Like mineral sands through the hourglass, so rose the value of Mirrabooka Investments' stake in Iluka Resources over the last year - so much so that it had to take a profit on $6.5 million worth of stock.
Mirrabooka, baby of the one-time House of Were investment siblings, yesterday became one of the first companies to report their 2011 financial year results, rolling out a 39 per cent net profit gain to $9.14 million. It held its dividend steady at 6.5? a share.
Interestingly the premium of the group's market worth over its net assets widened during the year, which suggests the company must have been doing something right.
Holding a stake in Iluka Resources - a company which saw its market capitalisation rise from about $2 billion to $7 billion over the past 12 months thanks to a doubling of zircon prices - was one of them.
Mirrabooka was, however, forced to sell about, on Insider's estimates, one-third of the holding because it was unbalancing the rest of the portfolio. Picking a winner is nice but the bigger your exposure to a winner, the more risk if it turns the other way.
So Mirrabooka started the last financial year with $7 million of Iluka shares, generated $6.5 million from selling about 500,000, and finished the year with Iluka its single largest portfolio stake on $17 million.
The investment group's chiefs acknowledged in their report yesterday that Iluka was one of three stocks - the other two are the Brisbane lab-testing group Campbell Brothers and the gas-pipeline surfer Hastings Diversified Utilities Fund - which each represented more than 5 per cent of its total portfolio.
Campbell Brothers was one of the other success stories of Mirrabooka's portfolio, its 280,000 shares multiplying from $8.1 million to $12.8 million over the year, thanks to a 50 per cent increase increase in the shares to more than $45 each.
Mirrabooka also had a $1.5 million gain from accepting last year's takeover bid for Healthscope - although that was pretty much wiped out by the bath taken on Customers Ltd shares, which it put $2.7 million into last year and sold for $1.1 million this year.
CHART HITS
Mirrabooka's 9 per cent gain in net tangible assets per share over the year, lifting it to $1.90, beat out many of its rivals in the listed investment company space. The $800 million Djerriwarrh Investments portfolio was the worst performer with a 3 per cent rise. Australian Foundation Investment Company, the granddaddy of the pair, turned in a 6.7 per cent rise in NTA on its $4.9 billion portfolio - edging out Argo Investments on 5 per cent.
Milton Corporation, which had about $140 million of its $2.1 billion fund in cash at June 30, was also in the 5 per cent neighbourhood, while Australian United Investment's $875 million fund was up 8 per cent.
FLIGHT OR FIGHT
Having had a tiger put in their tanks by the Civil Aviation Safety Authority earlier this month, Qantas and Virgin Blue Holdings have been brought back to earth by the weight of carbon tax concerns.
The grounding of Tiger Airways temporarily turned around the long-term descent of their shares, with Qantas picking up about 20? to $2 a share and Virgin scoring a rise from 27.5? to 35?.
Both stocks nosedived yesterday, helped not the slightest by yet another mayday call from European financial markets, with Virgin falling almost 9 per cent to 31? and Qantas off 9.5? to $1.84.
Aah, it seems like only four years ago that Andrew Sisson's Balanced Equity Fund, with support from the former UBS fund manager Paul Fiani, shot down the $5.45 a share privatisation bid for Qantas. Their rejection seemed justified, briefly, because the shares traded up to $6 before the financial crisis.
At least Sisson has maintained the faith by retaining his substantial Qantas stake throughout the turbulence of recent years that has knocked off two-thirds of its value.
Having sold his business to the US group Franklin Templeton last month for a reported $30 million, though, it will be interesting to see whether his new masters are keen to stick with the stake.
SHARES ALIKE
C@ Ltd, one of the sillier-named companies on the ASX, has gone from making spectacles for others to making a spectacle of itself.
Last week it copped its third speeding ticket in eight months from the exchange since it expanded its activities from optical gear to the world of minerals.
The exchange jumped in last Wednesday, pointing out that C@'s shares had gone from 6.5? to 15.5? in 10 days, with volume accelerating to represent about 40 per cent of total issued capital.
