maybe the last two questions. So how does, how does Treasury Wine Estates look to us?
Yeah, look, you know, we keep watching Treasury. It's obviously got a very strong position through their Penfolds brand. It's got some of the characteristics we like, but, you know, wine is still a very, very competitive industry. They certainly did well selling their products into Asia when China stepped back, they did a good job with that. They've recently done an acquisition in the U.S. Look, it's something we watch, but it's just a very competitive industry, and so against our frameworks, it probably struggles a little bit. But it doesn't mean at the right price, we wouldn't look at it. And we think the management are very good. And I can see there's a question about JB Hi-Fi.
About the retail result?
Yeah, well, that certainly fits our criteria, absolutely. It's on our watch list. It was getting close when it got in the low 40s, and we nearly bought some. But obviously the stock's been very strong, but it's got that leadership position in the market. It's got a very good return on capital, strong balance sheet, well-run, so it ticks all the boxes we look for. We've just gotta make sure we buy it when we get the next opportunity. And produces great franked dividends as well. So look, that's one that we potentially missed earlier in the year.
All right, thanks, Mark. We'll wrap it up there, I think. So if I hand back to you to conclude the meeting.
Okay, well, thanks, everyone, for joining in this briefing. It's an important part of our process to be accountable to shareholders. I think hopefully you're picking up, as I said, over time, listening to these briefings, consistency in the information we provide you, and consistency in approach, and then hopefully over the long term, it leads to consistency in performance as well. So just to remind shareholders, there will be shareholder information meetings in March. We'll be in all the capital cities, so please look out for that. If you wanna meet us or ask questions, come along. And then the next webinar, like this one, will be with the full year result in July, and then the AGM in October will be webcast. So there's sort of four, I guess, touch points throughout the year for you to find out what's happening with AMCIL.
So with that, thank you for joining us.
That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.