Hello and welcome to the Djerriwarrh financial results briefing. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. All questions will be taken via the webcast. If you'd like to ask a question during this time, please enter your question in the Ask a Question box at the bottom of the webcast window. I would now like to hand the presentation over to Mark Freeman, Managing Director of Djerriwarrh. Please go ahead.
Okay, good afternoon, everyone, and welcome to this full-year result briefing. I'd like to begin by acknowledging the traditional owners and custodians from all the lands we are gathered on today and pay my respects to their elders past, present, and emerging. So joining me on this webinar today, we have Brett McNeill, the Portfolio Manager; Olga Kosciuczyk, who's the Assistant Portfolio Manager; Andrew Porter, our CFO; Matthew Rowe, our Company Secretary; and Geoff Driver, who's our General Manager of Business Development. Before we start the presentation, just 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. If you are accessing by phone only, the PDF of the slides with page numbers is available on the website.
Finally, please note, following the presentation, there will be time for questions- and- answers. You can ask a question either via the webcast or through the operator. We'll now turn to the presentation and just start with slide two, which is a disclaimer just to say we're here to talk about the Company and what the Company is doing. We're not giving any advice as such. If we move to slide three, I will just give an overview and objectives of Djerriwarrh and I'll pass to Andrew Porter, who will talk about the financial result, and then pass over to Brett and Olga, who will talk through the results and the portfolio and the outlook as well. I'll just jump to slide five just to remind everyone an overview of Djerriwarrh; Djerri as we call it is one of the largest income-focused listed investment companies on the market.
We established it in 1989 and eventually listed in 1995, so there's a long track record of performance there. Shareholders get the benefit of the transparency associated with being a listed investment company, as well as the governance standards that come with this, along with an independent board of directors. Importantly, the Djerriwarrh shareholders own the management rights to the Company, so there's no external fund manager that's taking fees and no third parties extracting fees and no additional performance fees as well. Hence, for this type of product, we end up with a very low MER or cost to the shareholders. Djerriwarrh is obviously part of the broader group of listed investment companies, which includes the Australian Foundation Investment Company, AMCIL, and Mirabooka. So it supports the broader research approach and getting the scale of operations coming through, as we see, in the low cost.
Onto the next slide, just the investment objectives of Djerri. So Djerriwarrh primarily seeks to provide an enhanced level of fully-franked income, which is higher than what you would get from investing in the broader market, in this case, the ASX 200, and we want to deliver at a low cost to shareholders. So as of the June 30th, based on the NTA of the Company, you can see when you include franking, the yield that you'd get from Djerriwarrh would be 6.5% compared to the index at 4.7%, so a substantially higher yield than what you would get from the market.
When I jump to the next slide, I'll be pointing out that the Djerriwarrh share price, though, is trading at a substantial discount to NTA, so the yield you would get on the share price rather than the NTA would be around 7.4% compared to the index at 4.7%, so again, a much larger yield than what you get from the index based on the current share price. We also want to provide attractive total returns, and you can see over the year what's been pleasing is that the total return for Djerriwarrh has been around market, but at the same time, investors have received a much higher level of fully-franked dividends, and that's been pleasing. We do show the one, three, five, and 10, but unfortunately, we don't pick up the full-year number, which is when we reset the dividend, essentially, and reset the strategy.
Pleasingly, that number, we are meeting all our total return objectives as well as providing great enhanced yield along with growth in dividends. So coming to the next slide, we always show this slide showing where is the share price in relation to what we would say is fair value or the NTA. You can see the last released NTA at AUD 3.36. The current share price at the June 30th was AUD 2.95. It's actually picked up a bit in the market, but still trading at a substantial discount to NTA. I find this somewhat surprising given the performance of the fund and, in particular, the dividend yield, but the market is the market. But again, we just want to highlight where that share price sits, and it still sits at a substantial discount to fair value.
I think it's a bit of a theme we have been seeing in markets where listed investment companies seem to be going through a phase of trading at a discount. As we see from this chart, though, these things do go through cycles. You have some periods where they trade at a premium, some periods where they trade at a discount. It all seems to come out in the wash in the long run, but as I said, at the moment, we are at a substantial discount. With that, I'll pass over to Andrew Porter, our CFO.
