CEO and Managing Director Mark Freeman and Portfolio Manager Kieran Kennedy discuss the FY24 full-year results of Mirrabooka Investments (ASX:MIR).

Geoff Driver: My name's Geoff Driver, General Manager of Business Development and Investor Relations for Mirrabooka Investments (ASX:MIR). I have with me today Mark Freeman, who's the CEO and Managing Director, and also Kieran Kennedy, who's the Portfolio Manager for Mirrabooka Investments.

So, Mark, we just announced our results for the financial year 2023-24. Perhaps you could just take us through some of the highlights.

Mark Freeman: Yeah, so I'll do that. I'll cover off the results and then I'll pass over to Kieran to talk through the portfolio activity.

So, the full-year profit was $10.7m, slightly down from $11.3m in the corresponding period last year. There was a decline in the contribution from the trading portfolio, delivering $1.3m this year versus the large contribution of $3.4m last year. This was somewhat offset by the strong income contribution from the option portfolio, which was $2.5m versus $1.3m last year. The final dividend was maintained at 6.5 cents per share fully franked. A special fully franked dividend of 2.5 cents per share has also been declared following the strong realised capital gains from this and previous years. This brings total dividends for the year to 13 cents per share fully franked. Last year's total dividends were 14.5 cents per share, which included a 4.5 cents special dividend.

The 12-month portfolio return for Mirrabooka including franking to 30 June was 17.4 per cent. Our benchmark, the combined S&P/ASX Mid Cap and Small Cap Indices, returned 8.7 per cent over the same period.

It is interesting to note that Mirrabooka celebrated its 25th anniversary this year. The portfolio has outperformed benchmarks over the 25 years and has delivered a 12.4 per cent per annum return when you include the benefits of franking. The management expense ratio for the year remains low for this type of product at 0.56 per cent with no additional costs.

Geoff Driver: Thanks, Mark. Kieran, Mark touched on the portfolio performance, which was outstanding for the year. Perhaps you could just take us through some of the key drivers behind such a strong performance.

Kieran Kennedy: Absolutely, Geoff. Look, so it was a year where a number of our core larger holdings all performed quite well together, which obviously does help with the portfolio performance overall. A stock that we've talked about at the last three of these briefings, it's only been in the portfolio for two years, but it's going to get a mention again, that's Gentrack (ASX:GTK), which has actually risen now. We bought it two years ago as a reasonably modest initial investment. It's actually been up 500 per cent in that two-year period. It's now risen to be one of our largest five holdings and, for the financial year, it was up another 160 per cent. So, incredible performance in a short period. That's what excites us in this area of the market -- it's possible to do this. And most importantly for this company, the outlook still looks really strong. We think there's been a bit of valuation catch-up, and now it's really about the growth that this company can deliver for many years to come into the future.

Other really good performers have been mainstays in the portfolio. People that follow us closely will know these companies have been in the portfolio for a long period of time. Businesses like the financial platform software providers, HUB (ASX:HUB) and Netwealth (ASX:NWL) both had a very strong year. The online classified businesses, REA (ASX:REA) and CAR Group (ASX:CAR), particularly strong year again. Temple & Webster (ASX:TPW), which is one that's been a bit rocky for us in our period of owning it over around a four-year period, it's had a really good rebound. It's delivering very good sales growth. It's been very strong. And then, other companies that have been in the portfolio forever really, companies like ARB (ASX:ARB), Reece (ASX:REH), you know, really strong returns again, so very consistent across our top 20 investments for this year.

Geoff Driver: And I suppose that's the point, Kieran. A lot of the performance... So, you talked about Gentrack, but a lot of the performance really comes from that very long-term holdings, which is why we sort of manage the portfolio in terms of focusing on those quality stocks.

Kieran Kennedy: Absolutely, Geoff, yeah. And, look, the other thing that's sort of helped in that year has been... I guess the thing that we talked about in years prior that had been hurting us relatively had been the strength of a number of commodity stocks that we're not typically as exposed to. Particularly that lithium space had been particularly strong for a number of years. And we've seen that unwind quite significantly in the last 12 months. So, I guess we've got the benefit on both sides of that in terms of outperforming over that 12-month period.

