The listed investment company is set for a windfall from Disney’s $72 billion bid for 21st Century Fox.
At its AGM in Adelaide on Monday, Argo Investments managing director Jason Beddow delivered some good news to shareholders, who had just learned that the LIC had underperformed the benchmark index in FY18 due to its underweight exposure to mining stocks.
“Following a heated takeover battle, we are in the process of fully exiting our position in 21st Century Fox, the latest edition of the company that started as News Limited, which has been in our portfolio since 1993,” Mr Beddow said.
In July, The Walt Disney Company, which owns and operates networks such as ABC and ESPN, and Fox shareholders approved the merger between the two companies.
News Limited was created in 1923 in Adelaide. In 1949, Sir Keith Murdoch took control and when he died in 1952, his son Rupert inherited a controlling interest. News Corporation itself was created in 1979 and grew into an extensive global media company.
In June 2012, News Corporation’s assets were split into two publicly traded companies, one orientated towards media, and the other towards publishing. Most of its media properties, such as the Fox Entertainment Group, 20th Century Fox and the BskyB holding, were renamed 21st Century Fox, with Rupert Murdoch as CEO.
The two new companies began trading on the Nasdaq on 1 July 2013.
“Since this time, traditional media companies globally have de-rated as Netflix and other mediums, including social media platforms like Facebook, grew their user numbers and eyeballs,” Mr Beddow said.
“While we were always likely to sell this holding at some time because Fox was no longer listed on the ASX, we knew the business well and while the share price was doing little, earnings continued to increase. We also were relatively confident that we would see a weaker Australian dollar, which would provide a much better time to realise any sale in Fox,” he said.
“This is an excellent example of the strong returns that we can achieve as a long-term shareholder, with pretax proceeds of around $100 million coming from this investment. More importantly, it is a great example of how a small Australian company can grow to be a large international success, with CSL probably the best current example of this.”
Argo Investments has net assets of over $5 billion and delivered a $218.9 million profit in FY18, up 3.5 per cent on the previous financial year.
Mr Beddow said that the company was pleased to advise that, for the sixth year in a row, its annual dividend has been raised, and that the 31.5 cents per share declared this year is another record high for Argo.
Argo holds an underweight position in metals & mining, and more particularly the smaller and mid-size resources companies, which contributed to underperforming the benchmark index this year.
“This positioning is not unusual for Argo due to our general preference for companies that can generate dividend income, and it does sometimes result in underperformance when particular sectors are in favour,” Mr Beddow said.
However, he noted that dividend increases from Macquarie Group, BHP Billiton and Rio Tinto boosted the group’s revenue in FY18, which helped to deliver Argo’s highest ever full year dividend.
Macquarie Group is Argo’s largest overweight individual stock position. Unlike its peers, Macquarie has escaped the wrath of the Hayne royal commission and added significantly to Argo’s performance in FY18.