Plato Income Maximiser Limited (PL8) Earnings Call Transcript & Summary

Good morning, and welcome to fellow shareholders to this Plato Income Maximiser webinar. My name is Chris Meyer. I am a Director of PL8, as we affectionately call Plato Income Maximiser by its ASX ticker, and I'm joined today by Dr. Don Hamson, fellow Director of PL8 and also a Managing Director of Plato Investment Management, the manager of the PL8 portfolio. The purpose of today's webinar is to discuss the share purchase plan, that's the first order of business. I will run through a bit of an overview of the share purchase plan and what it means for shareholders. And then Don will provide an investment update on how he is seeing the markets and the outlook for dividends. So jumping right into it. If you do have a question, which we will take at the end, please, if you wouldn't mind just tapping it into the Q&A box at the bottom of your screen, and Don and I will endeavor to get to those questions at the end. So in terms of the share purchase plan for those of you who are newcomers to the share purchase plan, we did do one of these in November last year. So many of you may remember something similar from then. But really, what it does is it enables all eligible shareholders and I'm sure many of you on the call fit into this category. All eligible shareholders to buy up to $30,000 of new PL8 shares for your shareholding. It doesn't matter what your current shareholding is, everyone has the same ability to invest up to $30,000. Importantly, because the shares you will receive under the share purchase plan, are issued to you before the record date for the December dividend. Those new shares will be eligible for the December dividend, which will be paid to you towards the end of December. So a nice Christmas present there awaits if you apply for some additional shares. The issue price is a little bit different to what we did last year. The things to call out, as you can see on this slide, is the price that you will pay for your new shares under the SPP is either $1.11 per share, which is the pretax NTA pretty much on the day we announced the share purchase plan. Plus the franking credit balance per share at the same date, which is [ $2.09 ] per share. So the sum of those 2 things gives you $1.11. So even you pay $1.11 or you'll pay a lower price and that lower price will be determined by the pretax NTA of PL8 on the day we closed the share purchase plan, which is the 9th of December. Again, plus those franking balance per share. So what this really means is if the market goes up, the share market goes up between now and the 9th of December when we close the SPP, you will pay $1.11, the lower of those 2 prices. If the market falls between now and then chances are you'll pay a price that's lower than $1.11, so you sort of protect it either way from a rise in the markets or fall in the markets during the offer period. And so there's really no reason, I guess, to wait towards the back end of the share purchase plan to try and get a better price because the pricing mechanism will protect you from any movement in the markets. In terms of why we're raising additional capital for PL8, the main reason is that first point over there, which is we have received a fair bit of feedback from fellow shareholders that you love investing in PL8, You like the consistency of the monthly fully franked dividend. It's been a good investment for you. But the NTA premium or the share price premium to its net tangible assets, which has been as high as 20% recently is a deterrent to your ability to invest additional capital into the company. And so the share purchase plan, given that it is at a price that's a small premium to the net tangible assets and a discount to the current share price is an opportunity for you to deploy more of your savings into the company at a price that's closer to the net tangible assets. Of course, there are additional benefits. Bigger companies tend to have high liquidity and lower expenses. So we would anticipate the same is true with some additional capital coming into the company. And the reason why we are including the franking balance per share in the application price is so that any investor who does not participate in the share purchase plan does not have the existing franking balance of the company diluted by the additional capital that is raised. So essentially, what we're asking shareholders who participate in the share purchase plan to do is to pay for that franking balance per share upfront, and it's that payment upfront that protects other shareholders from a dilution of that franking balance. Just some graphical representation. This is the share price premium to NTA in the light blue line. And what you can see is what I was saying a little bit earlier. There's 2 things to call out here. One is in the recent past, that premium has jumped a bit. It has acted as a deterrent to you investing more capital into the company. And so hence, the share purchase plan closer to net tangible assets. And the second thing is, if you look back to November of last year, you can see there was that fall in the line where the premium came in a bit during the SPP in November of last year. But you can see that it's pretty short-lived. And so our anticipation would be that once the share purchase plan is underway, that the NTA premium of PL8 will recover. And just on the monthly dividend, sorry, just hop through that one. On the monthly dividends, most of you would know this, PL8 has been paying a consistent monthly dividend of $0.055 per share. In the most recent past, sorry, a frog in my throat here. That most -- the November 1, actually should hit your bank accounts today being the 30th of November. So that should hitch your bank accounts today. And as I said, the December dividend will be eligible for all new shareholders who are applying under the all new shares issued under the SPP. And the other thing worth mentioning here is that the Board and the manager and Don can speak to this, is very confident that any capital raised under the share purchase plan will not have any impact on the distributions, monthly distributions, both in terms of the level of distribution or it's fully franked nature. And the reason is because any capital raise gets deployed into the portfolio, the same as the existing capital in the company. And so that additional capital will earn additional dividend income by investing in the portfolio. And the second thing is the balance sheet of the company being its franking balance and its retained profit reserve is very strong. And so any additional capital raise shouldn't have an impact on any go-forward distributions. Finally, just in terms of how to apply a bit of logistics, you should have received, if you're on the e-mail with the registry, Automic, you should have received a communication on the 23rd of November, which was the day the offer opened, which had both the SPP booklet and application form. So that's the best place for you to go to find information on how to apply. If you're registered as getting documents by post, that should have been received over the last couple of days, depending on the postal system. And that pack is your go-to piece of information. If you did not receive that pack of information, please reach out to us, or to Automic and we can resend it to you, the contact details. You can see are at the bottom of that slide. Fairly what you can go on to the Automic Investor portal. We provide the link over there. You can click on that link, it should take you to your Automic Investor page for your holding in PL8 and you can follow the instructions there to make an application. If you do apply using BPAY or an EFT, it's an automatic application, you don't need to fill out the form. I didn't mind the other day, and it's pretty easy. You should actually receive a confirmation e-mail or something in the post, which at least tells you that your money was received by us. And then when the shares are issued to you, you will get an additional confirmation outlining the new shares that have been issued to you. Just finally, at the bottom, you can see the timetable. Importantly, the 9th of December date is when the offer closes. So if you are interested in the SPP, please make sure your funds are received by us by that 9th of December in order to be eligible. And then as mentioned, your shares are issued on the 14th of December, which gets you on to the register before the record date for that December monthly dividend. So if you have any questions, we'll take them at the end on the SPP. But for now, I will hand over to Don to provide an update on the portfolio. Thanks, Don.

