In a recent letter to the shareholders the company announced the intention to create a new ASX listed investment-company called Argo Global Listed Infrastructure Limited (AGLI).  AGLI has been established to invest in a diversified portfolio of global listed infrastructure securities, with the objective of providing both long term capital growth and dividend income for shareholders.
 
The Australian equity market currently only provides limited opportunities for investors to gain exposure to the infrastructure asset class across a relatively small number of 15 infrastructure securities in the S&P/ASX Infrastructure Index with a combined market capitalization of around $72 billion. In contrast, the AGLI portfolio will be constructed from an investment universe of some 350 companies worldwide with a market capitalization of about $4.6trillion. Argo also sees the creation and management of AGLI as an opportunity to grow external funds under management for the first time and add a new long-term income stream for Argo. Investors in AGLI will benefit from the experience of Argo’s team and its long track record in managing ASX listed investment companies, strong corporate governance practices and focus on prudent investment management.  


Allocation of the portfolio (Source - Company Reports)
 
This offering is an extension of the rather straightforward investment policy of ARG. Rather to offer returns from speculative short-term bets, Argo focuses on giving tax effective income and long term capital growth, secured by a spread of investments over the international economy. Current portfolio consists of investments in 103 companies and trusts representing a cross section of Australia’s enterprises, including a number with substantial overseas operations. A long-term investment philosophy is adopted in selecting the portfolio, which extends beyond the larger companies to include smaller companies where there is good quality management and prospects for sound earnings growth.
 
Argo’s investment team includes the executive management and a number of specialist research analysts. The research has two objectives – to monitor the portfolio of leading stocks and smaller companies, and to find new investments to complement the portfolio. Investment goal is to identify well-managed businesses with the potential and ability to generate growing and sustainable profits to fund increasing dividend payments. Argo generates its revenues primarily by harvesting the dividends and distributions received from the companies and trusts in the portfolio. Additional income is derived from the interest earned on cash deposits, premium income from writing exchange traded options and a small amount of share trading activity. In 2013-14 dividends and distributions made up 96% of Argo’s total revenue with the portfolio’s top 20 equity investments contributing 67% of the total revenue.
 
Argo’s cost of operation is relatively stable and lower than most of other managed investment products, due to the structure of an internally managed listed investment company which requires few employees to administer its business. In 2013-14 the company’s annual expenses were equivalent to 0.15% of average assets as compared to 0.18% in the previous years, with the main items being salaries, share registration fee and office rent. Low cost of the fund is important because in the last 15 years the company has given annualized compounded return of 9.5% as measured by movement in net tangible assets backing per share (assuming dividends are reinvested).
 
In 2014, the company gave a profit of $195.9 million, compared with $175 million in 2013. In 2014 earnings per share were 30.2 cents as compared to 27.7 cents in the year 2013. Year-end net tangible assets were $7.35 per share compared with $6.52 per share on 30 June 2013.  Total portfolio return for the year was 17.1 per cent as compared to 17.4 per cent return of S&P ASX 200 (without taking into account any costs or tax). The company received increased dividends and distributions from its long term investment portfolio.
 
Over a period of five years the company has increased its profit from 142 million to 195.9 million while earnings per share has increased from 24.2 cents per share to 30.2 cents per share. These are not very impressive growth numbers. Dividend of the company has increased in line with earnings, increasing from $149 million to $183 million over the five-year period, with dividend per share increasing from 25 cents to 28 cents over the five-year period. Shareholder equity has increased from $3,527 million to $4,869 million over the five-year period of 2010 to 2014. Net tangible assets per share, has increased from $ 5.82 per share to $7.35 per share over the five-year period of 2010 to 2014.
 
The company is currently trading at a stock price of $8.350. The company has a market capitalization of 5.59 billion and 667.67 million shares of the company are currently trading in the market.
 
Given the modest increase in earnings over the last five-year period, we believe that the stock is expensive at the current price of $8.350.

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.