Mirrabooka books hefty fall in half-year profit following sharp fall in small and medium cap stocks

Mirrabooka has booked a hefty fall in half-year profit as sharp market falls weighed on it small and medium cap portfolio.

22/1/18 Mark Freeman is the managing director of Australian Foundation Investment Company (AFCI). The company has a $650 million stake in Commonwealth Bank, making it one of the largest Australian shareholders in the company. The company has today released interim financial results 2018, announcing a profit of $136.7 million. Aaron Francis/The Australian

Listed investment company Mirrabooka has posted a 16.2 per cent slide in its December half profit as surging values for small and medium cap stocks at the beginning of the new financial year eventually crumbled to turn sharply negative.

The first major listed investment company to report its earnings for the upcoming half-year reporting season, Mirrabooka (MIR) said its equities portfolio was down 6.6 per cent for the period as it sold off or trimmed holdings where it believed valuations were excessive while it also added new stocks to its portfolio.

As a consequence of the royal commission into banking and the collapse of insurer ClearView Wealth’s share price it was removed from the Mirrabooka portfolio as the equities investor believes the prospects for growth are diminished in an industry facing significant challenges ClearView was one of the many financial services companies dragged into the royal commission and its evidence of poor practices in the life insurance sector.

Releasing its half-year results this morning, Mirrabooka said its profit for the half was $4.62 million, down 16.2 per cent. The major hit to the bottom line was the decreased contribution from the trading portfolio which showed a loss before tax of $100,000 compared to a gain of $1.8m in the previous corresponding period.

Revenue was $5.18m, up 0.9 per cent. The company declared an interim dividend of 3.5 cents per share fully franked, flat against last year, plus a special dividend of 10 cents per share to be paid on February 15. Mirrabooka’s cash position is $10.7m, down from $28.1m at the beginning of July.

Mirrabooka, which is part of a stable of listed investment companies that includes the nation’s largest listed investor Australian Foundation Investment Co and Amcil, primarily invests in small to medium stocks that fall outside the S&P/ASX 50 Leaders Index.

Its largest holdings include Mainfreight, Qube Holdings, Lifestyle Communities, Alumina, Seek, IRESS and Reliance Worldwide. The company’s total equities portfolio is worth $360m.

Volatile values for small and medium sized companies during the half had a negative affect on Mirrabooka’s equities holdings.

“After a very strong start to the financial year where many small and mid cap stocks moved to record high price earnings ratios, there was a significant readjustment in market sentiment towards the end of the calendar year,’’ the company said this morning.

“As a result, the return from the combined small and mid cap sector, including franking, was negative 7.2 per cent over the 12 months to 31 December 2018.’’

In terms of key changes to its equities portfolio, Mirrabooka sold off its total holdings in Washington H. Soul Pattinson and Altium. It also reduced its shares in ResMed, Iluka Resources and Perpetual. New companies added to its portfolio included James Hardie Industries, Atlas Arteria and Oz Minerals Other major purchases were Reliance Worldwide and Adelaide Brighton.