Djerriwarrh Investments Limited (DJW) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to the 37th Annual General Meeting of Djerriwarrh Investments Limited. Firstly, I know it's a little cozy in here. We were meant to be in the larger room, but we just got advised in the last day or so that there are some more underground drilling work going on in relation to the metro, so they try to position us as far away from that as possible. So hopefully, everyone is comfortable, and we'll certainly look forward to chatting with you over refreshments at the end. My name is Graham Goldsmith. I'm the Chairman of your company. The Company Secretary has confirmed that a quorum is present, so I will now open the meeting. I'd like to begin by acknowledging the traditional owners and custodians from all the lands we are gathered on today and pay my respects to their elders past and present. I'd like to introduce the people here up the front with me. We have our Managing Director, Mark Freeman.

Good afternoon, everyone.

And my fellow nonexecutives, Catherine Brenner. Bruce Brook, Kathryn Fagg, Geoff Roberts and Alice Williams. Nonexecutive Director, Rebecca McGrath, is joining us via video conference due to a long-standing offshore commitment. We also have here our Chief Financial Officer, Andrew Porter.

Good afternoon.

General Manager of Business Development and Investor Relations, Geoff Driver.

Good afternoon.

And Company Secretary, Matthew Rowe.

Good afternoon.

And from our investment team, we have portfolio manager of Djerriwarrh, Brett McNeill; and Assistant Portfolio Manager, Olga Kosciuczyk, from whom we will be hearing soon. We are also joined by other members of the broader investment team, we sat in the front row of the audience, but they're scattered around the room. I would also like to take the opportunity to introduce Kate Logan, partner of the company's auditors, Pricewaterhouse and Coopers who is available to answer questions today on the audit and the preparation and content of the Auditors' Report at the end of the presentation. Today's meeting is being held as a hybrid meeting. Today's presentation has been released to the ASX and made available on the company's website. I'll remind shareholders using the online platform that whilst questions can be submitted at any time, I will not address them until the relevant time in the meeting. [Operator Instructions] Please also note that your questions may be moderated, or if we receive multiple questions on 1 topic, amalgamated together. I now declare voting open on all items of business, and I'll give you a warning towards the end of the meeting before I move to close voting. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded, and you will receive a vote confirmation notice on your screen. Before we move to the business of the meeting, I would like to provide some additional comments. The 2024 financial year has continued to see very good investment performance with the Djerriwarrh portfolio, providing a 13.6% return for shareholders, inclusive of dividends and franking versus the ASX 200 return on the same basis of 13.5%. Importantly, the enhanced yield objective, which we have, was also achieved with the yield on the net asset backing at 30th of June 2024, 1.8 percentage points higher than that available from the S&P ASX 200 when franking is included. The team will provide updated performance figures to the end of August in the investment presentation. 2024 has seen a sustained discount of the share price relative to the net asset backing. This is not something your Board can control in the short term, but we are very conscious of this. And as a result, the group has increased its efforts in communicating with brokers and financial planners, moved to weekly disclosure of the portfolio NTA and begun to buy back some shares in an orderly fashion as and when opportunities arise. The way that Djerriwarrh shares are priced relative to the NTA is impacted by a range of factors, such as the level of interest rates and the broader stock market. But we remain very focused on investing in quality companies that can deliver on our investment objectives over an extended period. This will ultimately drive our share price more than the shorter-term vagaries of the market. Moving on to the business of the meeting. I will take the notice of meeting as read with regard to the minutes of last year's 36th Annual General Meeting that have been signed as a correct record and are available to shareholders for inspection today. The first agenda item of the meeting is the consideration of the financial statements and reports for the year ended 30th of June 2024. As we normally do, we will do this via presentation. After which, I will ask shareholders to comment or to raise any questions, either about the presentation or questions of the auditors if they have questions about the audit. The investment team will run through performance and the positioning of the portfolio and option activity for the year ended 30 June 2024, and we'll also discuss more recent activity since that time. So now it gives me pleasure to hand to Mark Freeman, our CEO, to start the investment presentation.

