CEO and Managing Director Mark Freeman and Portfolio Manager Brett McNeill discuss the FY24 half year results of Djerriwarrh Investments (ASX:DJW).
Geoff Driver: My name is Geoff Driver, General Manager of Business Development and Investor Relations for Djerriwarrh Investments (ASX:DJW). I have with me Mark Freeman, who is the CEO and Managing Director, and Brett McNeill, who is a Portfolio Manager for Djerriwarrh.
So, I’ll throw to you Mark. We’ve just announced our results for financial year 23/24. Could you perhaps just take us through some of the highlights?
Mark Freeman: Yeah, so I’ll touch on some of the highlights and then I’ll pass over to Brett to talk more broadly about the portfolio.
Brett McNeill: Excellent.
Mark Freeman: The net operating result, which excludes the impact of open option positions and is considered a better measure of the company’s income from its investment activities was $40.3m. The figure for the corresponding period last year was $39m. Key components of the result were: income from investments was $36.8m, up from $35.7m last year, and income from option activity was $16.6m, well ahead of the corresponding period last year of $14.8m. The final dividend has been increased to 8 cents per share fully franked, up from 7.75 cents per share fully franked for the same period last year. Therefore, total dividends for the year were 15.25 cents per share. Last financial year, total dividends were 15 cents per share, fully franked. Based on the final dividend declared and the interim dividend paid, the dividend yield on the current net asset backing is around 6.5 per cent, grossed up for franking credits. Based on the net asset backing and including franking, this represents an enhanced yield of 1.8 per cent higher than the S&P/ASX 200 index. The management expense ratio remains low for this type of product at 0.42 per cent, with no additional costs.
Geoff Driver: Thanks, Mark. So, Brett, Mark talked about the enhanced yield within the portfolio, and particularly relating to how the option activity was undertaken through the year. Perhaps you could just take us through why the portfolio did so well, and particularly around what option activity you undertook through the year.
Brett McNeill: Sure. Thanks, Geoff. And what was really pleasing is that Djerriwarrh was able to deliver a good balance of capital growth and the enhanced yield that Mark mentioned. So, a net total return for the year of 13.6 per cent just ahead of the benchmark index of 13.5 per cent, both grossed up for franking, and the dividend yield of 6.5 per cent, but also some really good capital growth. So, meeting the objectives of Djerriwarrh again. In terms of contributions and how we delivered the returns, the bank stocks were the standout performers for us, particularly National Australia Bank (ASX:NAB), Westpac (ASX:WBC) and Commonwealth (ASX:CBA). And that was really pleasing because we’ve been big buyers of the banks 12 to 15 months ago and they’ve delivered some terrific returns over the last financial year. So, they were the major contributor, but also some other big holdings in the Djerriwarrh portfolio performed well such as Wesfarmers (ASX:WES), JB Hi-Fi (ASX:JBH) and Macquarie Group (ASX:MQG).
Geoff Driver: Thanks, Brett. So, within the context of the strong market and the option activity that was undertaken, what adjustments did you actually make to the portfolio through the year?
Brett McNeill: Yeah, look, most of the portfolio adjustments were a result of our option activity. So, whilst the call option writing activities generated a significant amount of option income, they also resulted in us selling a large amount of stock as a result of option exercises. And this was particularly the case for the strongest-performing stocks, unsurprisingly the banks. So, now we own a lot less of Commonwealth, National and Westpac as we did 12 months ago. So significant option exercises there resulted in selling also in other strong performing stocks. And we’ve talked about Wesfarmers and JB Hi-Fi, but it was also a feature for our holdings in Goodman Group (ASX:GMG), Carsales (ASX:CAR) and James Hardie (ASX:JHX). So, that was the selling.
On the buying side, the biggest purchase for the portfolio that we’ve done by a long way has been Telstra (ASX:TLS), and that’s now one of the largest stocks in the Djerriwarrh portfolio. And we’ve also added significantly to our holdings in Woodside Energy (ASX:WDS) as well as Woolworths (ASX:WOW). And we think these three stocks are all very high-quality, large-cap, blue-chip stocks, each offering a very attractive fully franked dividend yield. Lately, though, we’ve been a lot quieter on the buying side, so we’re struggling to find value in the market and we’ve just been a lot more patient and selective in our buying from here.
Geoff Driver: Thanks Brett. So, Mark, going forward, Brett touched on the strengths of the market and the valuations that are currently in place in the market, which are quite high for a number of stocks. What’s the outlook as you see it going into the next six to 12 months?
Mark Freeman: As per usual, we don’t try and predict the markets, but you can observe some characteristics. For example, if you look at the overall market, either price to sales or price to book, the market is certainly in an elevated level. We’re going into a period of time where you do get some volatility markets traditionally, certainly around that September, October period. There’s a lot of events occurring in the world. We’re about to go into reporting season. So, we’re just being a bit patient at the moment. We certainly know some of the stocks we want to buy, but should we see any pullbacks in the market, we’ll certainly be ready to buy and start to rebuild the Djerri portfolio after a number of exercises that have occurred. But when I looked at the Djerri portfolio, I get great comfort that we’re holding great companies. As Brett touched on, to have that performance where you’re meeting the market yet where you’re providing that enhanced fully franked dividend yields, it’s hitting all the objectives that we set out for. We do note and we do publish every month that the stock is trading at a bit of a discount, which is surprising. There’s a bit of a theme going through the market at the moment with listed investment companies, but certainly when you look at the dividends we’re paying, if you do that on the share price rather than the NTA, they’re quite substantial compared to the yield you would get on being in the broader market. So, that’s something we’re noting quite significantly at the moment, is that discount. But the portfolio is in great shape, and, as I said, we’ll go through reporting season and I’m sure we’ll get more opportunities to rebuild some of the quality stocks we are looking to add.
Geoff Driver: Okay, thank you, Mark, and thank you, Brett, for your time.
Ends