Buybacks, banks drive Djerriwarrh bottom line

DJERRIWARRH Investments has more than doubled its annual net profit, but expects a mixed performance from corporate Australia when listed companies report earnings next month.

By InvestSMART · 19 Jul 2011

By InvestSMART ·
19 Jul 2011

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DJERRIWARRH Investments has more than doubled its annual net profit, but expects a mixed performance from corporate Australia when listed companies report earnings next month.

The investment company reported a 127.4 per cent jump in net profit to $56.85 million for the year to June 30, from $25 million a year earlier.

Total revenue climbed to $53.6 million from $34.11 million the previous year.

Djerriwarrh's board declared a final dividend of 16? a share, fully franked and unchanged from a year earlier. It takes total annual dividends to 26?.

Djerriwarrh's net profit more than doubled due to a low 2009-10 profit resulting from subdued market volatility that year, combined with big cuts to dividends from companies and unrealised losses on investments.

The company is a long-term holder of large-cap stocks and in 2010-11 benefited from a recovery in dividends paid by companies in which it invests, especially banks.

Share buybacks by BHP Billiton and Woolworths also boosted its result.

Several headwinds will drag on the sharemarket's performance over the next six months.

General manager Geoff Driver said recent profit warnings by retailers were not surprising.

"We've seen the savings rate go up, so from the consumer balance sheet perspective things are on a more solid footing," he said.

"But people are very cautious about spending money in the light of housing prices trading sideways or downwards, an equity market which is not producing much and slightly restrictive financial conditions."

Companies were likely to deliver a mixed performance when they reported annual earnings next month.

"The ones that are exposed to the consumer or are impacted by the high Australian dollar are the ones we will be watching out for."

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Frequently Asked Questions about this Article…

What caused Djerriwarrh Investments' net profit to more than double?

Djerriwarrh's net profit rose 127.4% to $56.85 million (from $25 million) largely because the prior year was unusually weak — with low market volatility, dividend cuts and unrealised investment losses — and because 2010–11 saw a recovery in dividends (especially from banks) plus helpful one-off boosts such as share buybacks.

How much revenue and profit did Djerriwarrh report for the year to June 30?

For the year to June 30 Djerriwarrh reported net profit of $56.85 million (up 127.4%) and total revenue of $53.6 million, up from $34.11 million the previous year.

Did Djerriwarrh pay a dividend and is it fully franked?

Yes. The board declared a final dividend described in the article as '16? a share', fully franked and unchanged from a year earlier, which the report says takes total annual dividends to '26?'.

What role did banks and large-cap stocks play in Djerriwarrh’s performance?

Djerriwarrh is a long-term holder of large-cap stocks and benefited from a recovery in dividends paid by companies it owns, especially banks — that recovery was a key contributor to the improved result.

How did share buybacks by BHP Billiton and Woolworths affect Djerriwarrh’s result?

Share buybacks by BHP Billiton and Woolworths boosted Djerriwarrh’s result, acting as a favourable one-off factor alongside recovering company dividends.

What headwinds did Djerriwarrh identify for the sharemarket over the next six months?

Djerriwarrh flagged several headwinds: cautious consumer spending due to sideways or falling housing prices, a savings rate that has risen, an equity market that isn’t producing much, slightly restrictive financial conditions, and recent profit warnings from some retailers.

Which types of companies did Djerriwarrh say investors should watch in the upcoming earnings season?

The company said to watch firms exposed to the consumer and those impacted by a high Australian dollar — these are the ones likely to show vulnerability during the upcoming earnings season.

Are recent retailer profit warnings surprising, and what do they signal for everyday investors?

Djerriwarrh’s general manager Geoff Driver said the retailer profit warnings were not surprising: consumers have higher savings rates and are cautious about spending amid housing weakness and subdued equity returns. For everyday investors, that signals increased scrutiny of consumer-facing stocks during reporting season.