Okay. Thanks, Graham, and good afternoon, everyone. So just move to the first slide, just a disclaimer to say we're here to talk about what we're doing in the company. We're not giving any advice as such. So just to the agenda, I'll just give you some overviews of the Djerriwarrh objectives. Then Andrew Porter, our CFO, will talk through the key financials, and then Brett and Olga will do a presentation on the portfolio and markets more generally. So just to an overview of Djerriwarrh. Again, Djerriwarrh is one of the largest income-focused LICs on the market. It was established in 1989 and listed on the ASX in '95. So through that, shareholders get the benefit of full transparency from being a listed company as well as the high governance standard delivered by an independent Board of Directors. Those directors also give us incredible insights into business and markets and economies more broadly. Importantly, the shareholders own the management rights to the company. So there's no fee leakage to any third party, no additional fees and no performance fees. Djerriwarrh's part of the broader group of LICs, which manages the Australian Foundation Investment Company, AFIC, AMCIL and Mirrabooka Investments. This supports the broader research approach and scale of operations. So if you look at Djerriwarrh's 2-key objective, which is enhanced yield and sound returns. So we are seeking to give investors a higher yield than what you would get on the market and particularly when you consider franking credits as well. So this chart shows what the dividend yield, when you include franking, is on Djerriwarrh at the net asset banking, which is 6.3%. From the market, you would get a yield of 4.4%. So that's an enhanced yield of 1.9%. Just pointing out, too, that, that is based on the yield at NTA, but noting that at the moment, the share price is trading at quite a discount to NTA. So if you go in and buy shares on the market at the moment, the yield would actually be even higher again at this point. This chart is really important because it really sets the tone of what we're about in Djerriwarrh. So a substantial amount of the total returns that shareholders get from being at Djerriwarrh comes through the frank dividends that we pay out. It doesn't -- Djerriwarrh has never produced significant capital growth, although we are targeting capital growth, but most of the returns come to you through the dividends and the franking credits that we pay out. Just moving to the next slide. When we do consider total returns, the process we use to enhancing yield is through the selling of call options primarily against around 1/3 of the portfolio. What this does, it sells the blue sky or the upside. So when markets are strong, we tend to give away some of that upside to produce high dividends. And so that's the tradeoff that comes through investing in Djerri much higher yields, but we're giving away some of the blue sky. And we think, in particular, that suits super funds. I know that's where I've got my Djerriwarrh shares. It's in my super fund, where I can get full value for the franking credits. So on a 1-year return, we're very pleased with those results, because the call options cap a lot of our upside and for us to do that close to the market is a pleasing result. For those that have been coming to these meetings for a while, you remember that we had a bit of a strategy reset. Going back into the 5- and 10-year periods, we were paying out much higher yields. We had higher option coverage on our stocks, and that [ capped ] too much the blue sky. So we did our strategy reset about 4.5 years ago. We haven't actually put that number on this slide. but that is hitting all our targets in terms of total return over that basis. The 3 is a little bit low, and we're very happy with the 1-year number. Just moving on to the next slide. As we've been discussing at the moment, the share price is trading well below the NTA. I do notice that the share price today actually is $3.21, $3.22. So it has been improving, but still at quite a discount. So we've had a lot of questions as to why that's occurring. We think it's actually a number of factors. One is that, there's -- with interest rates having increased, investors that are looking for yield can now go into fixed interest in term deposits. Obviously, for over the last decade, with interest rates being very low, you essentially got no yield from being -- or having money in the bank. You can now get good yield. We think that's taking away a bit of the buying. Over the last decade, there's been a lot of new LICs come to the market that haven't performed very well that charge high fees and high performance fees. We think we've been caught up in that a little bit. Markets have been very strong. And what we find is when markets are running hot, people want to choose their own stocks rather than go into LICs as well. So there are a few factors that have all come together at the same time that, I think, has created a bit of sort of disinterest in the listed investment company product. When I see this personally, I see opportunity because you can buy $1.00 worth of assets for around $0.92, $0.93 and that always presents value to me. And obviously, as I said earlier, you get the dividend yield based off the price you pay, which is very attractive. I think over the long term, we're hoping this will unwind, but as those that have been watching our announcements, we did start to do some buying back of stock. That's probably, Andrew, about a month or so ago.