Thank you, Mark, and good afternoon, ladies and gentlemen. So if we move on to the slide which has got the four boxes in the financial year and summary, I'll run quickly through this. So the net operating result, which excludes the impact of the open option positions, and that's the figure the board used to set the dividend, was AUD 40.3 million for the year, so that's up from AUD 39 million. That's a pleasing result. Obviously, we get our income from dividends and option income primarily, so simply because share prices are higher does not mean that we get more dividends. In fact, some of the larger dividend-paying companies, BHP, Rio Tinto, Woodside, paid less dividends this year than they did last year. So to have the dividends slightly up from banks and Telstra, etc., in the portfolio is a good result.
Also pleasing to see was option income during the year booked was up AUD 1.8 million. So that's enabled the board to declare an 8% final dividend, so AUD 0.1525 for the year. That translates into that higher yield that Mark was talking about. We're often asked, what are the franking credit reserves for Djerriwarrh? After we've allowed for payment of that final dividend, the franking credit reserves that Djerri has equates to over AUD 0.20 worth of franked dividends. So we'd consider that to be a healthy position going forward in case of any unexpected shocks to dividend income that the market pays.
The management expense ratio on the top right-hand corner, this is a figure about what it costs to run Djerriwarrh. It consists of two types of costs: the actual direct costs and the costs that the company that employs the staff that support Djerriwarrh and the other LICs are employed by. The actual direct costs were pretty much the same for the year, pretty flat. What did change during the year was we've mentioned last year that the MER was particularly low last year because of the profit of that subsidiary, that associate in strict accounting terms that I mentioned. That was caused by the reversal, it's an accounting treatment, of costs previously accrued for an old incentive plan, which was then unwound.
So AUD 0.42 per AUD 100, which, what it translates to is, we think, pretty good value, very good value for a company that produces this sort of yield and the work that that entails, particularly around the options. So on that, we've talked about the market yield. We'll get on to the more interesting part of the presentation, and I'll hand over to Brett.
Thanks, Andrew. And good afternoon, everyone. Thanks for joining the webcast. So on slide 11, we show a simplified version of our profit and loss statement, and we do this in order to give our investors some more detail on how we generated the profit result for this year, as well as how the operating profit translated into our dividend per share for the full year. So if we start at the top of the profit and loss statement here, the two key drivers of our profit were both up. So the dividend and distribution income was up 2% to AUD 36.3 million, and the option income we generated was up 12% to AUD 16.6 million. So overall, Djerriwarrh's operating income before expenses was up 5% for financial year 2024. And then if we work through the expenses, finance costs were up 20%.
That was a result of a higher cost of debt from higher interest rates. Administration costs were up 9%, and that's largely as a result of the factors that Andrew just mentioned. Our income tax expense was up 11% as profit rose. At the bottom line, net operating result was up 3% overall to AUD 40.3 million. If we then look at it on a per-share basis, the net operating profit result per share was up 1% to AUD 0.1535, and the total dividends declared for the year up 2% to AUD 0.1525. From all that, the key messages that we'd like to give are that we think this was quite a good outcome for financial year 2024 to deliver profit growth. Mostly, it was driven by the strong result we had from our option income.
Also, though, we really want to point out that the dividend per share, the AUD 0.1525 for the full year, was fully covered by net operating profit per share, the AUD 0.1535, and we think this indicates a very sustainable dividend payout policy. So if we move on to slide 12, this looks in some more detail at the first of our two key income sources, being the dividend and distribution income that we received from the companies owned in the investment portfolio. As we noted, this item was up 2% to AUD 36.3 million for the financial year. We see it as a really good result, particularly because the backdrop is that across the ASX 200, dividend payments were flat to slightly down. So we're pleased that we were able to grow the dividend and distribution income that we received for this financial year.
And on the left-hand side of slide 12, we show how this item has tracked over the last five financial years, so a good trend of growth, particularly over the COVID effect of financial year 2021. On the right-hand side, we show how our dividend income received looks when it's measured as a percentage yield on the portfolio value. So these are the green bars, and we line that up against the equivalent dividend yield of the ASX 200 being the blue bars.
So these dividend yields are pre-franking, and as we can see, for financial year 2024, our portfolio dividend yield was quite a way above the market, which also was a pleasing result, largely a function of us having received some special dividends from Newcrest and Westpac during the year, but also benefiting from the timing of some of our large purchases, particularly buying extra BHP and Telstra before they went ex-dividend. So a good result for financial year 2024. I still think over the long term, on average, we expect the portfolio dividend income yield to be the similar level to the market yield. On slide 13, we show a similar analysis for our option income.
