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Djerriwarrh delivers profit of $44.5m and increases final dividend by 22%

Djerriwarrh delivers profit of $44.5m and increases final dividend by 22%

Djerriwarrh delivers profit of $44.5m and increases final dividend by 22%

Djerriwarrh’s full-year results for the 2021/22 financial year delivered a significant increase to the final dividend, along with increases to the profit and net operating result.

Profit performance

Our final dividend for the year ending 30 June 2022 increased to 7.0 cents per share fully franked, up 21.7% from 5.75 cents per share fully franked for the corresponding period last year. The increase is a result of higher company dividends and continued strong income from option activity. Total dividends for the year are 13.75 cents per share, an increase of 25% over last financial year’s dividend of 11.0 cents per share.

Djerriwarrh’s full-year profit was $44.5 million, up from $30.5 million in the previous period. This included a dividend of $6.5 million, which was non-cash but carries franking credits, from the BHP Petroleum/Woodside merger. Last year’s figure included a demerger dividend of $6.3 million from the Endeavour Group/Woolworths demerger. Excluding both one-offs, the Full Year Profit for the financial year was $38.0 million up from $24.2 million in the previous period.

The Net Operating Result, which we consider a better measure of the Company’s income from investment activity as it excludes the impact of open option positions, was $40.4 million. When the merger dividend is excluded, this figure is $33.9 million. The figures for the prior corresponding period last year are $31.3 million and $25.0 million (which excludes the Endeavour Group/Woolworths demerger dividend).

Key components of the results include income from investments rising to $37.2 million, up from $28.0 million last year and income from option activity of $12.5 million exceeding last year’s $12.1 million.

We are pleased with the increase in option income of 3.3% over the same period last year given the predominantly low levels of market volatility. When the market was significantly lower in February and March 2022, our call option coverage was also much lower at 25%. This enabled us to preserve some upside to capital growth when the market temporarily rebounded in April and May 2022, by which time our call option coverage had increased to 30%. Call option coverage finished the financial year at 28%.

Portfolio construction and management

We are focused on constructing a portfolio that delivers a suitable balance between short-term income yield and long-term growth in capital and income. As a result, we also have to be prepared to reinvest potential sizeable option exercise proceeds which typically occur in rising markets at appropriate times (as was the case for part of the financial year).

Major purchases were in high-quality companies we assessed as being able to deliver the right mix of income and growth. We significantly increased our existing holdings in several companies including Wesfarmers, James Hardie, Commonwealth Bank, BHP, Macquarie Group and Coles Group. We also added new stocks to the portfolio, including JB Hi-Fi, REA Group, Domino’s Pizza Enterprises, SCA Property Group and Cochlear. The Oil Search holding switched to Santos as a result of their merger.

Comparison to benchmark

As global central banks continued to raise rates more aggressively over the tail end of the financial year, the S&P/ASX 200 Accumulation Index returned -5.1% for the 12 months to June 2022 with a strong divergence of performance across sectors.

The Utilities and Energy sectors were standouts, with Information Technology and Consumer Discretionary the worst performers.

Our total portfolio return, including franking, for the 12 months to June 2022 was -6.5%, slightly below the S&P/ASX 200 Accumulation Index.

Outlook for the coming year

With equity markets experiencing significant change since the start of the 2022 calendar year, as equities repriced lower as monetary policies tightened globally, the upcoming Australian company reporting season takes on greater importance.

Lower revenue and higher costs are a real possibility, particularly for industrial companies, however banks and diversified companies appear to be well placed over the next 12 months. We await the results with interest and will be in a better position to assess the coming financial year after the local profit reporting season.

While market conditions will pose challenges, we believe the current portfolio settings and positionings should enable Djerriwarrh to achieve its objectives of delivering an enhanced level of income and an attractive total return over the long term.

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