Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Investor Presentation (March 2019)
42 slides from Australian Foundation Investment's investor presentation, Mar 18, 2019
Slide 1: Information Meetings - Presentation
18 March 2019 For personal use only The Manager ASX Market Announcements Australian Securities Exchange Exchange Centre Level 4 20 Bridge Street Sydney NSW 2000 Electronic Lodgement Australian Foundation Investment Company Limited Information Meetings - Presentation Dear Sir or Madam, Please find at
Slide 2: Shareholder Meeting March 2019
For personal use only Shareholder Meeting March 2019
Slide 3: Disclaimer
For personal use only Disclaimer Australian Foundation Investment Company Limited and its subsidiary AICS (AFSL 303209), their related entities and each of their respective directors, officers and agents (together the Disclosers) have prepared the information contained in these materials in good fai
Slide 4: Our Investment Approach
For personal use only Our Investment Approach Shareholder Meetings March 2019
Slide 5: AFIC is a long-term investor in a diversified portfolio of quality companies
For personal use only AFIC is a long-term investor in a diversified portfolio of quality companies Shareholder Meetings March 2019
Slide 6: Dividends are an important part of investor returns in Australia
Dividends are an important part of investor returns in Australia For personal use only – 10 years to 28 February 2019 Shareholder Meetings March 2019
Slide 7: How the AFIC portfolio is tracking against the Index
How the AFIC portfolio (including benefit of franking) is For personal use only tracking against the Index – 10 years to 28 February 2019 Assumes the reinvestment of AFIC dividends and an investor can take full advantage of the franking credits. Shareholder Meetings March 2019
Slide 8: Financial Results
For personal use only Financial Results Shareholder Meetings March 2019
Slide 9: Half-year financial summary – December 2018
For personal use only Half-year financial summary – 31 December 2018 Shareholder Meetings March 2019
Slide 10: Major components of income – half-year to December 2018
For personal use only Major components of income – half-year to 31 December 2018 Half-Year Half-Year 2018 2017 $’000 $’000 Dividends and distributions 246,708 150,792 Net gains/losses on trading portfolio 4,187 -6,553 Includes recognition of a dividend because of Coles demerger from Wesfarmers and R
Slide 11: Ending refundability of franking credits – we continue to act on shareholders behalf
For personal use only Ending refundability of franking credits – we continue to act on shareholders behalf • AFIC has provided a template letter on its website for shareholders to write to their parliamentary representatives. • We have engaged through various industry groups to lobby on your behalf.
Slide 12: Shareholder survey refundability of franking credits – your response
For personal use only Shareholder survey refundability of franking credits – your response A strong response with 14,362 replies received. 85% of respondents negatively impacted and dependent on franking credit refunds. 79% of respondents retired or approaching retirement. Shareholder Meetings
Slide 13: Market Settings
For personal use only Market Settings Shareholder Meetings March 2019
Slide 14: The total return of the ASX has been volatile
The total return of the ASX 200 has been volatile – 12 months For personal use only to 28 February 2019 Shareholder Meetings March 2019
Slide 15: Growth sectors and commodities strong, banks at the other extreme
With some growth sectors and commodities very strong, banks For personal use only at the other extreme – 12 month returns to 28 February 2019 Shareholder Meetings March 2019
Slide 16: Valuations have moved back toward the top of the long-term range
Valuations (price/earnings ratio) have moved back toward For personal use only the top of the long-term range Source: FactSet Shareholder Meetings March 2019
Slide 17: Profit margins still well above the long-term average
For personal use only Profit margins still well above the long-term average ASX 200 EBIT Margin (medium) Shareholder Meetings March 2019
Slide 18: Returns and the Portfolio
For personal use only Returns and the Portfolio Shareholder Meetings March 2019
Slide 19: Relative portfolio and share price performance, including franking
Relative portfolio and share price performance, including For personal use only franking – per annum returns to 28 February 2019 Shareholder Meetings March 2019
Slide 20: Share price trading close to net asset backing at end of February 2019
For personal use only Share price was trading close to net asset backing at end of February 2019, down from a large premium 10 years ago 0.2% Shareholder Meetings March 2019
Slide 21: China remains important to Australia
For personal use only China remains important to Australia Observations on Australia’s largest trading partner Headwinds • Economy slowing – GDP growth ~ 6.0% to 6.5%. • US trade/ tariff concerns. • Environmental pressures, impacting multiple industries. China’s response • Easier credit expected to
Slide 22: LNG demand: Asia driving step change
For personal use only LNG demand: Asia driving step change Environmental pressures are driving a switch from coal usage to gas/ LNG Coal to gas switch is across industry, homes and heavy transport. Chinese gas consumption to treble from 2010 – 2020. China accounts for >50% of global LNG (impor
Slide 23: AFIC resources: focus on quality assets
For personal use only AFIC resources: focus on quality assets Mining investment has slowed considerably with miners focused on profits and balance sheet • Tier 1, long-life, low cost assets. • Long term demand: Iron ore, coking coal (Steel production) – no need for new supply Copper – need more