I was just thinking, Chris, maybe we can answer a couple of questions now. The reason I say that is my presentation is virtually the same as the AGM presentation because that was only less than 2 weeks away, and things haven't changed very much since seen. So any listeners heard that AGM investor presentation. They probably don't want to hear it again. I do see a couple of questions around the share purchase plan, which I think is pretty easy to answer.

Okay. Sure.

Katie, you said, can you subscribe to $7,500. That is correct. You can subscribe for a minimum -- minimum application is $2,500 and the maximum is $30,000. So someone has asked can they subscribe for more than $30,000. The answer is, unfortunately, no. This is a statutory limit, maximum that any shareholder can apply for an SPP is $30,000 and that's legal -- Australian legal requirement. But yes, you can subscribe for less than $30,000, but it must be more than $2,500, and to be able to subscribe, you needed to be on the record date at the 18th of November, you need to own the shares then. I think -- and just another little thing is I think post is becoming less and less reliable and e-mails are good, so -- and also cost the company less to send an e-mail out than it does a post-out. So I think we would encourage any shareholders if you are currently receiving information by post, but you're happy to receive it by e-mails, and I would encourage you to switch to e-mails. We're trying to move there. But now I'll...

Just on the price, well, there's couple on the price. Angela, asked, do you think all things equal, that the share price will fall with the new shares on offer? I mean, Angela, I think it's very hard to make predictions around what will happen in markets, but maybe the most relevant thing I can point to is history where that chart I did show as part of the presentation, and I'll quickly go back to that is, our expectation is actually that the share price might rise, again, it's might, it's not a prediction. Might rise once the new shares have been issued just because there is no longer an opportunity for shareholders to buy shares at that discounted price. And so sort of supply of shares through the share purchase plan falls away. And so the market moves back into a more normalized state. And you can see from this chart, if you had to take an average of the share price premium to NTA over the last 12 months, it's probably in that 15% region. And so I think there's a reasonable chance that the NTA premium reverts back to that sort of 10% to 15% range. Once the SPP is up the way. The question...

I was just going to add, Chris. If you look at what happened last year, and last year was a little different to this year because last year, we did both a share purchase plan, but we also did a placement of 15% placement of new shares. And the share price of PL8 fell on the announcement of the placement and straight away and then actually started to recover thereafter. And as Chris says, I mean, basically, it's supply and demand, and this offer is only open for a short period of time. So I think any price fall in relative to the NTA has probably already happened. That would be my expectation. But as Chris says, we can't predict what's going to happen in terms of share price, it's a function of what markets do and other things. But there was a small fall in the price when we announced the SPP. And it seems to be that, that announcement is the news. And after that, it should sort of settle down. So I agree, I think it should settle down from here on in.

Don, Christopher, ask here, is the SPP likely to be an annual event. I mean, Christopher, I don't think we think of it that way. What I would say is that I do think there are some benefits for shareholders through doing this. We really value shareholder feedback. So if you have some feedback for us and whether you think something like an SPP on a regular basis is a good or a bad thing for you as a shareholder, then we'd love to hear it. So please reach out to us if you do have that feedback. And maybe finally, Don, before we go into a portfolio, there is a question here from [indiscernible] provide the profit reserve and franking balance information to shareholders just to give an indication of the ability of the company to afford its dividend. We do that. We only do it once a year in the annual report, although we do provide a franking balance per share in the weekly net tangible asset disclosure of PL8. So you can sort of assess that figure on a weekly basis. I think in summary, what I would say is that the franking balance of PL8 is probably the more constraining factor because the profit reserve is very large. Franking balance is always a little bit smaller. And the last I checked, our franking balance gave the company capacity to pay 14 months worth of monthly distribution, so a very comfortable coverage of the existing monthly distribution levels. All right. Don, do you want to -- there's a couple of questions there on the portfolio. But do you want to just give a quick update on the portfolio before we head into some of those questions?

