Owners of WAM Capital Limited (ASX: WAM) shares probably want to know what the listed investment company (LIC) has got planned for FY22.
WAM Capital is one of the ASX's largest LICs. It held its annual general meeting (AGM) yesterday. It gave a FY22 update and also told investors about its outlook for the rest of the financial year.
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WAM Capital FY22 update
Chair of WAM Capital, Geoff Wilson, said that the LIC has achieved a solid start to FY22.
The investment company's portfolio has outperformed the S&P/ASX All Ordinaries Accumulation Index by 3%, increasing by 5.2% in the four months to 31 October 2021. Mr Wilson attributed this outperformance to its continued focus on undervalued growth companies where there is a potential catalyst to boost the business.
At 31 October 2021, the company had 19.9 cents per share available in its profit reserve to pay dividends. That profit reserve is after the recent FY21 final fully franked dividend payment of 7.75 cents per share on 29 October 2021. That essentially means that WAM Capital has at least the next two half-yearly dividends accounted for in its profit reserve.
Geoff Wilson said it was pleasing to be able to maintain the fully franked dividend for WAM Capital during a time when companies have reduced dividends.
Acquisition activity
The LIC is currently looking to acquire PM Capital Asian Opportunities Fund Ltd (ASX: PAF), with the offer being one new WAM Capital share for every 1.99 shares that PM Capital Asian Opportunities Fund shareholders have.
The new shares offered will benefit WAM Capital shareholders because these shares are being offered at a premium to the underlying net tangible assets (NTA), which adds to WAM Capital's pre-tax NTA.
In October 2021, WAM Capital also bought an unlisted investment company which had net assets of $36.3 million. This was paid for with 16,6678217 new WAM Capital shares being issued. Again, existing WAM Capital shareholders benefit from new shares being issued at a premium to the NTA.
On a pre-tax NTA basis, the purchase price paid was approximately $32.9 million, representing a return on investment of approximately 10% on the transaction. It also added $3.9 million of franking credits, which equates to a fully franked dividend of 1 cent per share for shareholders. The unlisted company also funded the costs of the transaction and legal fees.
WAM Capital's board said it looks forward to engaging in these transactions that present similar characteristics and benefits to all shareholders.
WAM Capital's outlook
The fund manager noted that share markets continue to rise thanks to record low interest rates and an anticipated rebound in economic growth. The market has switched between favouring lockdown beneficiaries to ASX shares that benefit from the reopening on the economy.
The macroeconomic environment, especially the monetary policy of central banks, continues to be a key thought for markets and WAM expects this to continue.
WAM said that it adjusted the portfolio to take advantage of these conditions, rotating towards cyclical names benefiting from strong levels of consumers sentiment coming out of lockdown restrictions including tourism, traditional media, financials and construction.
Current focus of the WAM Capital portfolio
In FY22, WAM has positioned the portfolio towards companies that can generate "strong" top line organic growth, regardless of the economic outlook.
The fund manager is positive on the medium-term economic and earnings outlook, despite the COVID headwinds.
But the investment team continue to stick to the tried and tested investment strategy – investing in undervalued growth companies with a clear catalyst for a share price re-rating.
