It's been a horrible time for Australian Foundation Investment Co Ltd (ASX: AFI) shares over the past year or two.
We only have to rewind back to January 2022 to see the Australian Foundation Investment Co, or AFIC for short, at its most recent all-time high. Back then, AFIC shares were exploring levels close to $9 a share. But today, AFIC is trading at just $6.67 a share at the time of writing.
That's after AFIC shares descended as low as $6.66 this morning, which was actually a new 52-week low for the LIC. Superstitions aside about that dubiously-numbered new low, we can't deny that the company has been through the wringer of late.
Today's falls put this listed investment company (LIC) down 10.6% in 2023 to date, and down 7.87% over the past 12 months. The company has also retreated by more than 23% from those all-time highs from early last year. The last time AFIC was trading at the current share price was back in late 2020. So this is close to a new three-year low for AFIC today.
But the prospect of buying one of the ASX's oldest shares at a three-year low might be interesting to some value investors out there. So let's discuss whether AFIC's new lows that we are seeing today represent a compelling buying opportunity.
Are AFIC shares a buy at $6.66?
Well, let's talk about how AFIC works and what its goals are. As a LIC, AFIC manages its own portfolio of assets (mostly ASX blue-chip shares) on behalf of its investors. Because it functions in this way, many investors like to use AFIC as a passive, bottom-drawer investment that can function as a portfolio-within-a-share of sorts.
So if an investor wants to pursue investments of this nature and has confidence in AFIC's long-term track record, any pullback (such as the massive one we've seen over the past year or two) is, by definition, a compelling buying opportunity.
But there's something else to consider as well. Like most LICs, AFIC's share price can trade at a different valuation than what its underlying assets are actually worth. This is called a company's net tangible assets, or NTA.
Earlier this month, AFIC told investors that its NTA per share stood at $6.97 before tax and $5.94 after tax. If we take the before-tax metric (which I consider to be more useful), AFIC is also trading at a discount to its underlying NTA. This increases my view that AFIC shares are undervalued right now, and could be worth a buy for investors seeking a cheap passive investment vehicle.
According to AFIC, its shares have produced a total shareholder return (including dividends and franking credits) of 7.5% per annum over both the five and ten years to 30 September 2023. Its current largest investments include Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB) and Wesfarmers Ltd (ASX: WES).
At present, AFIC shares offer a fully-franked dividend yield of 3.74%.