Argo has lifted its full-year profit but warned of the impact of the banking royal commission
ARGO Investments has posted an improved full-year profit, but warned the fallout from the banking royal commission is “much worse” than the company expected.
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ARGO Investments has posted an improved full-year profit, but warned the fallout from the banking royal commission is “much worse” than the company expected.
The Adelaide investment company reported a $218.9 million net profit in the 12 months to June, up 3.5 per cent from the previous year.
Increased dividends from blue chip companies including mining giants BHP Billiton and Rio Tinto boosted the company’s full-year result but that was offset by the impact of the banking royal commission.
According to Argo’s latest list of major holdings, the big four banks all feature in the top ten, together comprising close to 18 per cent of the company’s $5.5 billion portfolio.
The company warned the banking royal commission would have a significant impact on listed investment companies.
“The scope and fallout from the royal commission is much worse than we or the market may have been expecting, with major repercussions for executive management teams and boards, reflected by the negative share price reactions in the financial services sector,” the company said.
“The current timetable sees a final report of recommendations due in February, which is of particular importance to the Australian listed market due to the large proportion this sector represents.
“Compounding the increased regulation and scrutiny for the banks, is the potential slowing of credit growth in the future, due to a combination of tighter lending standards, record household debt and softening house prices.”
Argo announced a final dividend of 16c, including 4c relating to capital gains realised during the year.
Most individual and self-managed super fund shareholders can claim a tax deduction relating to the capital gains, in addition to the benefit of franking credits.
Argo managing director Jason Beddow said the company’s full-year dividend of 31.5c – up from 31c in 2017 – represented a sixth consecutive year of growth.
“Argo’s straightforward and resilient business model continues to produce increasing fully franked dividends and solid capital gains,” he said.
“Dividend increases from Macquarie Group, BHP Billiton and Rio Tinto boosted our revenue this year, which helped to deliver Argo’s highest ever full year dividend.
“We keep operating costs low and manage the portfolio in a tax-aware manner to focus on maximising long-term returns to our shareholders.”
Argo’s management expense ratio – a measure of the company’s costs relative to its assets – declined to 0.15 per cent, which the company said is “significantly lower than the cost of most other actively managed investment products”.
During the year the company purchased $259 million of long-term investments, including holdings in Boral, Nufarm, Oil Search and Suncorp.
Proceeds of $201 million were raised from sales of holdings in companies including BHP Billiton, Rio Tinto, Wesfarmers and Woolworths.
Argo said it underperformed the broader market due to its underweight position in mining and metals – particularly small and mid-size resource companies – reflecting its preference for income over growth.
Argo shares closed 2c, or 0.2 per cent higher today at $8.27.