So this is the income that we receive when we write call and put options against the companies owned in the investment portfolio, and it's this part that is a key driver of Djerri being able to deliver an enhanced dividend yield to our shareholders. So this item for the year, strong growth, was up 12% to AUD 16.6 million, and as the chart on the left-hand side of slide 13 shows, the trend in growth has been quite strong over the last five financial years. On the right-hand side, we show this option income, again, though, as a percentage of the portfolio value, and financial year 2024 saw a very good result with an option yield of 2%, the highest it's been in the last five years. We still expect, though, that over the long term, the average option yield will tend to be between 1.5%-2%.
So hopefully, these slides have given some extra detail and insight into how we generated this year's profit and dividend, and we'll now turn to give an update on the portfolio, starting with our option activity. So I'll hand over to Olga.
Thank you, Brett, and good afternoon, everyone. Our main investment objective is to pay our shareholders an enhanced dividend yield, and to achieve that goal, we generate income by writing call options against select portfolio holdings. This slide would be familiar to our shareholders. It's the performance of the market as defined by our benchmark, the ASX 200 Index, overlaid with the top-down view of our portfolio's call option coverage. It was a pleasing year for option activity and income. We started the financial year with call option coverage of 32% before reducing it to 27% in early November. This proved to be excellent timing, as it meant we could benefit from the strong run the market had between November and April. During this time, we consistently increased our option coverage, which peaked at 43% in mid-March.
In late March, our call options written against banks and consumer discretionary companies were exercised. These significant option exercises underpinned our portfolio's net cash position. We entered the financial year 2025 with portfolio call option coverage at 29%, which is below our usual target range of 30%-40%. This is mostly a result of our low call option coverage against companies we recently increased our holdings in: Telstra Group, Woolworths, Woodside, and CSL. The current positioning gives us flexibility to generate more income over the next 12 months without sacrificing any potential capital growth in these companies, which we believe continue to trade at attractive valuations. We are positive that this positions us well to deliver on our investment objectives. On slide 16, we show our key transactions in the financial year 2024.
We had significant option exercises across major banks: Commonwealth Bank, NAB, and Westpac, and consumer discretionary companies: JB Hi-Fi and Wesfarmers. The majority of these sales occurred in late March and April following the market's strong run, and in most cases, we chose not to buy back these companies given they were trading at elevated share prices. We were also active sellers of our small remaining holdings in James Hardie, Temple & Webster, IAG, and Amcor. The largest purchase for the 12-month period was Telstra. We believe that Telstra has the right strategy and is well-positioned to deliver sustainable earnings and a growing dividend. The significant share price fall allowed us to substantially increase our holdings at attractive prices. We also significantly increased our position in Woodside Energy on share price weakness.
The company gives us exposure to a globally unique portfolio of high-quality liquefied natural gas, or LNG, and oil assets, which underpins solid cash flows and fully franked dividends. Woodside's acquisition of New York Stock Exchange-listed Tellurian for book value, announced only a couple of days ago, reinforces this investment thesis. We also increased our holding in Woolworths as it faced intense regulatory scrutiny during the financial year, with multiple price inquiries reviewing the company's conduct and grocery pricing. We believe the large fall in Woolworths' share price underappreciated the defensive nature of the company's earnings, superior store network, and leading online offerings. We also added to our BHP, Transurban, and CSL holdings on price weakness. We also added three new holdings during the period: IDP Education, Mineral Resources, and Newmont Corporation. IDP Education is the leading global provider of English language testing and student placements to universities.
We are attracted to the company's long-term outlook for earnings growth, given there is a significant opportunity to gain market share in large, addressable markets. The company's share price has more than halved in the past 18 months as a result of regulatory changes aimed at curtailing the number of international students across IDP's key markets. Despite this, we believe the sector has strong structural growth tailwinds, given strong demand for Western education. Mineral Resources is a diversified mining company, giving us exposure to lithium, iron ore, and mining services. The company's production growth out of their high-quality assets underpins a strong earnings growth outlook without the need for the lithium price to bounce back. Newmont is a diversified gold and copper mining company that owns high-quality assets in attractive jurisdictions.
We think Newmont offers a good mix of income and growth, along with some extra diversification for our portfolio, given its gold exposure.
