The FY24 company reporting season wrapped up at the end of August, delivering insights into the economic outlook for companies and highlighting Djerriwarrh’s (DJW) resilience amid market uncertainties.
Brett McNeill, Djerriwarrh’s Portfolio Manager, shared his insights on the performance of key company holdings, the value of strong dividends for shareholders, and the strategic positioning of the portfolio.
Dividends Highlight
Higher-than-expected company dividends were the highlight of the reporting season for Djerriwarrh shareholders.
We saw higher-than-expected dividends across financials and industrials, with particularly strong contributions from Woolworths, JB Hi-Fi, and Santos. JB Hi-Fi and Woolworths both paid special dividends. Blue-chip companies such as Commonwealth Bank, Wesfarmers, Transurban, Telstra, and Coles also continued to deliver solid dividend growth.
Although the resources sector saw a drop in dividends compared to last year, results still modestly exceeded market expectations. Dividends from BHP and Woodside were down, largely due to lower commodity prices, but this was anticipated. Despite the reductions, both companies continue to offer strong dividend yields. After its result, we added to our BHP position, confident it will contribute significantly to dividend income in FY25.
Stock performance and moves
JB Hi-Fi and Woolworths were standout performers within our portfolio this reporting season, both maintaining strong sales momentum. Woodside and Santos delivered solid dividends, strengthening their value in our portfolio and we made significant purchases of Woodside.
Market-leading companies like REA Group, ResMed, and Goodman Group also performed well, justifying their premium valuations. REA Group continued its impressive run of profit growth, with management confident there is more to come. ResMed posted strong profit and revenue gains, driven by its long-term growth potential in treating OSA patients globally. Goodman Group highlighted opportunities in data center development, revealing a 5GW portfolio across key locations, further solidifying its growth outlook.
During the reporting season, we increased our positions in BHP and Woolworths. This decision was guided by our strategy of investing in high-quality, large-cap blue-chip stocks with strong dividend yields and favorable valuations before their next dividend payout.
We also initiated a position in Ampol (ALD), Australia’s leading vertically integrated energy company, in August 2024, before the shares traded ex-dividend. We believe that Ampol is a much-improved business. The earnings mix is better, the balance sheet is solid, the quality of the network has improved, and management has demonstrated good capital allocation and discipline. These factors, combined with fully franked dividends, make it an attractive investment for both income and capital growth. While there are long-term risks tied to the energy transition and electric vehicles, Ampol’s current valuation offers a good entry point. The cyclical nature of ALD’s business means we intend to write call options against this position over time.
Post reporting season we participated in a capital raise by Auckland Airport (AIA). AIA decided to raise additional equity to partially fund its capex program, which runs over the next six to seven years. We view this as an attractive opportunity to invest in a high-quality, long-duration infrastructure company. Our additional investment of just over $5m brings them into our top 20 holdings.
Although the banks are fundamentally in strong positions, we continue to believe they are over-valued. We own a lot fewer banks today than was the case 18 months ago as a result of selling via call option exercises.
We also exited two holdings - Ramsay Healthcare and Fineos Corporation. Both these companies have been disappointing investments and hence we decided to sell our small remaining positions.
Key themes
Key themes of the reporting season included solid retail spending through to June 2024, although it slowed as the year progressed and some areas within the consumer sector are under increased pressure. Non-discretionary spending stayed stronger than discretionary categories, which gave a positive tilt to trading updates heading into FY25. For example, JB Hi-Fi’s trading update showed that sales stayed strong even after the reporting date.
Both Bunnings and Reece felt some pressure from a weaker housing market and slower building activity. Commonwealth Bank’s update highlighted how rising living costs are affecting Australian households, showing an increase in loan arrears, although from low levels.
Looking Ahead
Our approach remains both cautious and opportunistic, focusing on high-quality investments that are well-positioned for future growth. In navigating this complex environment, a consistent, forward-thinking approach is essential. Our strategy reflects this, as we continue to identify and capitalise on opportunities while managing the risks inherent in a constantly evolving economic landscape. The portfolio is positioned more defensively than was the case 12-18 months ago while we remain focused on delivering the right mix of income and growth for our shareholders.
In summary, the FY24 reporting season reiterated our confidence in the resilience of our portfolio and the strategic choices we’ve made. As always, we remain focused on delivering strong returns for our shareholders through thoughtful stock selection and careful portfolio management.