Geoff Driver: Thanks, Kieran. So, in the context of the market and what's gone on in terms of a relatively strong market, what adjustments have you made through the portfolio for the year?

Kieran Kennedy: Yeah, look, I guess that backdrop that I've just described has created an interesting dynamic for the way we've transacted this year. At our core, we're a long-term buy-and-hold investor. You know, we think the most important thing is to stick to really great companies and let their results dictate our performance. But we are mindful that the valuation of a lot of those companies has picked up quite a lot in that year. We don't really think their outlook has changed greatly in terms of five years and beyond, the things we look at, but the recognition in the market has come through. So, we have had a year where we've actually trimmed more in those positions than we ordinarily would. What that's meant is there's still top 20 holdings. We haven't sold any of these good companies. But just in reducing those positions, it's meant that rather than just compounding them and letting the weightings grow again, at these valuations we felt like paring them back slightly and looking to redeploy that money where we see better relative value on a medium-term view. So, what that's meant is around $60m in a net sense has come out of top 20 investments from last year, and that's been redeployed into new opportunities spread around a bit. We have bought 14 new stocks. We have nine more holdings than we had 12 months ago. Again, we're looking for some of those... Hopefully, we find another Gentrack, but some of those initial positions in some interesting opportunities going forward.

Geoff Driver: And Mark touched on the performance of the options book. I guess that was part of the strategy as well.

Kieran Kennedy: Yeah, that's right. So, options is something we don't use all the time in Mirrabooka. It's something that's available to us. Obviously, one of our sister funds in Djerriwarrh does this every day. Where we use them is I guess as an initial reflection on that valuation sense. So, before we're ready to sell something, we'll often say, "If that share price runs much further from here, we'd be happy to lose some at that price." So, really, you're selling that option to someone else who's taking a bullish view that the price of a holding we have is going to keep rising. When we do that, we generate some income and that helps supplement our income that we can pay out to our shareholders.

Geoff Driver: Thanks, Kieran. So, Mark, moving forward, the outlook for the next six to 12 months, have you got a view? And I'll perhaps also pass back to Kieran in terms of the small-, midcap sector as well.

Mark Freeman: Yeah. Well, the environment Kieran talks about is a backdrop where we think markets have had a pretty good run. Some of the metrics we look at indicate the markets are pretty full. We don't try and forecast where it's going, but we do observe the valuations and some of our better-quality stocks have really pushed up a fair bit, but the outlook's still good. And so, in that regard, we're just a bit cautious more broadly and a bit more selective about where we're looking for opportunities. And, as Kieran pointed out, just sort of spreading the portfolio a little bit and having some money across perhaps a broader range of stocks rather than being a bit more concentrated in the highest quality because, as I said, the valuations are pushing up a bit. But broadly, we still want to stick with the great companies. You know, history shows that they can get overvalued, but patience is required, but certainly around the edges we can pursue some other opportunities in the shorter term.

Geoff Driver: Sure. And, Kieran, have you got any sort of follow-up comments to that?

Kieran Kennedy: Yeah, look, I think that word that Mark mentioned there is key for us at the moment -- "patience". So, I guess, given what we did in the financial year we've just seen... You know, nine new stocks sort of take us up into the mid '60s. We wouldn't see ourselves doing that again. You know, you don't want to spread yourself too far and wide because then you lose the real intel you have on those companies. So, I guess, having done that last year, we still like those companies that are more fully valued now that are key components of the portfolio. We don't want to sell them down too far. So, it's really just waiting now to see what comes next in terms of some volatility, what opportunities shake out of that, and then really picking those really compelling ones and looking to take advantage of that in the portfolio going forward.

Geoff Driver: All right, Mark and Kieran, thanks very much for your time.

Kieran Kennedy: Thanks, Geoff.

Ends