Why is the WAM Capital share price down 20% in June?

The WAM Capital share price has fallen twice as hard as the benchmark indexes in June. What’s going on?

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Key points

  • The WAM share price closed the session today down 4.87% to $1.66
  • This represents a 21% fall in value since 3 June while the ASX 200 and All Ords have fallen by half as much 
  • WAM Capital released its monthly investment update yesterday revealing Codan Limited was its best performer in May 

The WAM Capital Limited (ASX: WAM) share price closed the session today down 4.87% to $1.66. This represents a dramatic 21% fall in value since 3 June.

As watchful investors would have noted, there was no market news released by the listed investment company run by Wilson Asset Management on 3 June.

However, that date does appear to have been a turning point for the major indexes. Both the S&P/ASX 200 Index (ASX: XJO) and the S&P/ASX All Ordinaries Index (ASX: XAO) began a decline on 3 June that continues today.

The difference is the ASX 200 is down 8.8% and the All Ords is down 9.2% — less than half of WAM’s fall.

Let’s take a look at what’s been happening with WAM Capital and its share price lately.

WAM releases investor update

The WAM Capital LIC invests in the “most compelling undervalued growth opportunities in the Australian market”.

The company released its May 2022 investor update yesterday. Let’s look at the highlights.

The WAM Capital investment portfolio decreased in value during the month of May.

Net tangible assets per share before tax fell from 176.45 cents in April to 166.07 cents in May. This does not take into account the upcoming dividend to be paid out.

Top performer

In its report, WAM Capital said radio and detection products manufacturer Codan Limited (ASX: CDA) was a top performer. The Codan share price rose by 10.8% in May.

The WAM Capital update stated:

During May, Codan provided a positive market update, outlining that it expects to achieve a record FY2022 full year profit driven by its strategy to diversify revenues.

Codan stated that the increased profitability of its communications division also contributed to the prospect that Codan will match its record FY2022 first half profit of $50 million for the second half of the financial year.

Additionally, the company noted that the expanding opportunity pipeline for Domo Tactical Communications and Zetron, businesses that Codan acquired in 2021, are tracking ahead of schedule with expectations that both companies will deliver a strong result for the six months to June 2022.

We remain positive on the upcoming announcement of Codan’s full year result and continue to believe in management’s ability to sustain profits.

And a detractor

On the flip side, building services company Johns Lyng Group Ltd (ASX: JLG) was a “detractor” holding. The Johns Lyng share price fell 33% in May.

According to the update:

In May, Johns Lyng Group announced its Managing Director and group Chief Executive Officer Scott Didier and Executive Director and group Chief Operating Officer Lindsay Barber each sold 1 million shares in the company to manage their personal asset portfolios. While the share sales represent a small percentage of their holdings in the company, the Johns Lyng Group share price fell following the update.

In the same announcement, the company reiterated it is on­track to achieve its guidance for FY2022, with sales revenue of $802.4 million and earnings before interest, taxes, depreciation and amortisation (EBITDA) of $78.7 million.

We believe Johns Lyng Group is a quality business with an important role to play in managing ongoing catastrophes, demonstrated by its appointment to lead New South Wales government’s flood recovery response earlier this year, and we anticipate further projects will lift its profits in the future.

Why is the WAM share price falling?

WAM Capital hasn’t released any price-sensitive news since early April. Thus, the recent share price decline appears to be a case of WAM simply following the market. But WAM has certainly taken a steeper fall.

Every month, WAM Capital includes a list of its top 20 holdings in alphabetical order.

Changes in the top 20 don’t necessarily indicate newly-purchased or newly-sold companies. They also don’t indicate that WAM Capital has raised or lowered its investment in any of these ASX shares.

In May, new entrants to the top 20 included Webjet Limited (ASX: WEB) and Steadfast Group Ltd (ASX: SDF). Stocks no longer in the top 20 in May, after being featured in April, included Nine Entertainment Co Holdings Ltd (ASX: NEC) and Brickworks Limited (ASX: BKW).

Share price dive amps up dividend yield

WAM Capital shareholders will receive a fully franked interim dividend of 7.75 cents per share on Friday.

The LIC has paid 7.75 cents for both its interim and final dividends every year since 2018. This includes the pandemic years when many businesses stopped paying dividends altogether to conserve cash.

If this consistency continues, ASX investors buying WAM Capital at today’s reduced share price will enjoy a grossed-up dividend yield of 13.3%.

Motley Fool contributor Bronwyn Allen has positions in WAM Capital Limited and Webjet Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Johns Lyng Group Limited, and Steadfast Group Ltd. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool Australia has recommended Johns Lyng Group Limited, Steadfast Group Ltd, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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