Yes, and all the markets, actually, yes. So if we look at the portfolio has actually delivered on the objectives for PL8. We have distributed over the last 12 months, approximately 8% income, including franking credits when you include special dividend versus the market generated around 6% gross income, 4.4% cash and 1.6% franking. That obviously is one of the objectives of the fund. On a longer-term basis, which we use here the underlying performance of the investments of PL8. So I'll say the Plato Income Maximiser as PL8. PL8 actually invests into an existing Plato unit trust, the Plato Australian shares Income Fund. That started life way back in September 2011. And so now has more than 11 years of performance. And on the top of this chart, we looked at the -- you've got 2 lines, a blue line and a gray line is the accumulated value starting at $100,000, you put $100,000 into the Plato Australian shares income fund. Way back then, we've accumulated it through, so this includes dividends, and it also includes franking credits for both the index and the Plato Australian shares income fund investment after fees for the fund. And you can see that whilst the fund has performed fairly similar to the market, it has consistently been above the accumulated value of the market, which means we're adding value consistently over time or most of the time, and certainly on an accumulated basis. At the lower part of the chart is the distributions that have been paid out. So the blue line, again, is the fund and the gray line is the market. And again, you can see that the accumulated distributions have been significantly larger. So it highlights that the underlying investments of PL8 have actually outperformed. Now I would say from a market perspective and reading papers and reading the press, there is a huge amount of uncertainty at the moment. There's a lot of negativity that the press are talking about. Obviously, we've seen rapidly rising inflation this year. To the highest levels in over 30 years. I mean current headline inflation is over 7%. It's actually 11% in Germany overnight. So there's a lot of inflation around. Prices are moving rapidly. Interest rates have reacted. The RBA has, I would say, almost reluctantly decided to raise interest rates in the last 6 months and has risen increased rates by 2.75%. We obviously have -- still have an ongoing crisis in Ukraine with the Russia invading. We still have supply chain issues, which are in China. There's still lockdowns in China and we saw even this week sort of a strike or protest at the one of the Apple or one of the plants that manufactures Apple phones. In China, house prices are falling, which we haven't seen for quite a long time here in Australia. Earlier, we've seen bond and equity markets sell off earlier in the year, although equity markets have actually rebounded in the last couple of months. But in terms of the financial year, just finished financial year '22, we saw the worst returns or third worst returns on history. I -- and that's the negativity, but I think there's also a lot of positives around, particularly in Australia. Our economy is at full employment. I mean, everywhere you go, you see signs for businesses trying to employ people. We have more jobs than we have people trying to look for jobs. The official cash rate whilst it has risen, is really, to me, just back to a normal level. I mean the abnormal, I think about interest rates was the fact that we had interest rates at 0.1% for the last couple of years. That's the abnormal -- abnormally low I've never been that low before. When you look at by and large, the bulk of Australian listed companies and the companies we invest in, they have strong balance sheets. They have low debt levels. We are not concerned about corporate Australia and coming into these higher interest rate environment because there's not a lot of debt out there for most companies. And whilst -- you don't want to think of it this way. There are quite a few companies in Australia that are actually benefiting from what's happening in Ukraine. Clearly, one of the problems has been Russia is reducing supply of gas to Europe, and Europe does use a lot of gas to generate electricity, but Australia is a major exporter of gas, LNG, likes of Woodside, Origin and Santos are huge LNG exporters, and Australia is making a lot of money, and those companies are making a lot of money from the higher gas prices. Coal prices have gone up to, and we have invested in a couple of coal sets like [indiscernible] coal, and they are also doing very well in this environment. So that is reflected in bigger dividends coming from those companies. House prices may