Rocketing returns trump souring outlook: Argo Investments (ASX:ARG) share price lifts on results

Income investors should be pleased with the bump in dividends.

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Key points

  • Profits leapt year-on-year
  • Dividends were up too
  • Well positioned for challenging short-term conditions ahead

The Argo Investments Limited (ASX: ARG) share price is edging higher in early trade as the benchmark index retreats.

Argo Investments closed on Friday trading at $9.90 per share and is currently trading for $9.94 per share, up 0.4%.

Below we take a look at the highlights of the listed investment company's (LIC) half-year results for the six months ending 31 December.

Argo Investments share price gains on profit leap

  • Interim profit increased 91.5% on H1 2020 to $129 million
  • Earnings per share (EPS) of 8 cents, up 91.4% from 9.3 cents in the prior corresponding half
  • Cash as at 31 December of $84 million, down from $190 million in H1 2020
  • Interim dividend per share (fully franked) of 16 cents, up 14.3% from H1 2020

What else happened during the half?

Atop the results highlighted above, the LIC reported net tangible assets (NTA) per share increased by 18.9% in H1 2021 to $9.52. NTA in the first half of 2020 came in at $8.01.

Using the NTA return after all costs and tax as a measuring stick, Argo's investment performance during the half year saw it return 7.3%. That compares to a 3.8% return from the S&P/ASX 200 Accumulation Index during that same time.

The Argo Investments share price did well too, gaining 15.7% during the half. Additionally, Argo reported that its shares gained 25.5% for calendar year 2021, which works out to a total shareholder return of 27%, including franking credits.

In H1 2021 the company purchased $301 million of investments and received $191 million from portfolio sales and takeovers. The total number of shares in Argo Investments' portfolio was unchanged.

Some major purchases during the half included:

Major sales included:

What did the company say?

In analysing the big leap in profits, Argo stated:

The rebound in first half profit was driven by increased investment income, with most companies in Argo's portfolio raising or returning to paying dividends as the economy recovered from the initial impacts of the COVID-19 pandemic. In particular, a number of our larger holdings increased dividends by more than 100 per cent, including Macquarie Group, BHP Group, Rio Tinto and National Australia Bank.

What's next?

While the half year just past was strong, Argo Investments sounded some cautionary notes about the months ahead.

Management pointed to surging Omicron cases hitting the labour market and supply chains amid worsening economic conditions.

In the short term, the company expects challenging conditions as investors come to grips with the reality that inflation is on the rise and interest rate rises are coming. However, "We believe this environment favours Argo's long-term investment approach which concentrates on identifying high quality companies with solid fundamentals," management said.

Noting the company's strong balance sheet and lack of debt, management stated, "We are well positioned to capitalise on opportunities generated by any market volatility in the short term."

Argo Investments share price snapshot

Alongside the wider market, the Argo Investments share price has retraced in 2022.

Year to date Argo shares are down 2.36%. That compares to a loss of 5.35% on the S&P/ASX 200 Index (ASX: XJO).

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd., EML Payments, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns and has recommended EML Payments and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Aurizon Holdings Limited and 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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