Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Investor Presentation (December 2019)
33 slides from Australian Foundation Investment's investor presentation, Dec 2, 2019
Slide 1: NZ Information Meetings – Presentation
2 December 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 NZ Information Meetings – Presentation Dear Sir / Madam Please find
Slide 2: New Zealand Shareholder Meetings December 2019
For personal use only New Zealand Shareholder Meetings December 2019
Slide 3: Disclaimer
For personal use only Disclaimer Australian Foundation Investment Company Limited and its subsidiary Australian Investment Company Services Limited (AICS), AFSL 303209, their related entities and each of their respective directors, officers and agents (together the Disclosers) have prepared the info
Slide 4: Financial Results
For personal use only Financial Results NZ Shareholder Meetings December 2019
Slide 5: Financial results: special dividend paid with interim dividend
For personal use only Financial results* 8 special dividend paid with interim dividend Management expense ratio of 0.13% *in Australian dollars and cents NZ Shareholder Meetings December 2019
Slide 6: Income per share in 2018/19 was high because of one-off factors
For personal use only Income per share* in 2018/19 was high because of a number of ‘one-off’ factors 2018/2019 2017/2018 Note expenses and tax equate to approximately 2 cents per share for both financial years *in Australian cents NZ Shareholder Meetings December 2019
Slide 7: Our Approach
For personal use only Our Approach NZ Shareholder Meetings December 2019
Slide 8: How we operate as a Listed Investment Company
For personal use only How we operate as a Listed Investment Company Shareholders Disciplined own the investment Transparent Company approach Very low cost – Benefits of a Tax effective no performance closed end fund fees NZ Shareholder Meetings December 2019
Slide 9: Dividends are a key driver of shareholder returns in Australia
For personal use only Dividends are a key driver of shareholder returns in Australia NZ Shareholder Meetings December 2019
Slide 10: Effective yield on AFIC's average cost base in Transurban
For personal use only Effective yield (in orange) on AFIC’s average cost base of $6.18 in Transurban highlights the benefit of being a long term investor having retained capital working for you NZ Shareholder Meetings December 2019
Slide 11: Market Settings and the Portfolio
For personal use only Market Settings and the Portfolio NZ Shareholder Meetings December 2019
Slide 12: Market and key sector performance – year to October 9
For personal use only Market and key sector performance – year to 31 October 2019 Includes dividends NZ Shareholder Meetings December 2019
Slide 13: Relative portfolio performance – per annum returns to October
For personal use only Relative portfolio performance – per annum returns to 31 October 2019 NZ Shareholder Meetings December 2019
Slide 14: Recent AFIC portfolio performance relative to the index
For personal use only Recent AFIC portfolio performance relative to the index • Underweight REIT’s – risk of capital loss with share prices well above asset backing • No exposure to Gold sector – not a typical AFIC stock: short mine life, volatile price, limited dividends • Underweight Technology se
Slide 15: We are currently facing heightened volatility in equity markets
For personal use only We are currently facing heightened volatility in equity markets • Trade Wars • Brexit • Middle East tensions/conflict • Weakening manufacturing data globally • Falling bond yields – unchartered territory • Equity valuations elevated against long term averages However this uncer
Slide 16: AFIC offers a diversified portfolio of quality stocks
For personal use only AFIC offers a diversified portfolio of quality stocks What we look for: • Sustainable competitive advantage – unique assets producing strong returns on capital • Strong management team and board • Recurring, predictable earnings are preferred • Financial strength – strong cash
Slide 17: AFIC portfolio
For personal use only AFIC portfolio Portfolio attributes: • Diversified portfolio of quality holdings • Low turnover Portfolio positioning: • Reduced number of stocks with capital reinvested in quality companies • Increased exposure to preferred companies NZ Shareholder Meetings December 2019
Slide 18: Holdings sold – total holdings down from 85 to 71
For personal use only A number of holdings have been sold – total holdings down from 85 to 71 over the past 12 months Concern about sustainable competitive advantage. Low return profile. Concern about sustainable competitive advantage. Concern about sustainable competitive advantage. Over geared bal
Slide 19: Using proceeds to increase exposure to preferred companies
For personal use only Using proceeds to increase exposure to preferred companies Competitive advantage in growing green energy opportunities with strong ROE and balance sheet. Strong management team, high returns, lowest cost, good balance sheet, investing for future earnings growth, strong growth p
Slide 20: Using proceeds to increase exposure to preferred companies continued
For personal use only Using proceeds to increase exposure to preferred companies continued Very strong market position with broadening distribution network and sustainable competitive advantage. Strong balance sheet. Attractive monopolistic assets which generate attractive returns. Opportunities to
Slide 21: Examples of what we look for – Wesfarmers
For personal use only Examples of what we look for – Wesfarmers • Market leadership position in Australian and New Zealand hardware • Strong management team • Consistent earnings growth • Strong balance sheet post the demerger of Coles • Strong returns well above the cost of capital Source: FactSet.