be falling at the moment, but they rose very significantly during COVID and most SaaS prices are still way above their pre-COVID levels. And yes, I think some borrowers are starting to feel a pinch of higher interest rates, but many borrowers, especially if you go into home for a number of years are well ahead on repayments. There's record levels of money in offset accounts. So the average Australian is still doing okay. But clearly, some people are starting to get stressed on their mortgages. And whilst it was the third worst financial year, we've just gone through in terms of superannuation fund returns, that followed the second best year in financial year '21. So if you average them out, I think it's not too bad. I've mentioned before, the outlier was that interest rates were very, very low for a long time. And in fact, it was even February this year, fellow was still talking about keeping interest rates at record low levels until 2023 or even 2024. Obviously, that has changed dramatically, and we have seen this big spike in interest rates in the last 6 months here in Australia and for the last sort of moving on to 12 months in some other countries like New Zealand. But that level there doesn't look out of sync with that longer-term chart. And in fact, if I've got the chart back to 1990 when the RBA first started adjusting rates, daily offsetting the official cash rate. Our rates are still very low in terms of a longer-term perspective. Market is expecting interest rates to probably rise up to another percent to the sort of high 3% levels. But clearly, the RBA has already slowed down because it did have a couple of 50 basis point rises in the last couple of only mid-25. So it has slowed the pace a little bit. The real problem though is that whilst interest rates are rising, they're not rising nearly as fast as inflation. And so the problem for investors and retirees and others, if you are sitting in term deposits or even government bonds, you're getting sort of 3% or 4% type interest rates at the moment when inflation is running at 7%. So actually, what we have seen over the course of 2022 is real rates of return on safe assets such as cash and bonds have actually gone negative. If you put a $1 million in the bank and you're getting, say, 3% on a term deposit, if inflation is running at 7%, you're actually going backwards by $40,000 or 4% because inflation is 7%, you're only getting 3%. So it is pretty tough if you're still there. And even -- and if your expectations about interest rate is topping around 4% are right, then it's going to be hard to get a positive real return out of term deposits. On the flip side, and we've been talking about this for a while, but we've seen some fantastic dividends out of Australian companies. The average dividend rose [ 14% ] in the December -- sorry, in the August reporting season this year. On a cap-weighted basis, taking account of the size of companies, dividends actually rose by more than that like 20%. And you see some huge changes from some of the companies I mentioned earlier, Whitehaven Coal, Woodside, Origin Energy, Santos. Big dividend increases, albeit they were at low levels last year because energy prices were quite small last year. In fact, energy prices, it's not all about Ukraine. Energy prices started to rise before Russia invaded Ukraine, that just made it worse. So we had already pivoted towards higher positions in the likes of Woodside prior to the Ukraine war, but that has just made it even more beneficial. So it has been a good reporting period for most companies. We haven't yet seen any signs of slowdown in retail sales and other things of any significance. The other thing is a number of companies in Australia benefit from rising interest rates. And one of those are banks. And banks are very quick to increase the interest rates on loans, so their revenue rises when they raise interest rates. They're slowing to push up what they pay on their deposits and things. So historically, if you go back to previous cycles, banks have been able to increase their NIMs, which is a net interest margin when interest rates are rising. And the problem for banks is, for the last 10 years, we've had a falling rate environment, and that tends to squeeze the net interest margins with banks have been squeezed for the last levels ever. But a rising interest rate environment is actually good for banks, and we saw the bank reporting period to be a good one, and we saw interest rate -- dividend rises from all the majors. And they reported higher net interest margins. And if you think about it, the banks represent a huge part of our Australian market, BHP and then a couple of the