Thanks, Olga. So moving to slide 17, this gives us a summary of the portfolio as of the end of June. And just as a recap of our investment strategy, what we're aiming to do is to own what we think are the highest-quality companies. We want to have the right balance between income and growth in the portfolio, and we need to be well-diversified across stocks and sectors. So on the left-hand side, we show some key metrics across both the stock and option parts of the portfolio, and together these combine to produce a net tangible asset, or NTA, backing per share of AUD 3.36 at the end of June. The top 20 holdings are shown on the right-hand side, ordered by their value in the portfolio. So BHP and CSL are the two largest positions in the Djerri portfolio at the moment.
The next biggest is now Telstra after the significant buying we did that Olga talked about. And we can also see that both Woolworths and Woodside are much higher up than they were six and 12 months ago after our buying. And then on the other side, the banks are lower down the order this time. So Commonwealth, Westpac, and NAB, the significant sales that occurred through option exercises. Also, Wesfarmers is a lot smaller in the portfolio than it was six and 12 months ago. And whilst we still own JB Hi-Fi, that's no longer in the top 20. So finishing the presentation with some outlook comments that we give on slide 19, starting with some of the more short-term considerations. So in terms of the market, it's been very strong in recent times.
So the ASX 200 has been trading near its all-time highs despite a lot of, let's say, risks in both the economy, but also in terms of geopolitics. In this context, the market looks what we think is more moderately expensive at the moment, particularly when we compare it to some key long-term valuation metrics such as price to earnings, price to book, and dividend yield. With this and our bottom-up analysis, it means that we enter this financial year in a net cash position, but also with high call option coverage against some of the companies that have continued to outperform very strongly during the year. So what does this mean for dividend and option income?
Well, the recent buying that we've done in companies such as Telstra, Transurban, Woodside, and BHP, they're all high-yielding stocks, and so higher positions in those companies should somewhat offset the lower dividend income that we'd naturally expect given we hold less of companies like CBA, NAB, Westpac, Wesfarmers, and JB Hi-Fi. But being in a net cash position gives us a lot of flexibility to reinvest in high-yielding companies when we see value. And in terms of options, the current positioning of the options book, we think, gives us a good amount of flexibility to continue to generate further option income over the year without necessarily sacrificing any potential capital growth. So I think both well-positioned. More importantly, though, in the long term, we absolutely remain confident with the investment strategy.
We think owning a diversified portfolio of high-quality companies with the right mix of income and growth will enable us to deliver our objectives over the long term. We think with the current portfolio settings, particularly things like having a sustainable dividend payout ratio, should allow us to continue to generate an attractive level of enhanced yield as well as deliver growth in capital and dividends over the long term. With that, thank you for your attention, and I'll pass over to Geoff Driver.
Thanks, Brett. So just to remind everyone, if you want to ask a question, you can do it via the webcast using the tab at the bottom of the screen. So the first question, and we certainly encourage people to put questions through to us. The first question is, given that the stock market is at its highest, why is the profit result stagnant? I think you've covered it a little bit, but let's perhaps remind.
Yeah, sure. Well, the stock market being at a high level reflects capital values, and so we see the benefit of that in the total returns to the portfolio performance, the NTA returns that Mark went through. Pleasingly, despite it being a strong market, Djerri still matched the market total return. Things like the profit result depend more and function more of dividend income and option income. As we detailed, dividend income across the market was actually down during the year, whereas our dividend income was up, so that was quite a pleasing result from that regard. Then you put on top of that the option income we generated, that's how we deliver the enhanced yield to shareholders.
Thanks, Brett. Given Djerriwarrh Investments banks now, say, 12 months ago, what's their sort of caution around the banks?
Yeah, sure. I mean, the banks are always topical, a key part of income for the market and for Djerri. They've been a terrific contributor to our portfolio and our returns over the last two years. We think the quality of the banks is fine. We think the balance sheets are in very good shape, and you can see that with them returning capital. The dividend payout ratios are fine. They're quite sustainable. We think the loan books, from what we can see, are pretty sound, and the lending practices over the last few years have been good. All in all, the quality is pretty good. The main issue we have is just the share prices. Seeing the re-rating in the share prices over the last 12-18 months has been very pleasing given the buying we did back then.
But we think it's probably gone a bit too far, and some of the valuations are just stretched. So us being exercised on call options we'd written, like Olga talked about, we're very comfortable with that, meaning that we own less banks today. If the quality remains fine and the share prices come back, that's when we'd look to reinvest. But at current prices, we just think they're a bit stretched.
