NAOS Small Cap Opportunities Company Ltd (ASX: NSC) has reported its half-year result to 31 December 2019.
What is NAOS Small Cap Opportunities?
It's a listed investment company (LIC) run by Naos Asset Management that invests in ASX small caps with market capitalisations between $100 million to $1 billion, generally not in the ASX100. It maintains a high-conviction portfolio of around 10 names.
What did NAOS Small Cap Opportunities report?
The LIC reported that its net profit after tax grew by 222% to $18 million after a strong performance by its investment portfolio during the period.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in an absolute dollar sense compared to last year's result, whilst generating a return of 10% in one year and 20% in another year shows profit doubling in dollar terms. LIC profits aren't consistent like normal operating businesses.
For the half year the NAOS Small Cap Opportunities investment portfolio produced a positive return of 19.16% compared to the benchmark S&P/ASX Small Ordinaries Accumulation Index returned a 3.89% over the same six months. This was a strong period of outperformance.
The total shareholder return, which measures the change in share price and dividends paid, was 36.49% which reflects the strength of the investment portfolio as well as a narrowing of the share price discount to the net tangible assets (NTA) over the half-year. The impressive return doesn't include the benefit of franking credits.
The LIC also continued with its share buyback. Just over 5.6 million shares were bought back for a cost of $3.8 million, which was at a discount to the NTA and was accretive to NTA.
NAOS Small Cap Opportunities dividend
The Board decided to declare a fully franked dividend of 1 cent per share for the second quarter of FY20, bringing the FY20 total to date to 2 cents, the same as the average quarterly payment last year.
At the end of 31 December 2019, its profit reserve was 16.5 cents per share, Naos is still aiming to provide a sustainable stream of growing dividends over the long-term.
Is the LIC a buy today?
It currently offers a grossed-up dividend yield of almost 8%, which is very attractive in this era of low interest rates.
It's trading at a discount to the NTA at 31 December 2019 of 18.4%, which is a large discount compared to most other LICs. I'd be happy to buy a position today.