other iron ore miners are also a large part of that market. It's very -- these are the key dividend drivers, we're very positive on the bank outlook at the moment, slightly less positive on iron ore, but it is an interesting thing in BHP is the biggest company in Australia. It actually had record or near record earnings and a record annual dividend for the last 12 months was paid by BHP of $3.25 fully franked. Whilst its earnings have come back, it's coal assets. BHP has significant coal assets. Had a huge turnaround in the last financial year. In FY '21, BHP made less than $300 million of EBITDA, that's earnings before interest, taxes and depreciation. So very close to cash flow actually, only made $300 million from coal. In the last financial year, that flipped around to $9.5 billion. That's 30x what it earned in the previous financial year. And coal prices have come back a little bit, but they're still very strong. The other thing to note is actually that whilst iron ore prices have been falling. They've actually bottomed a month or 2 back and have risen above USD 100 at the moment. And the other thing is that commodities are priced in U.S. dollars, and the U.S. dollar is very strong at the moment. So while there have been some falls in commodity prices in U.S. dollar terms, in Australian dollar terms, is still looking pretty healthy. So the other thing to note -- sorry, I just flipped the slide, but BHP has basically no net debt. And it's an indicator that the balance sheets in Australia are still very good. They're not challenged at all. But there are always going to be some companies that's challenged, and this is why we're an active manager to try and avoid what we call the dividend traps, particularly if you're an income investor. You don't want to get sucked into a stock that might have paid a big dividend last year that's going to pay less this year. And Magellan is one of the stocks where we see because of all the problems they've had and outflows of FAM, a fund manager like ourselves, but they've lost about 50% of their assets in the last 12 months or so. It's going to be pretty tough there. And I think we warn people against buying it for a systolic yield because it is coming -- is likely to cut its dividend. It's certainly flagging that to us. The other thing, and this is a slight negative that came out of the budget, and there was a question about franking credits, and this probably taps into it. The current government, the [ RP ] government whilst they have -- did drop their plan to stop -- to not refund franking credits. They have said that plan is buried, but they have closed a couple of potential loopholes or anomalies in the tax system. One of them is in the recent mini budget, the treasurer did announce or in the fine print that tax effective off-market buybacks will be no more. We've participated in probably the last one that will happen, which is [indiscernible] last month. But post the budget, it looks like they won't happen. It's not a big deal for our investment strategy. We've gone back through the life of that fund, which is now 11 years. And the opportunities of these buybacks have only been worth around 30 basis points per annum in terms of value add. And we actually expect, if companies are no longer allowed to do these tax effective buybacks where companies can buy back their stock from shareholders who can do the mean, so it can be streamed. You can -- only the investors who benefit from franking credits would likely participate in the buyback. If companies can no longer do those buybacks, which is a way of flushing out some franking credits, we would expect companies may pay either higher normal dividends or higher special dividends to return those franking credits to shareholders. So we actually think that -- stopping at one side, but the companies are likely to react a little bit and pay higher dividends that they've been normal or special. And it's probably not a bad time in terms of timing for this. It's probably a good time to actually close this opportunity, because a lot of companies have flushed out franking credits in the last 12 to 18 months. You've seen the likes of Commonwealth Bank, Westpac, Woolworths and a number of others flush out and do these tax effective buybacks. So a lot of the excess franking has come out. And there was also a plethora of dividends being paid and buybacks, et cetera, in 2018, '19 when the ALP was talking about getting rid of frank credits. We -- ALP, what I've seen from ALP is they won't be making further changes to franking credits, just specifically, there will still be a refund of franking credits, but they have closed the buyback loop hole. They