Djerriwarrh remains guarded despite doubling profit

IT MAY have more than doubled its annual net profit yet Djerriwarrh Investments 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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IT MAY have more than doubled its annual net profit yet Djerriwarrh Investments expects a mixed performance from corporate Australia when listed companies report earnings next month.

The listed 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.

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

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

Djerriwarrh's net profit more than doubled because of a low 2009-10 profit which resulted 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. However, several headwinds will drag on the sharemarket's performance over the next six months and Djerriwarrh's general manager, Geoff Driver, said that 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, he said.

"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," he said. Net operating profit measures income generated from Djerriwarrh's investment, trading and options portfolios and in 2010-11 this increased 25.7 per cent to $54.9 million.

Earnings per share touched 26.58?, up from 11.86? a year earlier.

Djerriwarrh's $677.8 million investment portfolio is dominated by big names in the top ASX 50 stocks and its biggest holding is BHP Billiton, with the shares worth $100.5 million at June 30.

The portfolio returned 10.8 per cent in 2010-11.

During the year, it acquired shares in BHP, Commonwealth Bank, ANZ, AMP, Rio Tinto and Orica and offloaded shares in BHP, AXA Asia Pacific and Rio Tinto.

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Frequently Asked Questions about this Article…

Why did Djerriwarrh Investments more than double its net profit in 2010–11?

Djerriwarrh reported a 127.4% jump in net profit to $56.85 million for the year to June 30, 2011. The article says this was driven largely by a low 2009–10 profit base (which had been hit by subdued market volatility, big dividend cuts and unrealised investment losses), a recovery in dividends from companies it owns (especially banks), and positive impacts such as share buybacks from BHP Billiton and Woolworths.

How did Djerriwarrh’s revenue and net operating profit change in 2010–11?

Total revenue climbed to $53.6 million from $34.11 million the previous year. Net operating profit — which measures income from Djerriwarrh’s investment, trading and options portfolios — increased 25.7% to $54.9 million in 2010–11.

What dividend did Djerriwarrh declare and is it fully franked?

The board declared a final dividend that the article reports as '16? per share', described as fully franked and unchanged from a year earlier, taking total annual dividends to '26?'. The announcement indicates Djerriwarrh maintained its dividend level and that the dividend is fully franked.

What does Djerriwarrh’s investment portfolio look like and who are its biggest holdings?

Djerriwarrh’s investment portfolio was reported at $677.8 million and is dominated by large-cap names from the ASX 50. Its largest holding at June 30 was BHP Billiton, with shares worth $100.5 million. During the year it acquired positions in BHP, Commonwealth Bank, ANZ, AMP, Rio Tinto and Orica and sold holdings in BHP, AXA Asia Pacific and Rio Tinto.

How did share buybacks and dividend recovery affect Djerriwarrh’s returns?

The article notes that share buybacks by companies such as BHP Billiton and Woolworths helped boost Djerriwarrh’s result, and a recovery in dividends (especially from banks) contributed to performance. Overall the portfolio returned 10.8% in 2010–11.

What headwinds did Djerriwarrh warn could weigh on the sharemarket in the next six months?

Djerriwarrh’s general manager, Geoff Driver, flagged several headwinds: recent profit warnings by retailers, cautious consumer spending despite a higher savings rate, housing prices trading sideways or down, an equity market that isn’t producing much, slightly restrictive financial conditions, and the impact of a high Australian dollar on some companies.

Which companies should investors watch when ASX-listed firms report earnings next month, according to Djerriwarrh?

Djerriwarrh said investors should watch companies that are exposed to the consumer or are affected by a high Australian dollar — these are the ones likely to show more pressure or deliver a mixed performance when annual earnings are reported.

How did earnings per share change for Djerriwarrh and what does that signal for investors?

The article reports earnings per share touched '26.58?' up from '11.86?' a year earlier, indicating a strong uplift in per-share earnings driven by improved investment income and a better dividend environment. For everyday investors, that signals stronger profitability in the reported year, though the company cautioned about near-term market headwinds.