WAM Capital Limited announces record profit. Here’s how they did it

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Listed investment company (LIC) WAM Capital Limited (ASX: WAM) has today announced an 81.5% increase in net profit after tax to $98 million.

The $1 billion LIC also announced an increase in the final dividend to 7.25 cents per share (cps). Coupled with an interim dividend of 7 cps, the full year dividend comes in at 14.5 cps which is 0.5 cps above last year.

While the headline numbers are indeed impressive and the dividend – which currently equates to a fully franked yield of around 6.3% – will certainly be welcomed by shareholders, of even more interest is how the manager achieved such an astounding return.

Today’s results show WAM Capital’s investment portfolio achieved a gain of 21.6% for the year ending June 30 2016. That’s outperformance of around 20%, compared with a return of just 2% from its benchmark the S&P/ASX All Ordinaries Accumulation Index!

Big Winners

Stocks singled out as top performers were:

It’s worth noting however that WAM Capital operates with a diversified portfolio. Currently its single largest position represents 3.8% of the portfolio, while many of its remaining top 20 positions are roughly around 1.5% in size.

The diversified nature of WAM Capital’s portfolio, which should imply lower risk, makes the strong gains all the more impressive.

Although it’s rare for last year’s winners to be next year’s top performers, there are two stocks from the above list which (I think) could still be worth a closer look.

Firstly, as I have previously written here, Mayne Pharma has recently agreed to acquire a significant portfolio of FDA approved drugs. This acquisition propels the group into a much larger manufacturer of both generic and branded specialty pharmaceuticals.

Mayne’s acquisition has led to a significant upgrade in earnings expectations. According to consensus estimates for financial year 2017, in the past week forecast earnings per share (EPS) have doubled from 315 cps to 617 cps. (source: Reuters)

Secondly, Smartgroup also looks appealing still. The group actually entered a trading halt on Monday morning upon the announcement that the group has agreed to acquire peer Selectus for an initial consideration of $119 million.

The group also took the opportunity to provide the market with updated guidance.

Smartgroup is expecting to report underlying profit growth of 44% for the six months to June 30 2016 and it is forecasting EPS accretion post synergies of 15% to 16% from the Selectus acquisition.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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