have also look like they will be -- there will be legislation. We put a submission into it to stop companies paying a fully franked dividend and at the same time doing an equity issue to get the money to pay the dividend. So there was a situation a few years ago when Harvey Norman paid a special dividend and raised capital of exactly equal amount to pay that dividend. The ATO or the government is looking to crack down on that and not allow companies to issue capital to fund a fully franked dividend, but there's only been a couple of those on memory that I can think of the most. In fact, the only one that comes to mind is actually that Harvey Norman case. And in terms of outlook, and I think everyone looks at the outlook, to me, this is the best way of showing our outlook and it's not just an opinion. It's actually -- it's a number that comes out of our process. A key to our process when you're looking to buy stocks for dividend income is to make sure they actually pay those dividends and pay those and they don't cut them. And we talk for about Magellan, we think they're likely to further reduce the dividend this year or next year. We calculate based on company level data, so bottom-up based on the financials and other factors of companies. The likelihood that any dividend paying company in Australia would cut its next dividend and it's fairly short-term measures. So you look at the next dividend but we can aggregate this up, it comes out as a probability as a percentage between 0% and 100%. Now it's a probability of a dividend cut. So a high number is bad. If a company is going to cut us dividend, for sure, it will be 100%. If a company is very safe, and we expect it not to cut its dividend at all, the best it can be can be 0%. The average over time is just over 20%. So you actually -- the likelihood of a company cutting its dividend in any given year is about 20%, just over 20% historically. Our model, the dark line here on this slide gives you the probability through time. And you can see that this model is pretty accurate. There's a lot of dividend cuts during the GFC back in 2008, '09, and our model peaked at around 40% in that time period. And then at the market level, it fell back. So we aggregate this up for all individual companies. You can see there a huge spike in the pandemic into -- early in March, April 2020. Our model picked up the likelihood that the dividends will be cut significantly and hit an all-time high about 45%, but things did rapidly change as people realize that pandemic wasn't the end of the world, as groups like APRA, initially told banks and insurance companies not to pay dividends, but by the end of 2020, they actually rescinded those orders and said, well, okay, you can pay dividends. And our model then went to a very bullish level. And you can see that dark line actually went to below 20% below the long-term average. And that is when we were very bullish that we expect dividends to increase and they have significantly increased over the last 18 months. You have seen that tick up a little bit, and it's just above average. The latest reading on this indicator is just above average. But it's not significantly above average. And so we think the outlook is still good for dividends at the market level. And that's pretty much all I wanted to say. Clearly, there's still a lot of uncertainty in rising interest rates do challenge asset prices, and we've seen that in the property market. Okay. But it's interesting, shares are always looking ahead, and we have seen share prices rebound more recently. The problem with rising interest rates for term deposit holders, I think it's good news, but the reality is inflation has risen much faster than interest rates. So people in term deposits are actually losing money once you take account of inflation. We think the good news is that dividends are still pretty strong here in Australia, and we think -- I think we feel like energy and bank stocks is still pretty good. Net interest margins for banks are still going up. Energy prices might have come back a little bit, but they're still at high elevated levels. So we see some good opportunities there. The share purchase plan does provide the opportunity for existing shareholders to increase. They're holding up to a maximum of $30,000. So we believe this is a good opportunity [indiscernible] feedback that many clients or many shareholders did want to top up, but they didn't want to pay the premium that PL8 and have been trading at recently. So we think this is a good opportunity for those investors who they want to or shareholders who may want to top up their holding to buy up to $30,000 worth of shares.