Okay, thanks. So a question here, sort of what is the cash ratio of the portfolio? And you might also discuss how that interacts with the level of debt that we have within the portfolio.
Yeah, sure. So naturally, Djerri will have a net gearing level. So we use debt facilities to manage the timing of the cash inflows and outflows, particularly with the option activities, but also to compensate a bit for the drag we might have on our returns from writing call options. And that's been the case for the last four years. This year is different because the call option exercises that Olga talked about and us choosing not to reinvest all the proceeds meant that we've built up a cash position. So it's quite different at the end of this financial year than in previous years, and shareholders can see that in the balance sheet. So at June 30th, the net cash position was about AUD 33 million.
If you compare that to the portfolio of about AUD 840, you can see that the gearing ratio, or now it's the net cash ratio, is about 4%. It's quite a conservative position. That's really one of the key messages from the portfolio update and the outlook statement is that with the market having the run that it's had and our view on valuations is that we're more prepared now to run a net cash position and be patient in terms of when we reinvest. We think it's quite a good starting position for Djerri at this point in time.
So within the top 20 holdings, we've got Mirabooka, which is one of our, I guess, sister companies within the listed investment company space. The question is, have you considered investing in AFIC and AMCIL, but also any other LICs in the market that you may consider investing in?
Well, I guess the starting point, just that Mirabooka Investments goes back many, many years. I guess the advantage of it for this portfolio is that for those that don't know, Mirabooka is one of the listed investment companies that our team manages. Its focus is on mid- to small-cap stocks. So Mirabooka adds to this portfolio because it gives that exposure to those smaller companies. The performance has been outstanding over the long term. And just importantly, a lot of those returns have come back to shareholders through fully franked dividends.
So it really serves two purposes. It gives us exposure to great-performing smaller companies and provides a very high level of fully franked dividends. So in that sense, it does fit the portfolio. Look, we haven't really focused on buying the other LICs that are in the stable or other LICs listed on the market. We do have AMCIL at the moment, which is sort of our high conviction. Sorry, we don't own AFIC, but we do own AMCIL, which is our high-conviction fund, which trades at quite a large discount. That also gives some exposure to a fair amount of mid and small-cap stocks as well. Again, they're really a function of history. I'd say probably where we sit at the moment, though, the focus is probably more on buying individual stocks rather than other LICs.
But you never say never because we do understand the LIC market very well. We are obviously acutely aware that a couple of these, like Djerri, are trading at unusually high discounts, but it's probably not our focus at this point.
Thanks, Mark. There's a sort of a related question here, talking about the fact we actually have had Mirabooka for quite some period of time. And as it states in the question, it's a good dividend stock with good exposure to mid-caps. Are there any other reasons for this holding, possibly buying at a good discount to NTA? Well, I think if you look at the discount premium chart for Mirabooka, there's very little opportunity to buy at a discount. It does go at a discount every so often, but yeah.
Yeah, but I don't think it's something we'd do.
No, but I mean, as the question states, getting a good dividend yield and a good exposure to mid-caps is the reason we keep holding it.
That's right.
It continues to be an excellent performer. Mirabooka keeps giving us every reason to keep holding it, but it has tracked pretty close to its NTA.
That's right.
So for us, it's just a comfortable hold.
That's right.
A question here about.
Sorry, just jumping in on.
One other thing is just so they're really decisions, though, for our directors because obviously the team are involved with managing those funds. I was giving broad-based observations about how you think about it, but at the end of the day, it's our directors who make those decisions to separate those from the investment team.
So in view of the problems in China, have we got too much invested in BHP? And I guess the other question around that is also, what's our view of the resources sector at this point?
Yeah. No, it's something we're always looking at. We're actually considering buying more. So keeping in mind that we take our resources exposure primarily through BHP and Rio in the large-cap diversified miners. We don't own Fortescue, so I think having a bigger weight in BHP sort of has to be looked at in conjunction with that. So we're quite comfortable at current levels. I mean, the stock's traded largely between sort of AUD 40-AUD 50 over the last couple of years, largely on China sentiment. At the moment, sentiment's negative. Share price is back towards sort of AUD 41, AUD 42. It's looking at a good attractive level for us at the moment. The dividend yield is very good. 5.5% is the expected dividend yield. Obviously, there's more variance with resource companies and their dividends, but I think they're better with their capital allocation.
