AMCIL Limited (AMH) Earnings Call Transcript & Summary

Welcome. My name is Geoff Driver, General Manager, Business Development for AMCIL Limited. I have with me today Mark Freeman, who's the CEO; and also the Portfolio Manager for AMCIL. Welcome.

AMCIL just released its half year results. The profit was up, and we maintained the interim dividend. The portfolio performance was below the market for the half and for the 12 months. What are your views on the market and why is it running so hard? And what were the particular reasons why AMCIL underperformed over the short-term period?

Yes. So it was a pretty dramatic 12 months for AMCIL. It's probably the biggest discrepancy from the market that I can remember, but that was after 2 pretty strong years previous to that. And it's about some of the cycles that are occurring in the market. Look, we always said for AMCIL, it's a high conviction fund. It's more about being a long-term investor in quality businesses and what we call structural compounders. So we're trying to, I guess, be alongside businesses that are growing more organically, that have strong competitive positions that we think can grow profits over the long term. And we're sort of more riding the ups and downs of share prices. We do some activity when prices get too extreme, but we tend to be more of a long-term investor. So I guess, over the last 12 months, there's been a significant, what I call, derating in some of those share prices. They were looking a bit full 12 months ago. But if you look at Macquarie Technology, CAR Group, Goodman Group, ResMed, CSL, the list goes on, these companies had a significant pullback in a year when you've had extremely strong performance out of the resource sector and particularly the mid- and small-cap miners, gold companies, and lithium businesses. If you go through all that sector, you've had performances up 50% to 100%. So that's typically not our style. That tends to be more what I call cyclical part of the market. It's great if you can trade it, you've got to know when to get in and when to get out. But when that sector is running hard, yes, we will have a period of underperformance, but we've had 2 things happen. It's run hard, and you've had a bit of a derating in what I'd call quality structural compounders. But we want to stay true to what we said we do, which is stick with the quality. What we're seeing now is some better value appear in that quality space.

So in that context, what changes did you make in the market over the last 6 to 12 months?

Yes, it's probably more in -- I mean, we will go into some of the larger caps when we see value. So we were actually seeing some pretty good value in Woolworths around sort of that $26, $27 mark. It's back over $30. We think it's a great footprint. So that looked pretty good. We added some Telstra over the last 12 months or so. We think the dividend yield looks good. The earnings growth looks good. And so we will play those large cap stocks alongside our sort of more mid-cap smaller growth businesses.

I guess one of the other reasons that there was an underperformance was we're not really exposed to the banking sector. You had some banks, but you decided to lighten those off over the last 12 months.

Yes. So having said, we've had this pullback in quality compounders, but the banks are still sitting up there at pretty high PEs. We did have some banks a couple of years ago, where you could see a bit of value, but we're now out of banks and you're starting to see a little bit of retracement. But the PEs, when you look against very long-term trends, they are still pretty elevated. The yields are not as attractive as they used to be. We have some concerns about the ability to grow profits. And so banks has held up pretty well. Resources have held up well. They are the 2 areas we're not in. But we think looking forward from here, I think the commodity piece is starting to mature a bit. Banks still look expensive, and now we're seeing better value in the stocks that we hold.

I suppose one of the advantages of being a listed investment company in the context of realizing those capital gains, we do can build up franking credits and reserves for dividends and AMCIL has quite a high yield at the moment given we have been paying out special dividends. What are your thoughts about the dividend policy with AMCIL?

Yes. Well, look, as I said, capital gains, we have to pay tax, realizes franking credits, and we can pay those out. We typically do keep a little bit for a rainy day. But once we get beyond that, very happy to get franking credits back to shareholders, and that will usually come in the form of special dividends are the way we often use that.

You talked about the quality of the portfolio. I mean, we got another 6 months to go in this financial year. And how do you see the portfolio placed and expectations for the next 6 to 12 months?

So our interest is in more how the company is performing rather than sort of the share prices moving up and down. And as we go into this reporting season, that's our interest. How are the businesses going? Do we still think the long-term prospects are there? Do they still have the ability to grow? And there's a certain fear going through some of our stocks around AI as well. So interested to see what the companies say about that. But these cycles that we have at the moment feel stronger and more powerful than what they did in the past. So gold is still running. It feels pretty hot at the moment. And so there's still a bit of concern around tech stocks, for example. So look, there might be a bit more to play out. But what we're trying to do is understand the prospects for the business and try and work out what's just fear and what's real. But if we think the outlook is good, then we'll stick with these quality stocks.

Mark, thanks for your time.

Okay. Thanks, Geoff.