Yes.

So we bought some at around $3.05, $3.06, around that mark. But since then, the share price has started to improve, which we're really pleased with. But with that, I'll pass over to Andrew Porter.

Thank you, Mark, and good afternoon, ladies and gentlemen. So just to state, I'm just going to go through the financial year in summary. I'm happy to take questions, of course, at the end of the presentation or indeed over a coffee afterwards. But I should note that Djerriwarrh's Finance Manager, [ Tim Stout ] is here, so if you've got any really tricky questions, I'll direct you towards him. So the net operating result, $40.3 million for the year, marginally up on 2023. We went through these at the results briefing, so I'll be quick on this. Dividends were actually up for the year, which is a good result because dividends from the ASX 200, as a whole, were actually down over 5%. So that result was mainly due to changes in the holdings done by the investment team, but included things like the Newcrest special dividend on takeover, Westpac special and Auckland Airport. It started paying a dividend again. Option income was up from $14.8 million to $16.6 million. And interest rates are a component of option pricing and the income, which we can get from options, so that helped. But the corollary to that, of course, is we were paying higher interest costs on our gearing. Taking down to the next slide, $0.1525 was the dividend. Mark's been through the higher yield, and you can see that over on the other side of 6.5%. There's a small increase in net operating profit per share for the year, and that allowed the Board to increase the final dividend to $0.1525 up from $0.15. So as I said, Brett will be coming on to some more details on the dividend yield, afterwards. And on dividend because we're often asked the question, at the end of June, after the payment of the final dividend, Djerriwarrh had, in reserve, enough franking credits to pay a $0.20 dividend, so we are reserved. That's one of the benefits of an LICs is it can keep reserves of both profits and franking credits to pay out to smooth those dividends when time are tough as it has done in the past, something you won't get through an ETF. In terms of the management expense ratio, this is a ratio of the cost of running the company over the average portfolio size. So 0.42% is $0.42 for every $100 invested. The direct expenses were flat over the year. But as we discussed last year at the AGM, Djerriwarrh's share of the AICS profit, AICS being the company that employs all of the staff, went down in '24 from '23, because, without getting too technical, 2023 included a large write-back of expenses from a change in the remuneration policy. So look back to your notes if you took any for last year for more detail on that but happy to go through it if necessary. And with that, let's get on to the more interesting part of the meeting and I'll hand over to Brett.