This is the large-cap resource sector overall, better with capital allocation and more sustainable dividend payout policy than maybe it has been in the past. It's funny, it just looks better value at the moment to us than other parts of the market. Like the dividend yield for BHP at the moment is about 5.5% compared to some other traditional sort of big dividend blue-chip stocks like Wesfarmers and CBA. The dividend yields are down at 3%-3.5%. The quality large-cap resources space is where we're seeing a bit of value at the moment, and we might even look to add more to it.
Thanks, Brett. So sort of ancillary question here. I guess we have got a holding in Mineral Resources. So I guess without trying to predict too much, what the outlook is for the iron ore and lithium prices and the consequent effect on Mineral Resources share price over the next 12 months?
Yeah. We think the share price today, and we bought so for Mineral Resources, we bought our initial stake a little bit above the current share price, but certainly not way above. So we think the assumptions for the iron ore price and the lithium price are much more reasonable kind of with what's implied by the current share price than certainly when the stock was trading a lot higher. And we don't need in fact, if anything, the outlook we've got for the iron ore price has it drifting a bit lower over time. So we're not expecting it to go up significantly. That's not what the investment case is based on. And similarly with the lithium price as well. And one of the key attractions with Mineral Resources is that they should have very strong production growth over the medium term.
So it's like most of the growth that we expect to get from the stock in terms of value, including dividends, should be more from production growth rather than commodity price growth. So it's a bit more in their control. So I think that's a good starting point. But in line with that, backing management's absolutely the key, particularly while they're running a slightly higher net debt position than they have before.
Thanks, Brett. I'll pose a question to you, Mark. I mean, will there be a share purchase plan this year?
We'll look at their decisions that the board makes, but just some settings. I mean, we do like share purchase plans. We certainly do feel like we've got the capacity to make the company larger but still be able to manage our positions and do what we need to do. And the advantages of making the company larger is that it reduces the MER, and I think we all would like lower costs. But I guess we have to do it when we see opportunities. And at the moment, with the stock trading at such a large discount, which is frustrating, it does make it difficult to do a share purchase plan. But certainly, it's something we'd look at. It's about where the price is against NTA, but it's also about where we see opportunities in the market as well.
At this point, the way we're positioned, we've actually got a little bit of cash. We've got a bit of investing to do first. There's a couple of things out there that suggest it's certainly not in the short term, but it's something that we continue to monitor.
A question here about what is the total cost of the option activities by finance and labor relative to option income generated compared to capital growth forgone. So there's many parts to that question.
Yeah. It's an interesting question. With regards to finance costs, options aren't financed by borrowings. When we do borrow money, it will be to increase the equity holdings. So if we then look at the labor, as I mentioned before in the MER, it is a part of the cost. We operate as a whole team across all four LICs. So it would be very difficult to split out particularly what that is. All I can tell you is that Djerriwarrh has probably got a higher staff level of attention because of that level of option underwriting. But the other companies also have option underwriting activities, but not to the same extent that Djerriwarrh has. The balance that you talk about between capital forgone and option income is one that keeps Brett awake at night.
It is how do you balance that extra yield that you are getting through options on the understanding that you will be called away if those options are exercised. And let's be clear, the options that we write, we sell options. We get cash for those options, and that gives the purchaser, the people who give us that cash, the ability to buy the stock at that particular price. So we're not what they call naked. There's no extra risk on that. All it means, as the questioner has identified, is that we lose a bit of blue sky if they're called away. But we believe that the way the portfolio is managed, the dividend yield that we're able to get more than makes up for that. And over the last one year, and as Mark pointed out, the four years, actually, it's been balanced with pretty good returns.
I would say, as somebody who isn't actively involved in that area of the business on a day-to-day basis, they're doing a pretty good job.
Thanks, Andrew. I mean, in terms of the cost-benefit of it, what we do with the options activity requires very active management. It's daily active management, and it requires a dedicated team. And we think to do it all within a total MER, like Mark mentioned, of 0.42% is very attractive given the uniqueness, I guess, of this product and the enhanced yield it's delivered. So that's the benefit of being the scale within the group, but also being internally managed. There's no fee leakage. Probably a couple of questions are related. So did you see a pullback in the market? If so, what is your expectation for how long? And I guess the answer to your question to this is, how do you consider the effect and impact of any global instability on the Australian market?
