Is the Argo Investments Limited (ASX: ARG) share price a buy with the LIC reporting its half year report to December 2018?
Argo Investments is one of Australia’s largest listed investment companies (LICs). It has been investing on behalf of shareholders since 1946 when it was founded by solicitor Kevin Ward QC and chartered accountant Alf Adamson as a way for their clients invested. It was started with £10,000 of capital. During its history, Sir Donald Bradman AC was Chairman for a while, he was appointed in 1982.
Here’s what Argo reported
Argo announced that profit increased by 42.2% to $157.2 million and earnings per share (EPS) grew by 39% to 22.1 cents for the half year to 31 December 2018.
The large LIC had $5.3 billion in assets, it attributed the “very strong” profit result to the influence of the one-off, non-cash income item of $36.1 million because of the demerger of Coles Group Limited (ASX: COL) from Wesfarmers Ltd (ASX: WES). Excluding the demerger, earnings per share grew by 6.9% to 17 cents.
Argo said its revenue was boosted by higher dividends from BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), CSL Limited (ASX: CSL), Macquarie Group Ltd (ASX: MQG) and Ramsay Health Care Limited (ASX: RHC).
Some of its purchases during the half year were Bega Cheese Ltd (ASX: BGA), Boral Limited (ASX: BLD), Corporate Travel Management Ltd (ASX: CTD), Star Entertainment Group Ltd (ASX: SGR) and Transurban Group (ASX: TCL).
Some of the sales were AMP Limited (ASX: AMP), Coca-Cola Amatil Ltd (ASX: CCL) and Asaleo Care Ltd (ASX: AHY).
Overall, Argo reported that because of substantial declines in equity markets in the December quarter, Argo’s investment (NTA) performance returned -8.3% after all costs and tax for the half year. This under-performed the S&P/ASX 200 Accumulation index which returned -6.8%, which is quoted before costs or tax.
The Argo Board decided to increase the interim dividend by 3.2% to 16 cents per share, up from 15.5 cents a year earlier.
The LIC notes that lower market valuations may seem more appealing, but it remains cautious.
Internationally there is a global growth slowdown, fears of higher US interest rates, failing Brexit negotiations and soft China data.
Locally, the final outcome from the Royal Commission, the duration & severity of the housing downturn along with the associated consumer impact, and the result of the federal election could all cause challenges.
Argo expects more volatility this year, although the investment team believe dividends will at least be maintained by the Argo holdings.
Is Argo a buy?
The attractions of Argo remain after this report. It offers a reliable dividend, with the fully franked yield currently being 4%.
It also has very low management expense costs of currently 0.15% per year.
Compared to some of the other ‘old-school’ LICs like Australian Foundation Investment Co.Ltd. (ASX: AFI) and Milton Corporation Limited (ASX: MLT), I think Argo would be my favoured choice because it is growing its normal dividend at a nice slow and steady pace.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).