Okay. Great. Thanks, Don, for that. We're going to move into the questions section. And thank you so much, everyone, for your questions. They really have been quite valuable. I think there have been a few, and I just wanted to clarify on the SPP, many shareholders asking, can you apply, say, for $7,500 or $12,500? The answer is yes. I know it's not on the application form, but you can apply for amounts that are in lots of $2,500 as long as it's above $2,500. So please go ahead and apply for those amounts, if that's your wish. Don, I don't know if you covered a lot of the franking credits, the buybacks and the special dividends. But there is a question from Mick, which is a bit more all encompassing. And he asks, do you have any general fears that the labor government is -- has got franking back in its sites and might look to change the rules of the game?

Well, as -- well, 2 things. One, Anthony Albanese did very clearly indicate in a speech to be made on the 1st of January last year that they would not be going back to their policy of the previous policy of stopping refunds of franking credits, they have definitely ruled that out. And I saw an assistant treasurer make somewhat similar statements that they're tightening up the rules, and there was always a bit of an anomaly, like the off-market buybacks. So they seem to indicate that frank credits are here to stay. There has been certainly quite a lot of speculation in the press and a number of industry groups have made submissions on this, that there may be some potential changes to superannuation, I say maybe because obviously, I'm not privy to what Albanese thinking. But certainly, some groups have put forward a view that there should be some sort of cap on the total level of superannuation. Now at the moment, the only cap on superannuation is when you retire, you can only have -- well, currently, it's $1.7 million. It used to be a $1.6 million cap, but you can only have when you make that decision to retire, if you have more than $1.7 million in superannuation, only $1.7 million will be in your pension account and taxed at a preferential 0 rate and any other assets above $1.7 million per person will be taxed at 15%. There is -- has been some people calling for total a limit on the total amount that people can have individuals can have in superannuation as well and some groups have speculated or talked about a $5 million cap. The reality is I think -- I'm quoting from memory, but there's something like 11,000 self-learning super funds, which have balances that are in excess of, I think it's $5 million. So there's a small number of very wealthy people that have a lot of money in superannuation. And so there's been some speculation that might cap that, which would obviously cap sort of frank credit refunds as well to those groups. So that -- I think that's more likely where things are going to happen rather than any -- they have been fairly clear at saying frank credit system is here to stay, but they were closing some a couple of the anomalies such as the tax buybacks.

