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Regrets over Afterpay as lower dividends hit Mirrabooka full-year profit

Selling out of buy now, pay later outfit Afterpay too early is a decision Mark Freeman says he regrets.

Mirrabooka managing director Mark Freeman. Picture: Aaron Francis
Mirrabooka managing director Mark Freeman. Picture: Aaron Francis

A strategy of investing in high-quality, founder-led businesses helped listed investment company Mirrabooka deliver a 7.1 per cent return for the 12 months to the end of June, but selling out of “buy now, pay later” outfit Afterpay too early is a decision managing director Mark Freeman says he regrets.

Speaking to The Australian after Mirrabooka — which is part of the multi-billion-dollar stable of listed investment companies that includes the nation’s biggest LIC, Australian Foundation Investment Co — posted a 28.3 per cent slide in net profit for the year to $6.4m, Mr Freeman revealed it was around the time the COVID-19 pandemic started to rock markets that he moved to exit Afterpay, which has since rallied more than 650 per cent from its March low.

“We made good money out of it, but we could have made a lot more,” he said. “Clearly, it would have been better to actually hold it and buy more, from what we’re seeing at the moment.

“The company doesn’t control the share price, of course, so then it’s a question of whether the market’s got too carried away. I mean, management just exited a fair bit of stock the other day, so that’s an interesting point to note. It doesn’t always mean everything, but it’s interesting.”

Afterpay co-founders Anthony Eisen and Nicholas Molnar last week sold $250m worth of shares as part of a $1bn raising to speed up the company’s global expansion plans. The shares are trading at $67, after hitting a high of $76 in recent days.

“It’s a very difficult stock to value because they’re not turning a profit yet,” Mr Freeman said. “They’ve taken an extraordinary market position in what they do; it’s been stunning, the speed and take-up.”

Mirrabooka was doing more research on the company to see where it might look at buying back in, Mr Freeman said.

Looking ahead to the broader outlook for the economy, he said he expected it to be “pretty tough for quite some time”, but he was not investing with a mind to predict what would happen.

“If the economy recovers, we think our stocks are in a very strong position to do very well,” he said. “But if things stay really tough, we’ll still do relatively better. That’s all we can really do.”

The sharp fall in Mirrabooka’s profit for the year was due to a reduced contribution from investment income as companies reduced or suspended dividend payments due to the pandemic.

Calling it a sign of the times, Mr Freeman said the LIC paid out its own 6.5c final dividend this year from capital gains and franking reserves. Mirrabooka could continue doing this for two or three years if necessary, he added.

The LIC took part in a number of “attractively priced discounted capital raisings” during the year as COVID-19 hit, while also adding to its holdings.

In total, it invested $20m in 13 share issues, with its largest participation in raisings by Auckland International Airport, Atlas Arteria, InvoCare, Reece, Next­DC, Oil Search and Qube.

Read related topics:Afterpay

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Original URL: https://www.theaustralian.com.au/business/financial-services/lower-dividends-hit-mirrabooka-fullyear-profit/news-story/4fce29c0e6a5afc43c2dd47e9e62454a