The Argo Investments Ltd (ASX: ARG) share price has dropped slightly after market open following the release of the listed investment company’s (LIC) FY2020 earnings report this morning.
At the time of writing, the Argo share price is up 0.39% to $7.70. Argo shares are up nearly 38% from their 23 March lows, although they are also still down around 13.5% year to date. Argo is one of the oldest LICs on the ASX, having been founded way back in 1946. The company also once boasted the legendary cricketer, Sir Donald Bradman, as its chair.
What did Argo report this morning?
Headlining the results was a 22.2% drop in profits for Argo, slumping from $256.6 million in FY2019 to $199.5 million for FY2020. If we include the FY19 demerger dividend from Wesfarmers Ltd (ASX: WES) resulting from the spin-off of Coles Group Ltd (ASX: COL), the decrease in profit from FY19 was 31.9%.
Here’s what Argo had to say on the drop in profits for FY20:
Profit was significantly impacted by COVID-19 effects, with dividends being deferred, cancelled or cut (often substantially) by numerous companies in the investment portfolio, with NAB, ANZ and Westpac having the largest negative impacts on Argo’s dividend income.
Meanwhile, earnings per share (EPS) was also down, dropping 22.8% from 36 cents per share (cps) in FY19 to 27.8 cps in FY20.
As a result, Argo’s final dividend (to be paid on 18 September) will be 14 cps, down 17.6% from FY19’s final dividend of 17 cps. That takes Argo’s total dividend paid in FY20 to 30 cps, down from the 33 cps Argo paid out in FY19.
The company had this to say on the lower dividend:
In light of the uncertain economic outlook, Argo’s Board considered it prudent to lower the final dividend to ensure Argo is positioned to weather a potentially protracted downturn with minimal volatility of dividends paid over time.
Argo’s FY2021 portfolio
As a LIC, Argo invests in its own portfolio of ASX shares for the benefit of its owners. The company reported that it “purchased $243 million of long-term investments” in FY20, as well as receiving “$127 million from sales and takeovers”.
Some of the shares Argo disposed of in Fy20 include AMP Limited (ASX: AMP), Ansell Limited (ASX: ANN), Corporate Travel Management Ltd (ASX: CTD), Milton Corporation Ltd (ASX: MLT) and Nufarm Limited (ASX: NUF).
Positions in Automotive Holdings Group and Dulux Group were also exited as a result of these companies being taken over.
Meanwhile, positions in Downer EDI Limited (ASX: DOW), Freedom Foods Group Limited (ASX: FNP), Oil Search Limited (ASX: OSH), Ramsay Health Care Limited (ASX: RHC) and Suncorp Group Ltd (ASX: SUN) were added to, and a new position in Treasury Wine Estates Ltd (ASX: TWE) was initiated.
Going forward, Argo has this to say on its outlook for FY2021:
With the economic recovery very dependent on the trajectory of the global coronavirus pandemic, the outlook is largely obscured. In our view, there is the potential for further rapid and unexpected changes to trading conditions which could impact the profitability of Australian companies…
We continue to take a consistent and conservative approach to managing Argo’s portfolio, remaining faithful to our long-term investment philosophy which has proven resilient through difficult economic cycles and disruptive events over many decades. With a well-diversified portfolio, no debt and cash available, Argo is well-positioned to capitalise on market volatility in the current environment.