Okay. Thank you, Andrew, and good afternoon, everybody. Thanks for coming along to our presentation. So I'll start with a quick recap of what Djerriwarrh has delivered over the last 5 years. So firstly, we'll look at enhanced yield, which is our key investment objective. So our enhanced yield, as Mark explained, is simply the difference between Djerriwarrh's grossed up dividend yield, which we show here in the light blue bars, and the grossed up dividend yield of the broader share market, the ASX 200, which we show in the orange bars. As we can see, over the last 5 years, Djerriwarrh has delivered an enhanced yield of between 1.2% to 1.8%, so a yield 1.2% to 1.8% higher than what's been achieved through the broader share market. And based on the current portfolio settings and strategy that we have in place, we remain confident that we can continue to deliver an enhanced yield of about 1.5 percentage points above the broader share market. So looking now at our second objective, which is really growth in dividends over time, which ties into total returns. And so what we've got on the slide here is Djerriwarrh's net operating profit per share, which are the light blue bars, and the dividends per share that we've paid to shareholders, which are the orange bars, and this is also over the last 5 financial years. So we can see on the left-hand side, the fall in Djerriwarrh's net operating profit per share and dividend per share that occurred from 2020 to 2021. And this was largely a result of the strategy reset, as Mark mentioned, that took place in May 2020. So pleasingly, though, from that point, so from 2021, both operating profits per share and the dividend per share have grown quite solidly. And that was especially pleasing to be the case again for 2024, where we're able to grow operating profit and the dividend despite dividend income being down across the broader share market. And we make an important point here, we think, which is that in each of the last 4 financial years, so since the strategy reset, Djerriwarrh's dividend has been fully covered by net operating profit per share. So there hasn't been any top-up of realized capital gains or capital or other profits. And we think this leaves the dividend payout ratio in a very sustainable position. So it's a good position from here. So with that 5-year backdrop in mind, we turn now to the key portfolio changes that we've made over this calendar year and starting with the stock portfolio, so the investments. The big change in the Djerriwarrh investment portfolio is that we own a lot less of the companies listed in the top left-hand section of this slide, which has all been a result of option exercises. So if we take a step back, and most of you will remember, if we go back 18 to 36 months ago, we're big buyers of Commonwealth Bank, NAB, Westpac, Wesfarmers, Macquarie Group and JB Hi-Fi, and they were very big positions in the portfolio. What's happened recently though, particularly over this calendar year, is that the share prices of each of these companies have been extremely strong. And so a number of the call option positions that we've written against these stocks have been exercised, and that has made us sellers of these companies this calendar year. So overall, we own a lot less of those stocks today than we did going back 12 and 18 months before. The active selling listed below that has been a lot smaller in quantum. So to summarize it, we have basically called time on our investments in both Ramsay Health Care and FINEOS. Both of them were poor performers for us, and so we basically decided to cut our losses there and sell our small remaining positions. James Hardie has been a much better performer, but we're only left with a small holding after some significant call option exercises last year. And so we decided to sell the small remaining position there that we had in James Hardie. On the buying side, the key thing that we've been concentrating on is focusing on replacing the lost fully franked income that we don't have anymore by owning a lot less of the stocks that I just ran through, the banks, Wesfarmers and JB Hi-Fi. So we've really been concentrated on finding other high-quality companies that offer attractive fully franked dividend yields, good valuations and some good growth prospects over time. And that's what's on the right-hand side of this slide. So most of that buying was actually concentrated in resource companies. That's where we happen to see value. So we're big buyers of BHP, Rio Tinto and Woodside before they went ex-dividend back in August. And despite some volatility in those share prices recently, overall, they were down at pretty good prices, and today are trading at much higher than when we bought them back in August. So they've been very good contributors to the income. For the same reason, we've also been buying more of Woolworths and Telstra. We thought Woolworths was too much out of favor earlier this year, particularly with a lot of the media commentary and the government and the regulators inquiries into supermarkets. We think that's given us a good opportunity to add more to that stock for income, but also growth. And we've continued buying Telstra this year where we see further upside, a really good fully franked dividend yield and the likelihood of some good dividend and earnings growth over the medium term. We also topped up CSL, more of a growth stock for Djerriwarrh, but we are very confident in the long-term prospects of that company. And we added 2 new stocks to the investment portfolio being IDP Education and Ampol. So IDP Education is a global leader in university student placements and English language testing. It's been out of favor this year, largely because the governments in its key countries have changed student number caps and the like. And we think that's given us a good opportunity to buy a very high-quality company that can deliver growth over the long term. So IDP Education is more in the portfolio for growth. Whereas Ampol, which was formerly known as Caltex is definitely an income stock. We think it's a good quality company. It's an integrated energy company now that's improved from where it used to be when it traded as Caltex, and we took the opportunity to buy that at a fully franked dividend yield of about 8%. So we think it'll be a good income contributor to the portfolio. And like with the resource buying, we bought it before it went ex-dividend in August, so it contributes to our dividend income for this financial year. So going from the investment portfolio to the option side, and we show here a high-level summary of how we've managed the portfolio's call option coverage over this calendar year set against the performance of the broader share market, the ASX 200. So if we go on the left-hand side, we started this calendar year with call option coverage pretty high at 39%. And we had significant call option exercises in the bank's JB Hi-Fi and Wesfarmers, through February to May. And that accounted for the majority of the option exercise selling that I spoke about in the previous slide. We had call option coverage at 28% in early May, and that turned out to be good positioning, given the market's strong subsequent run that we've had since then. From July to September, we had further large amounts of call option exercises, especially in Macquarie Group. And during and after that period, we've subsequently taken the portfolio's call option coverage to 46%, which is the highest it's been in the last 4 years, and it's above the top end of what we refer to as our normal range of 30% to 40%. So that basically reflects our view on market valuations, and also positions us quite well, we think, to earn some good option premium income for the second half of this financial year. So we summarize all of this portfolio activity with a snapshot of the Djerriwarrh portfolio as at the end of September, and we show the usual key portfolio statistics on the left-hand side. So an investment portfolio, including cash that was worth $933 million across 46 stocks, call option coverage, like I mentioned, is very high at 46%. Put option exposure is less than 0.5% with only one position there, and it all added up to a net tangible asset backing of $3.47 per share. We show the top 20 holdings in the portfolio in order of value on the right-hand side. And we can see the effect in this top 20 of a lot of the option exercise selling that I referred to earlier. For instance, Commonwealth Bank and JB Hi-Fi are no longer in our top 20 holdings. We still own shares in them, but they're outside the top 20 today. And other previously big investments for Djerriwarrh like Wesfarmers, NAB and Westpac are much lower down the order now. And so you see at the top end, we think some really good high-quality blue-chip, largely defensive companies with a good mix of income and growth, particularly BHP, CSL, Telstra, Transurban and Woolworths. And obviously, you can see the effect of some of the buying that we've done in those stocks to push them right towards the top of the portfolio now. So hopefully, this run-through has given you some insights into some of the recent changes we've been making in the portfolio in response to market conditions as well as how the portfolio is currently positioned. And so with that, I'll now pass to Olga, who is going to talk about company dividends, valuations and our outlook.

