The MFF Capital Investments Ltd (ASX: MFF) share price rose by over 4% today after the listed investment company (LIC) announced its half-year result to 31 December 2019.
Net profit and returns
MFF Capital reported a net profit after tax of $173.4 million, compared to a net loss after tax of almost $13 million for December 2018.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in a absolute dollar sense compared to last year's result, whilst generating a return of 10% in one year and 20% in another year shows profit doubling in dollar terms. LIC profits aren't consistent like normal operating businesses.
A better measure of performance is the change in the net tangible assets (NTA) per share. The pre-tax NTA at 31 December 2019 was $3.610, up 11.9% from the pre-tax NTA at $3.225 at 30 June 2019. The post-tax NTA at 31 December 2019 was $2.963, up 11.2% from June 2019's $2.663 figure.
Dividends
The internationally-focused LIC has declared an ordinary fully franked dividend of 2.5 cents per share, up from 1.5 cents per share a year ago. MFF Capital plans to pay a dividend of 2.5 cents per share every six months going forwards.
However, the LIC surprised investors by also declaring a special dividend of 20 cents per share. The special dividend alone amounts to a 7.5% grossed-up dividend payment.
The reason for the special dividend? MFF Capital said it reflected a review of recent circumstances including "record equity markets, the level of realised gains in recent periods by the Company and the Directors' preference for the Company to maintain a strong Balance Sheet." However, the company does not plan to pay additional dividends in the foreseeable future.
What are portfolio manager Chris Mackay's thoughts on 2020?
MFF Capital remains wary about the market after strong market appreciation that was more than the increase in the underlying asset/business values. He cautioned against expecting high future market returns.
The LIC will continue to target strong businesses with advantaged prospects for profitable growth, however he said that pricing of long-term opportunities remain far less attractive than a decade ago, and less attractive than 12 months ago.
He pointed to numerous warning signs of investors chasing yield and other opportunities. He warned that promoters are promoting new credit products, new leveraged buys, new industries, new illiquid unlisted markets and so on.
MFF Capital will continue with limited buying and selling and few portfolio changes. The focus will continue to be on businesses that are larger, profitable and have high volumes of trading.
Foolish takeaway
MFF Capital has proven to be a very effective LIC and I have high confidence in Chris Mackay that the LIC can continue to perform better than the ASX over the long-term. At a share price of $3.80 it certainly isn't cheap with its underlying assets or the NTA, but I'd still rather own shares of MFF Capital than the ASX index.