Slide 22: Buying opportunities in quality companies – James Hardie Industries
For personal use only Recent volatility has provided buying opportunities in quality companies – James Hardie Industries • Leadership position in fibre cement exterior cladding market in the US • Fibre cement siding only represents 20% of the siding market • Strong cash flow reinvested back into the
Slide 23: Buying opportunities in quality companies – National Australia Bank
For personal use only Recent volatility has provided buying opportunities in quality companies – National Australia Bank • Maximum negative news around the Royal Commission • Stock was exhibiting value, yielding 6.7% fully franked • However earnings growth likely to be low in the short term • Long t
Slide 24: Selected 'Nursery' holdings
For personal use only Selected ‘Nursery’ holdings 1.5% of the portfolio 0.8% of the portfolio 0.4% of the portfolio • Dominant position in • Leadership position in • Growing leadership position in logistics accounting software strongly growing data market • Moorebank opportunity • Cloud based techno
Slide 25: Top holdings as at October 2019
For personal use only Top 20 holdings as at 31 October 2019 Rank Company % of Portfolio 1 Commonwealth Bank of Australia 8.0% 2 CSL 6.9% 3 BHP Group* 6.3% 4 Westpac Banking Corporation 5.7% 5 National Australia Bank* 4.7% 6 Transurban Group 4.4% 7 Macquarie Group 3.7% 8 Wesfarmers 3.5% 9 Australia a
Slide 26: Top holdings as at October 2019 continued
For personal use only Top 20 holdings as at 31 October 2019 continued Rank Company % of Portfolio 11 Rio Tinto 2.3% 12 Amcor 2.3% 13 Sydney Airport 2.2% 14 James Hardie Industries 2.0% 15 Brambles 1.9% 16 Woodside Petroleum* 1.9% 17 Telstra Corporation 1.8% 18 Oil Search* 1.7% 19 Ramsay Health Care
Slide 27: AFIC's share price can trade at a discount to NTA
For personal use only In strong markets AFIC’s share price can sometimes trade at a discount to NTA – at end October 2019 the premium was 0.5% NZ Shareholder Meetings December 2019
Slide 28: Closing Remarks
For personal use only Closing Remarks NZ Shareholder Meetings December 2019
Slide 29: Asset prices are at extremes
For personal use only Asset prices are at extremes • Gold price is very high • Bond prices are elevated • US and Australian equity markets close to all time highs • Equity valuations are extreme for many stocks in the Australian market NZ Shareholder Meetings December 2019
Slide 30: US is still holding up the global economy as others weaken
For personal use only US is still holding up the global economy as others weaken J.P. Morgan Forecast Revision Index Cumulative % point revision to rolling forecast of GDP (Q-1, Q, Q+1, Q+2) Source: J.P. Morgan. NZ Shareholder Meetings December 2019
Slide 31: Heightened volatility in equity markets
For personal use only Heightened volatility in equity markets NZ Shareholder Meetings December 2019
Slide 32: A very strong portfolio of high quality companies
For personal use only We believe we have a very strong portfolio of high quality companies exhibiting strong returns on invested capital, that have strong balance sheets that reduce risk and that provide strategic flexibility for these businesses. NZ Shareholder Meetings December 2019
Slide 33: Australian Foundation Investment Company
AUSTRALIAN FOUNDATION INVESTMENT COMPANY
Australian Foundation Investment Company — Investor Presentation (December 2019) on 6ix