Thank you, Brett, and good afternoon, everyone. On this slide, we show a snapshot of dividend performance during recent reporting season for the top 10 ASX companies. These companies are also key contributors to Djerriwarrh's earnings and dividends. Overall, higher-than-expected dividends were the highlight of the August 2024 reporting season. This was mostly driven by dividends paid by financial and industrial companies, offset by lower dividends from resources companies. A special dividend from Woolworths was especially pleasing, given our recent large buying in the stock. We also saw solid dividend growth from blue-chip industrials, such as CSL, Transurban, Telstra, Wesfarmers and Commonwealth Bank. Dividends from resources companies, BHP and Woodside, were down from previously very high levels, but still modestly above-market expectations. We know that dividend yields for both remain very robust and above the markets. On this slide, we look at bank sector valuations by plotting Commonwealth Bank's price-to-book ratio as well as our dividend yield over the last 20 years. Looking at both measures, the valuation is at extreme levels. CBA price-to-book ratio of over 3x is at the highest level since pre-GFC and makes it one of the most expensive banks in the world. And the dividend yield shown on the right-hand side is the lowest it has been in the last 20 years. This is very difficult for us to reconcile given the current cash rate in Australia. CBA's yield of 3.5% or 5%, if grossed up for franking credits, stacks up poorly against current term deposits that yield above 4.5%. It is difficult for us to see any value at this moment despite the company being high value and high quality. As such, we are comfortable with our much smaller position in the company and the sector than we had prior to our option exercises. This slide summarizes our outlook on some of the key items. In terms of the market, it's been very strong in the recent times. The ASX 200 has been trading near its all-time highs despite a lot of risks in the economy and geopolitics. And in this context, the market looks moderately expensive at the moment, particularly when we compare it to some key long-term valuation metrics, such as price to earnings, price to book and dividend yield. With this in mind and in conjunction with our bottom-up analysis of our investments, we currently have a net cash position and high call option portfolio coverage. So what does it mean for our dividend and option income? The recent buying that we've done in companies such as Telstra, Transurban, Woodside, Woolworths, Ampol and BHP, they're all high-yielding stocks. And so higher position in those companies should somewhat offset the lower dividend income that we would naturally expect given we hold less of companies like CBA, NAB, Westpac, Wesfarmers and JB Hi-Fi. Being in a net cash position gives us a lot of flexibility to reinvest in higher-yielding companies when we see value. And in terms of options, we have a good amount of option income already written with scope and flexibility to write more in the second half of this financial year. And as such, we feel well positioned. We finish our presentation today with a snapshot of Djerriwarrh's balance sheet, which is positioned very conservatively today. As a reminder, Djerri has access to debt facilities to manage cash flows around option exercises and to also have a modest amount of gearing to offset capital drag from option exercises. On this chart, we show Djerri's net debt position at the end of each of the last 5 financial years. Between FY '20 and FY '23 Djerri finished with around $65 million to $90 million of net debt, which equates to 7% to 10% of gearing. We finished FY '24 with a net cash position of $33 million, which is very conservative or as we see it, well positioned to take advantage of any attractive opportunities in the event of any market correction. To sum up, we think we believe -- we think our portfolio and our option book are really well positioned to deliver on our investment objectives. And more importantly, though, in the long term, we absolutely remain confident with our investment strategy. We think that owning a diversified portfolio of high-quality companies with the right mix of income and growth will enable us to deliver on our investment objectives in the long term. And with that, I will pass to our Chairman.

