Listed investment company (LIC) Naos Emerging Opportunities Company Ltd (ASX: NCC) has just reported its half-year result for the six months to 31 December 2019.
What is Naos Emerging Opportunities?
It's a LIC that invests in small caps on the ASX with market capitalisations under $250 million. It has a high-conviction portfolio of around 10 names which it holds for the long-term.
Naos Emerging Opportunities profit numbers
Naos reported that its profit after tax increased by 226% to $7.8 million after a strong performance by its investment portfolio.
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 Emerging Opportunities investment portfolio produced a positive return of 17.55% compared to the benchmark S&P/ASX Small Ordinaries Accumulation Index return of 3.89%.
Total shareholder returns for the period was 20.61%, not including franking, which shows that the portfolio performed well and the share price discount to the net tangible assets (NTA) narrowed.
Naos Emerging Opportunities dividend
The Board decided to declare an interim fully franked dividend of 3.75 cents per share, which is the same as last year. However, it keeps the grossed-up dividend yield at 9.6%.
Is Naos Emerging Opportunities a buy?
Two of the main things to look for when buying a LIC are the price it's trading compared to its NTA, and if you think those underlying shares are good value or not.
Compared to the NTA of $1.25 per share at the end of January, its pre-open share price is a 13.6% discount – an attractive discount.
Naos said that its existing portfolio still has significant potential to deliver strong returns over the medium to long term, despite the strong performance in FY20 so far.
I'd be very willing to buy some shares today for the big 9.6% yield and attractive discount, though I wouldn't want it to be too large a position of my portfolio.
