AFIC (ASX:AFI) share price falls despite 74% rise in profits

AFIC has just reported…

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Key points

  • Listed Investment Company AFIC has just released is half-year results
  • A surge in received dividends help raise profits by 74%
  • Interim dividend of 10 cents per share (steady over FY21) was announced

The Australian Foundation Investment Co. Ltd (ASX: AFI) share price has fallen this Monday after the Listed Investment Company (LIC) released its FY2022 half-year earnings results for the six months to 31 December 2021. AFIC shares are currently trading at $8.58 each at the time of writing, down by 0.7%. That comes after the company closed at $8.66 a share last week and opened at $8.64 this morning.

AFIC share price falls despite solid first half update

  • Revenue from operating activities rises to $161.8 million, up 68.1% from the $65.6 million reported for the first half of FY2021 (prior corresponding period, or pcp).
  • Profit after tax of $146 million, up 73.5% on pcp’s $84.1 million
  • Interim dividend of 10 cents per share, fully franked, announced. That is unchanged from the prior period.
  • Return of 6.9% for AFIC’s portfolio for six months to 31 December (including franking). That compares to 4.6% for the S&P/ASX 200 Index (ASX: XJO).

What else happened in the first half?

As a LIC, AFIC’s primary business is investing in an underlying portfolio of (mostly) ASX shares for the benefit of shareholders. The company tells us that its outperformance for the first half of FY22 was mainly driven by its investments in Macquarie Group Ltd (AS:X MQG) and Sydney Airport (ASX: SYD). As well as in Goodman Group (ASX: GMG) and James Hardie Industries plc (ASX: JHX).

Additionally, AFIC told investors that it took advantage of “attractive prices” sparked by “short-term volatility” to increase its holdings. Positions added to include Transurban Group (ASX: TCL), Coles Group Ltd (ASX: COL) and CSL Limited (ASX: CSL), amongst others. The LIC also initiated positions in JB Hi-Fi Limited (ASX: JBH) and WiseTech Global Ltd (ASX: WTC).

Meanwhile, management also said that AFIC exited positions in APA Group (ASX: APA)Origin Energy Ltd (ASX: ORG) and Altium Limited (ASX: ALU).

In regards to its large lift in revenues and profit, AFIC thanked large dividend rises from many of its top holdings. In particular BHP Group Ltd (ASX: BHP) and Macquarie.

What did management say?

Management had this to say on the results AFIC delivered this morning:

The Australian equity market continued to deliver gains in the six months to 31 December 2021 following on from the very strong rebound in markets in the first six months of the calendar year. While market valuations remained higher than historical levels, as a result of continued low interest rates, corporate earnings growth remained strong supported by improved economic activity…

AFIC is an investor with a long term focus… This performance has been achieved with lower portfolio volatility than the market and more consistent dividend income.

What’s next?

Going forward into 2022, AFIC’s management stated that the company’s strategy of owning a diversified portfolio of quality companies well placed to deliver growth in earnings over time “remains appropriate” for the 2022 investing environment. Management says that it is well placed to take advantage of any bouts of volatility to increase its holdings in its top ideas. Furthermore, the company stated that its portfolio is “soundly positioned” despite the “risks of rising interest rates and global uncertainty”.

AFIC share price snapshot

AFIC shares have had a pretty robust time over the past few months. The company remains up 1.06% year to date so far in 2022. As well as up 13.6% over the past 12 months. At the current share price, AFIC is offering a trailing and fully franked dividend yield of 2.8%.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Altium, CSL Ltd., and WiseTech Global. The Motley Fool Australia owns and has recommended APA Group, COLESGROUP DEF SET, and WiseTech Global. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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