Argo more cautious in testing times
Adelaide-based listed investment company Argo has expanded its share register to more than 70,000 in a year where it again out-performed the ASX.
The fortunes of Argo have long been an indicator of the financial health of Adelaide’s share investors and today’s 67th annual general meeting reflected on a good year in tough times.
“In this time, the global economy has experienced great volatility, and whilst conditions in general now seem more stable, a number of key issues continue to impact global markets including; an uncertain economic growth outlook, political and civil unrest and more recently the debt ceiling debate in the United States,” Argo’s chief executive officer Jason Beddow told the meeting at the Adelaide Convention Centre.
“Despite these testing conditions, it is pleasing that Argo’s portfolio has outperformed the S&P/ASX 200 Accumulation Index over this period, including the year ended 30 June, 2013.
“In September, Australian business confidence surged to its highest level in three and a half years, according to the National Australia Bank’s monthly business survey, the first conducted since the Federal election.
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“Although this is encouraging, the challenge will be in the translation of this confidence into real activity and investment.
“There are some encouraging signs in the housing markets, particularly in New South Wales and Western Australia, but activity remains weak in mining, manufacturing and retailing.
“We expect the unemployment rate to be a key factor in determining the strength of the Australian economy for the next 12 months.”
Beddow – only the third Argo CEO in its 67 years – said the company had taken a more stringent view of where it places its funds.
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“We have continued to develop our internal research process. This incorporates a greater focus on assessing the quality of our investee companies, with particular emphasis on management and boards, industry sectors and specific franchises.
“This increased discipline has seen us continue to reduce the number of holdings in the portfolio to 98 as at 30 September, 2013.
“While a number of companies were taken over, positions have been exited where the outlook for profitability and sustainability of dividends was questionable.
“We have been reinvesting these proceeds into larger companies with solid franchises, strong balance sheets and the likelihood of continued dividend growth, thereby improving the overall quality and robustness of the portfolio.”
Argo increased its stake in ANZ, Westpac, Newcrest Mining, Telstra and NAB, with Westpace now becoming its largest holding.
In his outlook, Beddow said the Australian economy appears sluggish.
“Against this backdrop, we do not expect strong earnings growth from Australian companies over the coming year and therefore predict only modest dividend growth.”
Argo has no debt and cash reserves of approximately $200 million.
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