Don, [indiscernible] asks, do you have as much focus on capital growth as income? In other words, is there an effort to try and grow capital as much as preserved capital?

Well, our focus -- the dual objectives of the fund is total return. So we're aiming to beat the market or the index of ASX 200, including Franking Credit that is our return objective. And we do have an income objective so to get more income in the market. We don't have an objective to grow the fund faster than the market because if you think about it, if you've got a lot more income than the market, you may have slightly less growth, but we do aim. And the fund -- if you actually look at the underlying fund, the unit price has actually gone up since inception. So there has been some capital growth. But no, our objectives are to outperform on a total return basis and to have more of the mix being income than -- or more income than the market there are the 2 objectives of FAM. But I would say this, when we go and buy a stock, we are very much focused on the total return objective. We would not buy a stock just to boost up yield if we felt that the total return we would get from that stock would underperform the market. So we are not just focused on income. We are very much focused on total return.

Don, I'll take this one from Barry. He asks, although you've got a scale back clause in the SPP booklet, what's the likelihood of a scale back of any application. And for those of you who are unfamiliar scale back essentially means if you apply for a certain dollar amount, could you actually receive less than that when you actually have your shares granted to you. So I think Barry -- it's probably the best summary is to say you should not expect any scale backs. And the reason is because the only time we would scale back is if we raise more than 30% of the capital of the company, that's a regulatory requirement. You can't have more than 30% of the shares in issue of a company issued under an SPP but that's a very high amount. It is a big company. It's nearly $600 million of net assets and we do not anticipate reaching that 30% threshold, and therefore, we should be pretty comfortable to give you guidance that there won't be any sale backs. Thank you for the question. Don, you want to take this one from Lee. There's not many research houses providing research ratings on PL8. Are you looking to engage with any of the other research houses on that?

Well, we do have a rating from Zenith and as it said, we did have 2 ratings when we listed the company, so we had a rating from both -- from Zenith and from Lonsec. Ratings, we have to pay for them. So it is a cost to the company to get it rated. So feel that one rating is sufficient given that the company has listed and now has a strong history. To be honest, we've engaged with Morningstar, but they don't seem to be -- they don't seem to value franking credits. And it's a key -- which is a key part of our process. And so they -- yes, we find that we're banging our heads with them because they don't really look at it from the perspective of a retiree who gets -- who does value franking credits. So that's -- on offshore, we would benefit from trying to get a rating from Morningstar.

And Lonsec does rate the underlying fund and given PL8 invests in the underlying fund, it's not a rating on PL8, but it's the same portfolio, so it's got a pretty strong read across the Lonsec rating towards PL8.

Yes, in fact we have a highly recommended for Lonsec, so.

Okay. They're coming in second is we've probably got time for a couple more. Bernt asks, will the fund fees rise, remain or fall? I think Bernt, the simple answer to that is the management fee does not change. That remains at the 80 basis points. The total expense ratio of the company, we have modeled under the SPP additional capital raise, I think if that's the question. And there's a small reduction in the cost of the company or the management expense ratio because of the additional size of the company being the fixed costs of running the company like the Board, et cetera, is amortized over a larger fund base. And so there's a small reduction in the managed -- total management expense ratio, which includes the management fee and the running costs of the company. What else is good -- have we done. That's more it's -- I think given the time and those questions, I think we've got to everyone. So I think that's all that left for me to maybe say is the slides from today's presentation are available to you either on the dashboard you're looking at to download or indeed on the ASX. We posted them up there this morning just before the webinar. We have recorded this webinar, so we will be sending a replay out to shareholders. If you do want to go back and listen again to any bits you may have missed, that will be on your e-mail over the next couple of days. And I think Don, would just like to thank everyone for their participation. And again, if you have any questions about how to apply or what the SPP means for you, please don't feel afraid to reach out to us, and we'll endeavor to answer your questions. And more importantly, if you haven't got your documents, we're very happy to resend them to you if you make contact with us. Thank you very much for your time. We'll leave it at that. Thank you, Don, for your time as well.

Thanks, Chris, and thanks for listening shareholders. Bye-bye shareholders.