Okay. Well, look, I can tell you with a great deal of confidence that I have no idea where markets are going, something I was taught from day one. It's very hard to pick movements in the short term. Look, Brett did touch on, though, if you do look at the Australian market on a, I mean, a 30-year chart, and Brett's touched on this, price to sales, price to book, they are at elevated levels. There can be a bit of a so what in that, but it does make us a little bit cautious. We do have a bit of a sense that economies are slowing. Our market, or global markets, took off more recently with a view that the next view in the U.S. was going to be cutting rates. And the short-term view is that's great for markets when rates are being cut.
What doesn't get considered is why do they think rates will be cut? It's because inflation is slowing and economies are slowing. You get a sugar hit from that view, but you always run the risk, though. It doesn't mean the profits are going to slow. Ultimately, in the long term, share markets follow profits. With that, we are a bit cautious. Hence, we're running with a bit more cash. As to how long you expect pullbacks and how long they last, that's impossible to try and predict. As I said, we don't try and predict movements. We look for value. When we see value, we want to be investing in quality stocks.
We need to be able to stand back and look at our portfolio and say: A re we holding good companies? When we see good companies at attractive prices, we look to buy them. The portfolio essentially looks after itself without trying to predict where markets are going.
Yeah. And Brett, I guess you got the option overlay happening in terms of how you position the book in the context of where the market's sitting.
Yeah, definitely. And hopefully, you can see how it ties in with our outlook comments and how we're positioned at the moment. Like with Mark saying, we don't know how long it'll go on for and the like, but what we're doing is being selective with how we reinvest and absolutely active with options management during that time.
Okay. We've still got a little bit more time for questions, so please provide some if you have them. This question is, how is the cash generally invested? So where's our liquidity held?
Generally, as we talk about, it's unusual for Djerriwarrh to have this level of cash. So it's a question of when the interest rates are very low. It's a question of risk-reward. We have in the past invested in cash management trusts, but then you've got to look through those cash management trusts and be comfortable with the risk rating of the underlying securities. Currently, at the moment, as you'll be able to see from the accounts that have been released today, with the interest rates as they are, we've actually got our cash sitting in overnight deposits with CBA. And the reason why they're overnight is we have cash as liquidity because on a day-to-day basis, we don't know how much we will be investing in the markets in any one time. The opportunities are always there to invest when needed.
So we'd like to have the cash available to do it rather than be restrained by having to call back a term deposit or have cash out for longer. So that's where it is at the moment. But on that basis of risk-reward, that's how we look at it.
Thanks, Andrew. Question here, Mark, about given where the share price is trading to the NTA, obviously at a reasonable discount, are there any thoughts of a share buyback?
Absolutely. We have a buyback in place. It's a facility. Yeah. We just haven't utilized. We've come very close over the last, certainly over the last six months. And it's probably still at that level where it's quite close. Look, our preference is that the market sorts out this discount. But if we start getting to some extreme levels, we would have no problem buying back the stock. But we just haven't done it at this point, but we've been close.
Thanks, Mark. That's, I guess, something the board has to look at and make a decision on from time to time. Question here. Obviously, we do have a goal to pay fully franked dividends. The question is, how sustainable do you believe the franking will be? Obviously, we do have over a year's worth of dividend reserves.
Yeah. Well, look, that is the objectives. And so we generate franking credits through two sources. One is the dividends we receive from the companies we invest in. And I'll come back to that in a sec. And then every time we make a capital gain, we have to pay tax. And that also generates franking credits. And both are available for us to source to pay our dividends. So I think we're feeling comfortable with that at the moment. But going back to the dividends we receive on companies, I mean, certainly the structure of the Australian market has been changing over time. There's a lot of the newer, if you look at healthcare stocks, technology stocks, growth stocks in general, tend to be paying lower dividend yields. And in some cases, have no franking.
Even stocks like James Hardie, which is really a U.S.-based stock, went to the levels of actually cutting the dividend to zero, which fits in more with a sort of a U.S. model for running a business. So if we continue to get more of those types of companies in the market, there's some prospects of less franking coming into the portfolio. But I think we're okay at the moment. I guess the other thing about the franking is we want the current system to remain where we do get recognized for the franking credits, which is the tax that companies have paid. And we get to distribute that back to our investors. So we're always on the lookout to ensure that this system is maintained. We think it's a fantastic system. It's a great for very fair system. It's a great for investors.
We prevent the double taxation of dividends.
That's the whole point, is that avoid double taxation, which is the principle of it. So that piece we need to follow very closely to ensure that franking credits continue.
Question here about, have we done the analysis of the new competitive threat from Africa to the Pilbara iron ore producers?
