The Argo Investments Limited (ASX: ARG) share price is sliding this Monday. It follows the Listed Investment Company (LIC) asset manager's release of its 2021 financial year earnings report before market open this morning. At the time of writing, Argo shares are down 0.91% to $9.75 each.
Argo share price drops after slide in revenue, earnings
- Argo reports revenues of $174 million, down 12.8% from FY20's $199.5 million
- Earnings per share drop to 24.1 cents per share, down 13.3% from FY20's 27.8 cents.
- Final dividend of 14 cents per share announced, unchanged from FY20
- Dividend to include 8 cents per share in capital gains
What happened in FY21 for Argo Investments?
Despite a bumper financial year of returns for the S&P/ASX 200 Index (ASX: XJO), Argo has reported a retreat in both earnings per share (EPS) and revenues. Even so, the company still tells us that it managed to outperform the ASX 200 over FY21. Argo reported that its total gain for FY21 (taking Net Tangible Assets, not share price) was 28.5% after costs. That outperforms the ASX 200 Accumulation Index, which rose 27.8% over the same period.
The company also reported that it purchased $350 million worth of investments over the financial year as well as receiving $358 million from portfolio sales and takeovers. It now holds 90 shares in its investment portfolio. That's a slight increase over FY20.
Argo also tells us that purchases over FY21 include Newcrest Mining Ltd (ASX: NCM), EML Payments Ltd (ASX: EML) and Sydney Airport Holdings Pty Ltd (ASX: SYD). Meanwhile, it also ejected shares of Commonwealth Bank of Australia (ASX: CBA), Boral Limited (ASX: BLD) and Australia and New Zealand Banking Group Limited (ASX: ANZ)
In regards to Argo's dividend, its final payout will remain unchanged from FY20's 14 cents per share, fully franked. However, total dividends for FY21 came in at 28 cents per share. That's down from FY20's 30 cents.
Today, Argo announced that its new final dividend will also include an 8 cents per share capital gain component. Argo stated that this will mean "most individuals and self-managed superannuation funds can claim a tax deduction, in addition to the the benefit of franking credits".
The Argo share price initially reacted well to these earnings, upticking to its all-time high of $9.85 a share shortly after market open. However, it seems investors have subsequently cooled their enthusiasm.
What did management say?
Argo's management seemed pleased with their company's performance over FY21. Here's some of what Argo management had to say on these results:
With the economy recovering considerably faster than expected, Australia's share market delivered one of its strongest financial year performances in decades… Meanwhile, interest rates remain at all-time lows, enhancing the appeal of equities relative to various other asset classes. In this environment, we are pleased that Argo outperformed the broader share market… benefitting from the rotation into 'value' stocks…
What's next for Argo?
Argo's management was sanguine about what's next for the company, saying that "we are more cautious in our outlook than previously". That's due to "the combination of the market trading at record highs and the ramifications of ongoing COVID-19 restrictions hampering a considerable portion of the economy".
Even so, the company was more positive about the longer-term horizon:
Over the medium to long-term, our view is more positive as the nation's vaccine roll-out gathers pace. The federal and state governments have continued to demonstrate a willingness to provide targeted economic assistance to cushion the impact of lockdowns… As we enter the new financial year, Argo's business remains resilient, with a well-diversified portfolio of quality stocks, a strong balance sheet and no debt.
At the current Argo share price, the company has a market capitalisation of $7.06 billion. It's trailing dividend yield stands at 2.87%.
