BKI Investment share price rises despite 35% drop in FY20 profit

The BKI share price is on watch today following its full year earnings report. In this article we take a look at some of the key metrics released.

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The BKI Investment Co Ltd (ASX: BKI) share price is up by 1.03% to $1.48 today, following the release of the company's full year results. BKI Investment announced large declines across the board, citing difficult trading conditions. Profit was down 35% as several companies held by BKI announced the cancellation of dividends.

What does BKI do?

BKI is a research-driven listed investment company (LIC). Through BKI's research driven, active management approach it invests for the long term in profitable, well managed companies that offer a compelling yield and growth opportunities. 

The company boasts 8.9% total shareholder returns over a 15-year period, beating its benchmark S&P/ASX 300 Accumulation Index by 0.5%. BKI has paid out over $700 million in dividends and franking credits to shareholders since listing in 2003. At the time of writing, BKI's trailing dividend is 5.7%.

BKI's full year results

Today, BKI released results from what it labels "a difficult year". Some of the key points from the announcement include:

  • Revenue down 14% to $46.7 million (excluding special investment revenue)
  • Net operating profit after tax down 35% to $48.6 million (including special investment revenue)
  • Earnings per share down 35% to 6.63 cents
  • Total dividend for FY20 down by 29% to 6.945 cents a share.

BKI's earnings were largely affected by a number of dividend cancellations for some of its largest holdings. These include Harvey Norman Holdings Limited (ASX: HVN), Sydney Airport Holdings Pty Ltd (ASX: SYD), Australia and New Zealand Banking Grp Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC). 

Despite this, BKI announced it would still be paying a special dividend of 1 cent per share. This was largely thanks to a special dividend received from the company's holding in TPG Telecom Ltd (ASX: TPG).

While the results above may seem dire, they look to have largely already been priced in to the BKI Investment share price, given shares are up by more than 1% at the time of writing.

In terms of portfolio management, BKI made a number of sales across FY20, including exiting positions in Boral Limited (ASX: BLD) and Ampol Ltd (ASX: ALD) (formerly Caltex). It divested completely from ANZ following the bank's failure to pay an interim 2020 dividend, as well as Challenger Ltd (ASX: CGF) and CIMIC Group Ltd (ASX: CIM).

BKI invested $128 million during FY20, with large investments in a number of ASX blue-chips such as BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG) and Transurban Group (ASX: TCL). 

Commenting on the FY20 results and the impact of COVID-19, BKI's co-portfolio manager Tom Millner said:

We believe that every Australian company has been impacted by the COVID-19 economic crisis, and as we've already seen, it has had a direct negative impact on earnings, balance sheet strength and dividend distributions on many companies within our market. Unfortunately, the way we are viewing the broader economy suggests that the current situation may deteriorate over the next 6-12 months.

About the BKI share price

The BKI share price has had a rocky year, losing 13.74% in 2020 so far and underperforming the All Ordinaries (INDEXASX: XAO), which is down 10% in the same period. BKI shares are down 11.74% on this time last year.

Motley Fool contributor Daniel Ewing owns shares of Sydney Airport Holdings Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.

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