Mark Freeman, Managing Director, CEO and Portfolio Manager of AMCIL (ASX:AMH), discusses FY24 half-year results.

Geoff Driver: Welcome. My name's Geoff Driver, General Manager, Business Development and Investor Relations for AMCIL Limited. I have with me today Mark Freeman, who's the CEO and Managing Director of AMCIL, but also the Portfolio Manager for AMCIL Limited. We're here today to discuss the results, which we've just announced for the half year to 31 December 2023. So, Mark, do you just want to touch briefly, as we start, what the major highlights of the result are?

Mark Freeman: Yeah, so I'll touch some of the features of the result, and then I'll come back and talk through the portfolio and some of the transactions. So, the half year profit after tax was $4.1m, which is pretty much in line with the previous corresponding period last year. The interim dividend of one cent per share, fully franked, is also the same as last year.

In terms of the portfolio performance over the six months to 31 December, the portfolio returned 11.7 per cent when we include franking. The index over that same period, including franking, was 8.3 per cent. And if we look back over the full year, so the 12 months, the AMCIL portfolio returned 21.2 per cent, including franking, whereas the index was up 14 per cent.

Geoff Driver: Mark, it was a very satisfying period for the portfolio performance over the six- and 12-month period. Do you just want to outline some of the reasons behind the strong performance?

Mark Freeman: Yeah, look, we've certainly got a quality focus within the portfolio, and some of our stocks had really good results and returns for the years. So, stocks like Hardie (ASX:JHX), CAR Group (ASX:CAR), Reece (ASX:REH), ARB (ASX:ARB), Goodman (ASX:GMG) all performed very strongly and helped drive the performance of the portfolio. So, again, you look to why that is the case. Certainly, there's a sense that interest rates have peaked, and, in fact, the market is starting to assume now that interest rates will be cut. When you have those environments, you tend to get a boost to the valuation of what you call quality companies or long duration, and some of those had very good runs, but that's only part of the story. And, as I touched on, these companies generally produce some really good profit results, and, ultimately, we're in companies for their long-term growth and profits, and therefore earnings and dividends. And as we saw in the reporting season in August, then the AGMs we saw towards the end of the year, that all supported the quality of the businesses we're in, although they probably had a bit of a valuation kick towards the end.

Geoff Driver: Thanks, Mark. So, I think the portfolio has undertaken quite a bit of change over the 12-month period and certainly that has benefited the portfolio performance. Do you just want to touch on some of the major changes and strategy behind the changes in portfolio over the six- and 12-month period?

Mark Freeman: Well, if you look at just particularly the six-month period, we did exit a couple of stocks. We took a position in Medibank (ASX:MPL) when they had their cyber incidents, and we talked about if you look through the framework for applying to AMCIL, we stick with the quality, so we certainly rate the management of Medibank (ASX:MPL) really highly. It's got a strong balance sheet, good returns, and it suffered a short-term event with that cyber incident. The stock got sold off, and then the market started to recover and move on from that story. The share price recovered. And so we've now exited that position, although the share price has continued to move up, but the purpose was to capture that dislocation in price in what we thought was a good-quality company.

We also did exit FINEOS (ASX:FCL) in the portfolio. Some interesting attributes to that business, but it's just struggled to produce the cash flow and the profits we would look for, and we've put that money into other stocks. So, if you say, well, where have we moved that money to, four of the new stocks in the portfolio... Each of them are smaller position. Objective Corporation (ASX:OCL) is one of those, IPD Group (ASX:IPG) did a capital raising and we participated into that, Mineral Resources (ASX:MIN) and Altium (ASX:ALU). And I guess the feature that cuts across all four of those, management teams that have high level of equity, and in some cases we would call them owner-driver businesses or have that owner-driver characteristics where the people running the company have large equity stakes. And we've seen over the years, when you have that dynamic in play, if we think they are good operators, good at running businesses, have the track record in each of those cases, highly profitable companies, typically good balance sheets, high return on capital, for the long-term investor, they tend to be great places to be.

So, we've introduced those into the portfolio, but they are smaller positions as well. And we'll continue to look for the dislocations in the more established businesses. As I pointed out, the Medibank (ASX:MPL) situation. For example, we topped up our NAB (ASX:NAB) holding during the year. We liked the management. We liked the people. They're achieving good return on equity now for a bank and we thought there was some value there. We added to that, and that's played out as well in the portfolio.

Geoff Driver: Thanks, Mark. So we've just talked about the last six and 12 months, which has been quite active in terms of the portfolio. What are your expectations for the next calendar year or this calendar year coming, I should say?

Mark Freeman: Yeah. Obviously, based on that movement in the markets... You know, the market's had a good run, and we're seeing it more fully priced, and certainly some of our stocks, as I said, have benefited from that. And then, from time to time, we do sell a few call options against our position. We're sort of a reluctant seller of good stocks, so sometimes writing call options can bring in some extra premium. We've done a little bit of that, and it probably means that where we're looking for value perhaps has moved away from those quality stocks at this point. But, as we saw throughout the last 12 months, the market always presents some opportunities. So, we watch the stocks we're in. We've also got a watch list of stocks we'd like to have. So, any dislocations in prices we get are of interest.

And, for example, Woodside (ASX:WDS) has been a bit out of favour recently. The market has been concerned about approval processes for new projects and the like. The stock has been quite weak, so, again, that's a situation where a large, established company has gone out of favour, so I've topped up our holding there. So, we'll look for those situations, but, in the meantime, we're not in a rush to do anything. We're certainly happy with the portfolio we have.

Geoff Driver: Oh, excellent. Thanks, Mark, and thanks for your time today.

Mark Freeman: Okay, thanks, Geoff.

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