Since C@ responded by attributing the excitement to some fat coal seams intersected in two drill holes on its Mongolian leases, the stock has edged up even higher to a peak of 18.5?, before settling back to 17? yesterday.
Shares equivalent to about 30 per cent of its equity have also changed hands since then. Insider would hazard a guess that a small portion of the stock being traded related to some vigorous exercising of the group's 1? options since May.
Only 20 million options out of nearly 170 million have been turned into fully-fledged stock in that time, which would seem to defy logic for Insider - after all, who would not chase a seventeen-fold return? The back-of-the-envelope suggests that those who have exercised are probably $3 million up - and the remainder are theoretically about $22 million in the money.
An investor, Peter Ekstein, did submit a substantial shareholding notice, laying claim to 33.5 million shares as of July 1 from buying begun in January, but that is just a fraction of the turnover.
insider@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What drove Mirrabooka Investments' strong FY2011 result and steady dividend?
Mirrabooka reported a 39% net profit rise to $9.14 million for the 2011 year and kept its dividend at 6.5¢ a share. The improvement was driven largely by big gains in several holdings — notably Iluka Resources (which surged as zircon prices doubled), a strong performance from Campbell Brothers, and a $1.5 million gain from accepting the Healthscope takeover — although some of those gains were offset by losses such as the write-down on Customers Ltd.
How did Iluka Resources' share price rise affect Mirrabooka Investments' portfolio?
Iluka’s market capitalisation jumped from about $2 billion to about $7 billion over 12 months thanks to a doubling of zircon prices. Mirrabooka began the year with roughly $7 million of Iluka shares, sold about 500,000 shares to realise around $6.5 million, and finished the year with Iluka as its single largest holding at about $17 million.
Why did Mirrabooka sell part of its Iluka holding — was that about risk management?
Yes. The article explains Mirrabooka sold roughly one-third of its Iluka stake because the position had become large enough to unbalance the rest of the portfolio. The rationale was that while picking a winning stock is good, having too much exposure to a single winner raises risk if the stock moves the other way.
What does a rise in net tangible assets (NTA) per share mean for listed investment companies like Mirrabooka?
NTA per share is a common way to measure a listed investment company’s underlying portfolio performance. Mirrabooka’s NTA rose about 9% to $1.90 over the year, outpacing several peers mentioned in the article (for example Djerriwarrh +3%, AFIC +6.7%, Argo +5%). A rising NTA generally indicates the portfolio’s investments gained value during the period.
How did Campbell Brothers contribute to Mirrabooka’s returns during the year?
Campbell Brothers was one of Mirrabooka’s other big winners: Mirrabooka’s 280,000 shares grew in value from about $8.1 million to $12.8 million over the year, helped by roughly a 50% share price increase to above $45 each.
What caused the recent volatility in Qantas and Virgin Blue shares mentioned in the article?
The article notes several influences: regulatory moves by the Civil Aviation Safety Authority briefly helped airline stocks, the grounding of Tiger Airways affected sector dynamics, and mounting carbon tax concerns and European market turmoil later triggered sharp falls. The piece cites short-term moves such as Qantas rising about 20% to $2 then falling to $1.84, and Virgin rising to 35¢ before sliding to about 31¢.
Why did the exchange flag C@ Ltd, and what should investors watch for with rapid share price jumps?
C@ Ltd was warned by the exchange after its shares surged from 6.5¢ to 15.5¢ in 10 days on heavy volume following the company’s expansion into minerals. The exchange intervention highlights that very rapid, volume-driven price moves can attract regulatory scrutiny and may reflect speculative trading rather than long-term fundamentals — a warning sign investors should monitor.
What practical lessons for everyday investors can be drawn from Mirrabooka’s portfolio changes and takeover outcomes?
The article illustrates a few clear takeaways: diversification matters (large winners can unbalance a portfolio), active rebalancing can lock in gains and reduce concentration risk (Mirrabooka sold part of its Iluka holding), takeover bids can produce one-off gains (Healthscope) while other investments can suffer losses (Customers Ltd), and tracking measures like NTA helps compare performance across listed investment companies.
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