Well, thank you very much, Mark, Brett and Olga, for the presentation. And now we turn to that time in the meeting, where I'd like to invite questions from shareholders. For those in the room, we have microphones available. And if shareholders could please state their name when addressing the meeting and ask all questions through the Chair, that would be appreciated. In the first instance, so we might just check if there are any questions online. I think Geoff, you can moderate.

Thanks, Graham. There's a few questions here about share price performance over the medium to long term, which is really encapsulated in this question from [ Steve van Henrik ] from the Australian Shareholder's Association. ASA supported the low-cost LICs like Djerriwarrh. However, we note the share price has traded a significant discount to NTA for the past 6 to 8 years, and the total from return has also underperformed the market over 3, 5 and 10 years. Together, these 2 factors made returns to shareholders that have been relatively disappointing over the medium term. Do you believe the 10-year total fund returns that are below market level are acceptable? If not, what can be done to improve those returns? What can you do to reduce the discount to NTA given it has persisted across a variety of interest rate and economic regimes for the past 6 to 8 years?

Okay. Well, thanks very much, Jeff. Thank you for that question. I think there's a number of elements in that, some of which I addressed in my opening comments and Mark addressed as well in his presentation. So the first thing to note is that, the discount, as Mark pointed out, is still in the mid- to high single digits to NTA, but that has come in. And that's one of the reasons that as we sat around the Board table, looking at that element, the concept of buying back some shares to show the value that we saw in the shares was something that we made a decision on. And really, if you sort of look at that over the last 1.5 months, since we actually purchased some shares, the discount has come in from over double-digit to single digit. The other thing that Mark talked about was the strategy reset, which we've talked about at these meetings before. Since May 2020, the compound annual growth TSR of the portfolio and of -- including the share price has been 12.1%. And so we think we're on a path that we'll see, over time, those 5- and 10-year numbers -- relative numbers be removed. And it's certainly our intention to be having performance that's as close as possible in line with the market, bearing in mind our objective of paying a much higher dividend yield. So I do appreciate the comment and appreciate the perspectives. But I think that the confidence shareholders should have is that the Board does talk about these things, has seen them and is taking action to improve the outcomes.

I haven't got any other questions online at this point in time, Graham, so.

Do I have any questions in the room? Please.

