AMCIL Limited (AMH) Earnings Call Transcript & Summary

My name is Geoff Driver, General Manager, Business Development and Investor Relations for AMCIL Limited. I have with me Mark Freeman, the CEO and Managing Director; and Kieran Kennedy, the portfolio manager responsible within the team for AMCIL.

Mark, we've just announced our full year results for the financial year 2022. What did you see as the key highlights to that result?

Thanks, Geoff. It was a strong year for profit growth. The full year profit was up 19.8% from last year to $8.1 million. This increase in profit was driven by higher fully franked dividends received from the companies we invest in. The ordinary dividend was maintained at $0.025 per share, noting we also paid a $0.01 ordinary interim dividend for the first time. I should note, last year, we paid a $0.02 special dividend which was not reported this year as we felt it was best to keep some funds for investment given where the market currently sits. The MER was down to 0.52% with no performance fees, which is very low for a high conviction fund like AMCIL.

So Kieran, the portfolio performance for AMCIL was behind for the year after being well ahead for the first 6 months of the period given the volatility that we experienced in the second half of the year. What did you see as the main factors driving that performance for the financial year?

Thanks, Geoff. So the significant catalyst for change in conditions in the market was really around the building inflation that we really saw break out in early calendar 2022. The conditions for this really go back to COVID. So the post-COVID period saw a very significant stimulus put in place across global economies, which was very supportive for demand. On the supplier side, supply chains are constrained, and labor absenteeism was making it really hard for products to be delivered to meet that demand, which saw our inflation really pick up quite quickly. Adding to that, obviously, the invasion of the Ukraine by Russia added to those pressures again. We saw central banks wake up to this, really. I think they've been a bit slow to respond initially. They needed to sharply raise interest rates to set the minimal appropriate level for the conditions that were prevailing. And in response to that, equity markets looked at valuations and had to factor in a higher interest rate in valuing companies. How that impacts AMCIL is we're a long-term investor, so really in the long term, our belief is that the key driver of share price performance is earnings growth. So in our portfolio, we have a natural skew to companies that are going to deliver superior long-term earnings growth. Those companies were hit somewhat because of these valuation recalibrations in the market. And at the same time, we saw cyclical companies like energies, energy and commodity stocks where commodity prices were quite buoyant. They did well in the market, and we're underrepresented there. Importantly, while that's behind, as you said, in the 6-month period, over the 3-year period, which better picks up the sort of to and fro of some of these conditions, the portfolio is still outperforming the index.

Thanks, Kieran. So how do you look to manage the portfolio in that sort of environment that we had?

Yes. So it's always a balance, Geoff. At our core, we are long-term investors, so our assessments are always looking at the best alternatives for our capital on a long-term view. But we were aware of some of the building valuation risks in the market. So we did take the opportunity to exit a few positions like Xero, NEXTDC and Seek. They're good companies, but in those instances, we felt valuations were just building to a point where the risks were too high in those companies. We also trimmed some of our favorite stocks that have done very well, things like Objective, ARB, Reece, just again to reflect some of that risk. Redeploying that capital, we moved into some new companies like Nanosonics, Domino's Pizza. And again, in following valuation environment, it's a little bit hard to pick the bottom of these things, but we did buy them on the way down and feel they'll be good stocks for the portfolio in the long term. And the other thing that's worth noting is we did switch one of our major banking exposures, moving on from the NAB in favor of Westpac. And really there, that was a relative valuation call for the medium to long term.