Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WAM Global Ltd (ASX:WGB, Financial) declared a final fully franked dividend of $0.06 per share, bringing the full year dividends to $0.12 per share, equivalent to a 5.4% dividend yield or 7.7% grossed up.
- The portfolio achieved a total shareholder return (TSR) of 29.2%, including franking benefits.
- The net tangible assets (NTA) increased to $2.52, with the company trading at an 11.5% discount to NTA.
- The investment portfolio outperformed both the MSCI World Index and MSCI Small/Mid-cap Index in the first two months of the financial year.
- The company has a profits reserve covering 6.4 years of dividends, providing a strong buffer for future payouts.
Negative Points
- The portfolio underperformed the MSCI World Index, which was up 19.8%, compared to WAM Global's 15.4% increase.
- The discount to NTA, although reduced, still stands at 11.5%, indicating a gap between market price and asset value.
- The company did not own high-performing stocks like NVIDIA, which accounted for a significant portion of MSCI World returns.
- Economic growth has stalled in several geographies, with concerns around inflation and interest rates impacting market sentiment.
- The Chinese economy remains weak, with house prices and consumption under pressure, affecting global market dynamics.
Q & A Highlights
Q: You mentioned a closing of the small cap discounts. Why do you think that will happen?
A: The discount is at historic lows due to factors like COVID, trade wars, and geopolitical risks driving investors to large caps. Additionally, passive money flows have favored large caps. As interest rates come down and valuations in large caps become extended, we expect small caps to outperform and the discount to close.
Q: What is the easiest way to calculate LIC performance after fees using an annual report?
A: The annual report, particularly the Chairman's letter, provides detailed metrics including NTA performance, TSR, and portfolio investment performance versus the market. The pretax NTA already includes fees, so you can use the opening and closing pretax NTA, adding back tax and dividends for a comprehensive view.
Q: There is a huge amount of USA debt not being repaid, which will impact the US dollar. Will this devalue assets?
A: While the US government debt is high and deficits are significant, the US Treasury prints US currency, so default is unlikely. This risk is more long-term, potentially affecting assets over a 5-10 year horizon, but not immediately.
Q: When a top 20 shareholder list features nominees such as HSBC or Citi Group, does that mean they're a broker holding shares on behalf of a customer?
A: Custodians like Citi Group can be used for multiple reasons, including separation of control and processing trades. They can represent brokers, funds, or individuals buying via platforms. While it may not reveal the underlying shareholders, it ensures efficient trade processing.
Q: Given the persistent discount to NTA, would you consider converting to an open-ended/ETF structure or offering shareholders a way to exit at NTA?
A: We believe the closed-end fund structure is advantageous as it prevents harm to shareholders from mass exits during market downturns. There are no plans to change the LIC structure at this stage.
Q: You mentioned at some point buying more cyclical stocks. What do you need to see to buy?
A: We look for earnings expectations that the company can meet or exceed and valuation multiples with sufficient margin of safety. We also consider self-help initiatives by management that can drive operational change and create value.
Q: The average price-to-earnings ratio of your top 20 stocks is 28 times forward earnings. Are you investing in discounted small to mid-cap stocks?
A: The top 20 stocks are high-quality, high-growth companies with strong margins and earnings growth. While their PE ratios are higher, they reflect the quality and growth prospects. The overall fund's blended PE is lower, and we continue to find opportunities in small and mid-cap stocks.
Q: The WAM Global price is where it was five years ago. Can you explain why this is?
A: While the share price is similar to five years ago, we've paid $0.475 in dividends, grossed up to $0.68 with franking credits. The NTA is currently $2.52, and the discount to NTA has impacted the TSR. We are focused on closing this discount over time.
Q: What proportion of shares do you typically expect to turn over each year?
A: Turnover varies based on market conditions and stock-specific factors. Historically, it's been around 30% per year, but it can increase during periods of significant market events or portfolio adjustments.
Q: With the hollowing out of the German Mittelstands, are you looking at lowering the investment portfolio's exposure to Germany?
A: Our German holdings are not exposed to the manufacturing sector. They include companies in healthcare, media, and technology, which are less affected by the issues facing German manufacturing. We have no plans to reduce exposure based on this factor.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