Thank you for the presentation today. My name is [ Jeff Fuller ]. My question sort of also relates to the point that you were just making before in relation to long-term capital growth. You're talking about, in particular, the points related to 5- and 10-year capital growth. Looking now at my annual report, which says one of the objectives is to provide attractive total return, including capital growth, blah, blah, blah. And I was just having a look at the long-term share price graph back to 1999, which is all I can go back to, and the share price back then was roughly, in January $3.99, $3.75. How do you reconcile that with the share price today of $3.20-odd over 25 years? I find it quite extraordinary.

Thanks very much, Mr. [ Fuller ]. I think one of the important things, so one is I'll repeat the comments that I made before about our concern about the share price component of that return not being up to scratch. And I did talk at the AGM a couple of years ago about where we changed our strategy. And I think since that time, we actually have seen share price improve from sort of, I think at one point, it was $2.70s. So we're certainly much better than we were then. But I think the other element is obviously the total return for Djerriwarrh investment is very much focused on yield and franking as well and the achievements. So if you sort of look at those compound annual growth rate of 12% over the last 4 to 5 years, you're seeing actually most of that has come through in dividend and franking, and so it's the combination of those. And whilst that objective continues to be relevant in terms of achieving capital growth, we think you've got to look at it on a total return basis. And so we're seeing that the shorter comparisons to the market are much better than the 5- and 10-year. And the strategy that we're on is aimed to remove those 5- and 10-year discounts that we'll see over the next few years.

Could I just add one point? Why is the capital growth reference really still in there? Because it just hasn't been there. But -- really, despite all capital growth over the last 25 years on average.

I think also -- well, I think the other issue is that we went through a period, if you recall, particularly post the GFC, where the Board at the time made a decision to keep the dividend steady. So the dividend was sort of $0.26, that sort of -- and it was paying out above earnings for a number of years. And in fact, that meant the stock was trading at a 30% to 40% premium to NTA, all right. So what as part of the strategy reset, we took the view that the dividend should relate to earnings. And so you saw in Brett's presentation the highlight that dividends are now in line with earnings. And that's really the policy going forward. And so when looking at past share prices, there's clearly that period when prices were overinflated. At those times, we didn't have a DRP in place. We never did any capital raisings, and we constantly talked about the fact that, in fact, it was costing $1.40 to buy $1 of assets. And so we're much more comfortable with the share price where it is now in terms of that particular relevance. But the realign from here is to achieve both the dividend and to be capturing the capital growth of the market as well. Sorry, there was just one question.

John Spray. Just -- I put the same question to Mr. Bruce, too, many years ago. Should there be any whispers of changing to franking credits or capital gains tax discount, will you fight at tooth and nail?

The short answer is yes.

That's what he said.

And I learned at the feet of Bruce for a number of years. And in fact, if you sort of look at that, that's probably the one external issue that we've always been very strong on, either through our involvement in the listed investment company organization, encouraging shareholders to write letters, et cetera. So you would expect that if there is any serious move towards that or suggestion of that, you'll be hearing from us.

My name is [ Heather ]. Just what you're saying before about the heady days of $0.26 dividend. Do you think we'll ever get back there?

I hope so, but I'm not going to predict that today. I mean, essentially, what we're looking to achieve is whatever happens to earnings, that will be where the dividend will be. And so we're on a path now where we're looking at increasing earnings and being comfortable. Obviously, as was just highlighted, which has been very unusual for us, we actually got cash in the bank today. And I think yes, one of the things you would draw from Brett's comments and Olga's comments is, we've been exercised a lot on options, but we haven't gone and replaced those stocks, because we do see valuations as being reasonably stretched at the moment and that's why we're running in net cash position. So if we get the opportunities, we'll be investing that in the market, and that should be able to grow earnings again, but it is a way up from sort of the $0.15, $0.155 to get to $0.26. So I'm not going to put a time frame on that, yes.

So you were saying before about you've been doing some buyback and have shares on the market, so I take it that would mean that you don't have any plans for any share purchase -- shareholders purchase?