Yeah, sure. The main one is the Simandou project in Guinea that Rio Tinto is involved in. It's a medium-term impact on supply. I think roughly that project, in that early days, looks like being roughly about 8% of global iron ore supply. So while that mightn't sound like a huge number, it's enough to definitely impact the price given what it will do to supply demand. It's well known, though. It's one of the main reasons why the iron ore price is expected by most, let's say the market, and by us to drift down over time, like I mentioned in response to an early question. So that's, I think, one of the key factors why over time the iron ore price is expected to drift lower from current levels.
Albeit, it's worth pointing out, I think that despite this and many other things, like with the impacts in China and the like, that the iron ore price has been surprisingly resilient over recent years. Even despite that, our base case isn't that it goes up over the long term.
Thanks, Brett. So a question here about the share price, which clearly has come down since 2014. So it was around AUD 4.75 then. Now it's AUD 3. I guess, is this a reflection of what we believe the wealth creation has been for Djerriwarrh?
Yeah. Look, I think that's a very good question because it goes back to, I guess, one of the slides we showed at the start, which is where is the share price compared to NTA? And if we go back to that period, the share price was trading at a substantial premium to the NTA. We were very uncomfortable about that. And we continued to put that chart in, which showed premium discounts. And certainly made people aware that at that point, the share price was trading well above fair value. So if you buy in periods when the share price is trading well above NTA, we have concerns that investors will have a bad experience. But it's completely flipped around. So when you go from a large premium to a large discount, that's quite a big move in the share price.
But it doesn't really reflect what the NTA performance has been. So also, the other thing about when you look at share price alone, you're ignoring the dividends and the franking. Now, a big part of Djerriwarrh's very large part of the returns we get from Djerriwarrh is through the dividends and the franking. The actual movement in the NTA is fairly low. We want to get some over time. And so you really have to look at total returns, including dividends and franking, but also be aware of the movements in the share price around that NTA.
Thanks, Mark. Question here. Again, really focus on how we manage the portfolio. When interest rates are where they are at and holding a cash position and lower option positions, is there a view as to minimizing the active option strategy relative to increasing going long bias, which means obviously holding stocks, not writing options?
Yeah, sure. No, the level of interest rates isn't a huge determinant of the option writing activities. The premium we get for writing options is more a function of volatility levels rather than interest rates. We think that the settings are right for the option writing activities rather than necessarily being influenced by moves in short-term interest rates. The more important thing is our target call option coverage across the portfolio of 30%-40%. Then within that, being very active in terms of how we manage it based on share price moves and our views on quality, and as well as that, writing put options in selective cases. They're the more important things in generating the target option income yield that are the big driver of the enhanced yield rather than necessarily having to react to changes in interest rate levels.
Thanks, Brett.
Just on the option side.
No, that's fine. I suppose it's in the context of actually writing less options and then actually having more of a long bias within the portfolio as well.
Yeah. Yeah.
Okay. Look, I'll start to wrap it up soon. So if you have any more questions, please send them through now. Are you looking to add any new stocks to the portfolio? And how many stocks do you aim to own within Djerriwarrh?
Yeah. I would think the current stock numbers are about the right level. There's no perfect level. We want to be diversified enough, but not too diversified. And so 47 stocks at the moment certainly feels right for about now. We've got some stocks, as in new stocks for the portfolio, under consideration. So we'll see. One thing we're probably just waiting for is the upcoming results season to see what gets produced there. And then there's some stocks under review in the portfolio that might be sold, which is kind of business as usual. That's always going to be the case in the portfolio. So if we said over the medium term from here, I don't think the stock numbers will move hugely.
Somewhere around that 45-55 is probably a reasonable expectation and feels like about the right level for us again to generate the returns, the dividend income, and the option income that we need to get the enhanced yield.
Okay. Thanks, Brett. And Olga. There doesn't appear to be any more questions. I think Mark will wrap it up there.
Okay. Well, thank you, everyone, for listening in. These meetings are really important for you and for us. It's your company, shareholders and the company. And we want to make ourselves available, the whole team, to talk through the business, but importantly, open ourselves up for questions. And our next or the next opportunity to hear from the team will really be through the AGM in October, which will be a webcast. So please join that and listen to what's going on in the business. We appreciate the questions. And obviously, we intend to try and get that performance going. And hopefully, we'll see that discount close at some point. So thank you for listening.
Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.