The Argo Investments Ltd (ASX: ARG) share price is slipping today after the listed investment company (LIC) reported its half-year earnings for the six months to 31 December 2023.
Argo shares closed at $9.10 each last week. Today the LIC opened at $9.10 a share but has dropped 0.55% to $9.05 at the time of writing after falling as low as $9.03 this afternoon.
Still, investors might not be too disappointed given that the broader S&P/ASX 200 Index (ASX: XJO) is currently nursing a far more substantial 1.04% loss at present.
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Half-year report highlights EPS, profits drop
- Argo reported a half-year profit of $125.3 million for the first half of the 2024 financial year (1H24), down 8.5% on the first half of the 2023 financial year (1H23)
- Earnings per share (EPS) of 16.5 cents, down 9.3% from 1H23's 18.2 cents
- Unchanged interim dividend of 16.5 cents per share, fully franked,
- Net tangible assets of $9.33 per share as of 31 December, up from $8.75 at the end of 1H23
- Management expense ratio (fee) reduced from 0.16% to 0.15%
What else happened in 1H24?
Argo's investment portfolio increased by 5.6% over the six months to 31 December 2023. This figure includes taxes that Argo has paid, as well as the management expense ratio. That underperformed the benchmark S&P/ASX 200 Accumulation Index, which achieved a return of 7.6% over the same period.
Some major moves that the LIC made in its investment portfolio include opening a position in ResMed Inc (ASX: RMD) and buying up more shares in CSL Limited (ASX: CSL), Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS).
Positions in Liontown Resources Ltd (ASX: LTR), Insurance Australia Group Ltd (ASX: IAG) and Invocare Ltd were closed, reducing Argo's overall portfolio to 86 positions.
Investors seem to have been more optimistic over the latter half of 2023 than they were at the time of Argo's October annual general meeting (AGM).
Following the company's AGM in late October, the Argo share price fell more than 2% over just a few days. That was despite the company announcing that it expected an improvement in global economic conditions (which have subsequently proved prescient).
What did management say?
There was no specific commentary from Argo's management in today's report. However, here's some of what the company said on its half-year:
Holdings in [Clarity Pharmaceuticals Ltd (ASX:CU6)] (up more than +170%) and [Stanmore Resources Ltd (ASX: SMR)] (up nearly +60%) contributed positively to performance. However, gains were offset by negative returns from other holdings, including pathology and imaging provider [Healius Ltd (ASX: HLS)].
In general, Australian healthcare providers have lagged due to higher costs and lower utilisation levels. Not owning Fortescue Ltd (ASX: FMG)] materially weighed on relative performance, as did our underweight exposure to the major banks…
The share price performance was +5.4%, with Argo shares now trading at a slight discount to their NTA backing. Sharply higher returns from term deposits have decreased the comparative appeal of many equity investments, including listed investment companies (LICs). We expect this trend to reverse as the monetary policy cycle continues and interest rates fall.
What's next for Argo?
Despite the bullish performance of the ASX stock market over 2024 so far, Argo is approaching the coming year with caution. The company warned that "bullish sentiment has seen investors largely overlook consensus expectations of lower company earnings for the remainder of 2024 and cast aside concerns about slowing growth and/or a monetary policy misstep".
Argo is also warning investors not to discount geopolitical threats during 2024, including the upcoming US elections. However, the company also argues that "With a strong balance sheet, no debt and cash on hand, Argo is well positioned as we enter the new calendar year".
Argo share price snapshot
As you can see in the chart above, the Argo share price has struggled in recent months. The company remains down 4.74% over the past year but has gained 1.8% over the last six months.
At the current Argo share price, this ASX LIC has a market capitalisation of $6.84 billion, with a dividend yield of 3.82%.