No. I think, at this point in time, what we saw was the stock trading consistently at a double-digit discount to NTA. And we felt that given that we had cash that, that was an appropriate thing to do. We continue to run the Dividend Reinvestment Plan because the feedback we get from shareholders is if we top and change and take that out and then bring it back, that's more difficult for people. And so one of the things we'll look at is how many shares we keep -- we issue through the dividend reinvestment plan. And if through a buyback, the right opportunities are there to bring that back to neutral, then that's better for everybody's earnings as we go forward. But at this point in time, there's no consideration of further capital raisings.

Okay. One final question, if I may. I didn't understand that last screen shot there about the debt. Does that mean as the company doesn't have any debt this...

Today, we have no debt. So in the past, if you look at the last few years' balance sheet, there's always been debt on the balance sheet. So we've had a portfolio where we've had around 7% to 10% in debt. As at today, we don't.

Well, we've got no net debt, we have.

No net debt.

Net debt.

It was a $10 million facility that's drawn, but there's more cash than that. So there's no net debt today, and that gives us capacity if the market came back, to be able to invest that.

So if you don't have any debt, then you're not paying any interest to the banks?

Correct. No net interest, yes. Sir?

My name is [ Michael Ketu ]. I just want to question your selling of Commonwealth Bank. I have not sold mine. And at the moment, with franking credits, it's yielding close to 4.5%. If during the next financial year, interest drop -- rates dropped, they're very, very high at the moment, dropped by 2%, Commonwealth Bank is going to look really, really good. So why did you sell them? I wouldn't sell mine.

There's a number of measures, but I'll ask the portfolio team to talk about that.

Yes, sure. Happy to, and it's a reasonable question. It's been an amazing performer. So just worth to put a bit context around it. Our selling has been through option exercises. So we write call options against the stock. And as the share price goes up, these call options get exercised, then we're for sellers. Having said that, we're not unhappy about that having happened. We're basically sellers of the stock. So it's a very high-quality company, but everything has its price. And we have to take into account, obviously, the tax position and the like, but we're very happy selling where we have been, particularly in recent times, so the share price has come back a little bit lately. That's fine, but it's still very high. But whilst 4.5%-ish fully franked looks reasonable, the stocks that we bought are yielding a lot higher than that, and we think comparable quality. So that's a good trade for Djerri, we think. Time will tell if that's proved right. So, so far, we've been able to replace lower income with higher income and about the same quality. The thing -- the other thing I'd just point out is that it all sounds good if rates go down and Commonwealth Bank's yield stays the same, and if rates go down a lot, I think that'd be because of weakness in the economy. And in that scenario, I wouldn't want to own a lot of banks. That's just one thing to keep in mind. Now that's just one scenario that could play out, but I guess it's sort of like there's no such thing as a free lunch. I'm not sure, at these prices, that the Commonwealth Bank share price kind of takes much account of risk. So I think it's pricing in all the good news. But anything can happen in markets.

We've got another online question.

I might give you a break through to Brett and Olga. With the Australian market being highly concentrated with relatively few quality major stocks, are you concerned that many, [ HG ], CBA, JB Hi-Fi have very high models compared to international peers.

Yes. And I think you see that reflected in the portfolio changes over the calendar year that we spoke about. So, so far, we've been able to find good quality investments, comparable ones to replace the lower holdings we have in those stocks. But the concentration of the Aussie share market is something that's always front of mind for us. It's why we don't like to see good quality companies getting taken over. I mean Sydney Airport was a good case of that. I mean it's a nice short-term sugar hit to get when you have a takeover bid for a company in your portfolio, but we'd be disappointed if it happened to a lot of ours because we have to replace them given that we're long-term investors. So I think for now, things are fine. We've been able to find other investments to replace some of those, but we wouldn't want the Aussie share market to shrink a lot further because of that.

There's another question down here.

Thank you. Andrew Walpole What are the capital gains tax implications of selling things like Commonwealth Bank shares, thinking about my mother who's leaving hers to her grandchildren, I suspect that they may want cash rather than shares.

That's going to, I think, depend on one's individual circumstances and when they're bought and at what time they were bought. I not sure that I'm in a position to...