Slide 24: Large resource companies have changed their approach
Importantly the large resource companies have changed For personal use only their approach ‘Old’ ‘New’ Under ‘old’ increasing commodity prices: Under ‘new’ increasing commodity prices: Large acquisitions Sale of non-core businesses Geared balance sheets Value over volume Progressive divide
Slide 25: Recent surge in iron ore price has driven BHP and Rio Tinto
Recent surge in iron ore price has driven share price of BHP For personal use only and Rio Tinto BHP Iron Ore Price Rio Tinto Source: FactSet Shareholder Meetings March 2019
Slide 26: Terms of Trade for Australia is rising
For personal use only Terms of Trade* for Australia is rising on the back of higher commodity prices * The ratio of the price of exports to the price of imports. Shareholder Meetings March 2019
Slide 27: House prices are weakening
For personal use only House prices are weakening Tighter lending standards Impacting consumption Falling consumer confidence Lower wage growth Compounding the uncertainty in an election year Shareholder Meetings March 2019
Slide 28: Featured holdings – National Australia Bank
For personal use only Featured holdings – National Australia Bank (recent purchase using call options to enhance income) purchased purchased Source: FactSet Shareholder Meetings March 2019
Slide 29: Featured holdings – National Australia Bank (continued)
For personal use only Featured holdings – National Australia Bank (continued) Sector has been under pressure from Hayne Royal Commission which has contributed to a fall in valuations. Quality assets, particularly in SME banking. New Chair with strong banking experience, change in leadership wi
Slide 30: Hayne Royal Commission – Banks
For personal use only Hayne Royal Commission – Banks A better focus on customer outcomes is good for business. Sector will have to cope with permanent step change in compliance costs. Has led to a significant change in management across the sector. Over time the 4 major banks are likely to e
Slide 31: Featured holdings – James Hardie
For personal use only Featured holdings – James Hardie What we like: Leadership position in a growing end market. Self help drivers delivering growth above the market cycle. Higher exposure to renovation market than new housing construction. Cash generative business model. Source: FactSet Sh
Slide 32: Featured holdings – Wesfarmers demerger
For personal use only Featured holdings – Wesfarmers demerger The WES demerger has created two stand-alone ASX20 listed businesses. (New) • Bunnings: • Leading supermarket retailer: Australia’s no. 1 hardware brand – represents 60% of Group EBIT. • 809 Supermarket stores • Kmart: • 899 Liquor stores
Slide 33: Major moves upward in top from February 2018
For personal use only Major moves upward in top 20 from February 2018 4th Largest holding 5th Largest holding 8th Largest holding Share price appreciation, Rights issue, good yield, Buying, good yield, industry leadership, expanding Sydney quality long term assets, international exposure network, qu
Slide 34: Major moves upward in top from February 2018 (continued)
For personal use only Major moves upward in top 20 from February 2018 (continued) 13th Largest holding New to top 20 – New to top 20 – 16th Largest holding 20th Largest holding Buying, good yield, Buying, good yield, NZ company, share quality long-term quality long-term price appreciation, assets, g
Slide 35: Top holdings – February 2019
For personal use only Top 10 holdings – 28 February 2019 Major changes – Rank Company % of Portfolio % as at Feb 2018 1 Commonwealth Bank of Australia* 8.5% 2 BHP* 7.2% 6.1% 3 Westpac Banking Corporation 6.0% 6.7% 4 CSL 5.3% 4.4% 5 Transurban Group* 4.1% 3.2% 6 National Australia Bank* 4.0% 7 Austra
Slide 36: Next holdings – February 2019
For personal use only Next 10 holdings – 28 February 2019 Major changes – Rank Company % of Portfolio % as at Feb 2018 11 Rio Tinto 2.7% 3.9% 12 Woolworths Group 2.3% 13 Woodside Petroleum* 2.2% 1.5% 14 Brambles 2.0% 15 Oil Search 2.0% 16 Sydney Airport* 1.8% Not in top 20 17 Telstra Corporation 1.8
Slide 37: Closing Remarks
For personal use only Closing Remarks Shareholder Meetings March 2019
Slide 38: Recent company reporting season
For personal use only Recent company reporting season • CBA, bank sector: struggling for profit growth, regulatory headwinds. • Resources: very strong cash generation, returning capital to shareholders. • Energy sector: rising cash flows, new major projects moving forward. • Telco’s: evolving sector
Slide 39: Current issues we are focusing on
For personal use only Current issues we are focusing on • Met with 100+ companies in recent reporting season. • Investment team visiting portfolio holdings in UK/ Europe/ US/ China/ HK in coming months. • Themes: Australian credit growth/ housing market. Regulatory scrutiny on financial services
Slide 40: Last years and next years?
For personal use only Last 10 years and next 10 years? An update from our view six months ago Current view ? Shareholder Meetings March 2019
Slide 41: The US market is likely to influence the Australian market
For personal use only The US market is likely to influence the Australian market – where the US market currently sits Low rates – US Govt 10 Year High debt – Total Debt/ Total Equity High valuations – PE Ratio % % Source: FactSet Shareholder Meetings March 2019
Slide 42: Australian Foundation Investment Company
AUSTRALIAN FOUNDATION INVESTMENT COMPANY
Australian Foundation Investment Company — Investor Presentation (March 2019) on 6ix