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Argo outperforms market boom but warns of potential lockdown pain

Business

Commentary from major listed companies as reporting season gets into full swing this week will provide valuable insights into the business impact of lockdowns in the eastern states, according to Adelaide’s Argo Investments.

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The listed investment company was among the first ASX top 100 firms to report their 2020-21 financial results yesterday in what has been a big 12 months for the Australian share market.

Argo announced a financial year profit of $174 million and a full-year dividend of 28 cents per share.

This was slightly down on the $199.5 million profit and 30 cents full-year dividend it reported in 2019-20.

But unlike FY20 when its share price lost ground, Argo’s share price grew strongly in FY21, rising 28.6 per cent to end the financial year at $8.93.

Since then, markets have continued to climb, with Argo shares recently achieving a new record high of $9.85.

Managing director Jason Beddow told InDaily that FY21 was the mirror image of the previous year.

“The first half of last year was pre-COVID and the second half was right in the guts of COVID whereas this year the second half was a lot stronger and the share price and the NTA (net tangible assets) showed that,” he said.

“We would look back and say if you’re an Argo shareholder who has kept their shares through the pandemic then it’s a pretty good outcome considering where the world was in May or August last year.“

However, the company said the latest round of lockdowns in the eastern states could slow market momentum.

In its ASX statement yesterday it said with the corporate financial reporting season this week getting into full swing, commentary from many companies would likely give valuable insights regarding the business impacts of lockdowns on the eastern seaboard.

Beddow said domestic companies would be the most impacted, depending on what their business was.

He said some companies had already withdrawn their guidance for future quarters as a result of lockdowns and ongoing uncertainty.

“Because the market is at all-time highs, we’re more cautious than when the market was 20 per cent lower,” Beddow said.

“The short-term pathway in Australia is pretty uncertain now … potentially Victoria and NSW could be locked up for the next couple of months until we get to some magic level of vaccination rates.

“The flipside is that balance sheets look good and the big end of corporate Australia looks like it’s in pretty good shape apart from the obvious ones like Sydney Airport or someone like that.”

Argo’s investment performance, measured by NTA return after all costs and tax, was +28.5 per cent, compared to the S&P/ASX 200 Accumulation Index return of +27.8 per cent over the year.

“With the economy recovering considerably faster than expected, Australia’s share market delivered one of its strongest financial year performances in decades,” the company said in its statement to the ASX yesterday.

“Investor optimism was supported by a combination of factors including record-high commodity prices and the government’s continued commitment to fiscal stimulus which has led to extraordinary levels of excess liquidity.

“Meanwhile interest rates remain at all-time lows, enhancing the appeal of equities relative to various other asset classes.”

Argo’s dividend represents a fully franked yield of 4.3 per cent based on its closing share price on July 31.

Over the course of the financial year, Argo purchased $350 million worth of investments and received $358 million from portfolio sales and takeovers.

The total number of stocks held increased slightly to 90.

These included Downer EDI, Newcrest Mining, Suncorp Group, Sydney Airport and The Star Entertainment Group while sales included banks ANZ and CBA and Boral, which has been subject to a takeover bid by Seven Group.

Founded in Adelaide in 1946, Argo has grown to be one of the ASX’s top 100 companies, investing over $6.5 billion on behalf of more than 94,000 shareholders.

“Over the medium to long-term, our view is more positive as the nation’s vaccine roll-out gathers pace. The federal and state governments have continued to demonstrate a willingness to provide targeted economic assistance to cushion the impact of lockdowns and the Reserve Bank of Australia maintains its supportive stance on monetary policy,” the company y said.

“As we enter the new financial year, Argo’s business remains resilient, with a well-diversified portfolio of quality stocks, a strong balance sheet and no debt.

“We continue to take a consistent and conservative approach to managing the portfolio, remaining faithful to our investment philosophy which has served us well for 75 years.”

Argo shares were down 8 cents for the day following yesterday’s announcement, closing at $9.76.

With a market capitalisation of $7.13 billion, Argo was ranked No.2 in InDaily’s 2020 South Australian Business Index of the state’s top 100 companies.

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