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$1.600
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#Valuation-pt2
Last edited 2 months ago

Firstly, credit where it is due - the team at Wilson’s have done a fantastic job as custodian for my money for some time from WMI @$1.2-something to now.

The transition of portfolio manager as eluded to by Bear77 previously has gone off entirely without a hitch and the performance of the fund has been remarkable to date. The narrative at inception that the fund was a way of ‘returning to Wilson’s roots’ in the highly lucrative small-cap space has proven almost immediately true for the team and for early investors that backed this thing. The fund internally over this time has returned 24.7% p.a, higher for early investors who also now enjoy a cool 22% premium to NAV in on-market trade. 

Some explanation of this premium can be offered by the enormous profit reserve that the fund is now carrying at ~$0.435 per share at most recent report, or around 5.5 years of fully franked dividend funded by existing returns. I remember when WAX a few years ago were trading at up to a 50% premium due to similar (and, indeed, still trade at around 38% premium carrying just over 4 years of dividends in reserve), but for WMI to accrue this reserve over just a few years since inception in June ‘17 is remarkable and a testament to the quality of management here.

I should point out that, fundamentally, I find it absurd that some LIC’s are bought or valued based on their ability to pay dividends given that these dividends are a function of mostly capital gains internal to the fund. The idea that WMI may be able to use some of this profit reserve mentioned above to increase their dividend in the near term is entirely unimportant to me. What is important to me is the premium to NTA at ~22.2%.

I think the team managing this fund will prove over time that for some investors, the premium is justified by way of ultra long-term outperformance and resilience of strategy (especially in tough times). For me, however, this sort of premium doesn’t make much sense. My initial thesis for WMI was that gaining access to a fund (and at a discount!) that would likely outperform, net of fees, the returns that I might be able to otherwise achieve is an extremely attractive asymmetric bet. 

This thesis I wouldn’t say is broken, nor has it proven untrue but the small discount that I had been pointing to at the time is now a relatively large premium. I am not so absolutely confident that, net of fees, the team will outperform the returns that I could otherwise achieve in the current context of allowing myself a more than 22% head start. 

I would, however, note that I had probably underestimated the resilience of the portfolio strategy run by Wilson’s in the context of the rapid declines through March of last year. At one stage the LIC was trading at what looked to be around 20% discount to NTA or actually as low as $0.82, however the performance numbers released later showed that the fund outperformed quite soundly throughout this period. If we do see any issues with increased market volatility or rising interest rates/inflation over the next 1-2 years, I would think that the Wilson stable of funds are especially well placed outperform in these circumstances. 

There is an argument to be made that the most likely outcome for markets over the near-medium term is higher volatility though broadly sideways, and I think it a near certainty that WAM, WMI and WAX in particular will outperform in these circumstances. For a lot of people this might still be the right place for their money, but I will be enjoying from the sidelines for now.

 

(Disc: this position has been closed from my Strawman portfolio as at Friday, I do still hold in personal portfolio with sell order currently in market for the whole lot.)

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#Results / Dividend Increase
Added 3 months ago

02-Feb-2021:  Outperformance drives increased FF interim div and profit

  • +155.2% increase in operating profit before tax to $69.6 million
  • +36.4% investment portfolio performance in the financial year to date, outperforming the S&P/ASX Small Ordinaries Accumulation Index by +16.1%
  • +33.3% increase to FY2021 fully franked interim dividend - to 4.0 cents per share.

Note:  The HY2021 figures are unaudited; the audited half year results will be announced later this month (Feb 2021).  The investment portfolio performance and index returns are before expenses, fees and taxes.

--- click on the link above for the full announcement ---

I hold WMI shares.  I have previously explained why I prefer WMI to WAM Funds' flagship LIC, WAM Capital (ASX: WAM).  WMI (WAM Microcap) continues to outperform and keeps building on their healthy profit reserve, allowing them to continue to increase their dividends every single year at a good clip while still having plenty of years worth of dividends left in that profit reserve.  This provides a degree of comfort around not just the sustainability of their high fully franked dividend yield, but also that they can continue to increase their dividends - as they have been doing since inception (in July 2017, with first dividend paid in early 2018 and every dividend since being higher than the div for the corresponding prior period).

By contrast, WAM (WAM Capital) have only just managed to maintain their dividend at 7.75cps every 6 months (15.5cps/year) for the last 3 years, so no dividend increases since WAM's April dividend in 2018, due to their very low profit reserve, from which dividends are paid.

On top of that, WAM Capital (WAM) is trading at a larger premium (to NTA) than WMI is.  I actually bought WMI when they were trading at a small discount to NTA, and at 31-Dec-2020 they were at $1.89/share, some +18.9% above their $1.59/share NTA, while WAM was trading at a +23.9% premium to their $1.80 NTA. 

Yesterday (01-Feb-2021), WMI closed at $1.75, only +10% above their 31-Dec-2020 NTA, but WAM closed at $2.23, still +23.9% above their 31-Dec-2020 NTA (net tangible assets). 

WMI is up today, understandably, on the back of this positive results and dividend increase announcement, yet is still trading at a smaller premium than WAM Capital (WAM) is.  WAM have already announced their results, on 18-Jan-2021, and, as expected, have maintained their dividend at 7.75cps once again.  I know they have a very loyal shareholder base, who are loath to sell.  These guys are mostly self-funded retirees who bought WAM shares at much lower levels and are loving the dividends, even if they haven't increased in 3 years.  It is this lack of supply that is keeping the share price elevated, in my opinion.  WMI is a much younger LIC (listed investment company) and doesn't have the same level of shareholder loyalty, however when you look at them subjectively, WMI looks like a far superior option - to me - at current prices.

That said, I still prefer to buy these LICs when they are trading at around NTA or preferably at an NTA-discount, not when they have a double digit NTA-premium in the share price.  

Also, WAM Microcap (WMI), as the name suggests, invest in MICROCAPS, so there is elevated risk there compared to WAM where the average market cap of their portfolio positions is much higher.  However, as many of us here at Strawman.com do realise, if you do your DD (due diligence, a.k.a. homework) properly, smaller companies, while presenting elevated risk, often also produce above-average returns as well.  That has certainly been the experience with WAM Microcap since inception in mid-2017.

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#Reports
Added 9 months ago

03-Aug-2020:  Outperformance, increased FF final and special div, and SPP

[I hold WMI shares]  They rose +6.55% today on these results.  SPP will be priced at July 31 NTA.

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#Reports
Last edited one year ago

04-Feb-2020:  The WAM Microcap (ASX: WMI) Board of Directors announced today a 311.9% increase in operating profit before tax to $27.3 million and a 333.1% increase in operating profit after tax to $19.7 million in its FY2020 half year results*. The Board also announced a fully franked interim dividend of 3.0 cents per share, representing a 33.3% increase on the prior corresponding period and currently representing an annualised fully franked dividend yield of 4.2%**.

The fully franked dividend has been achieved through the strong performance of the investment portfolio since inception and the profits reserve available and is consistent with the Company's investment objective of delivering investors a stream of fully franked dividends. The Company's profits reserve is currently 28.3 cents per share and forms a part of the net tangible assets.

*The HY2020 profit figures are unaudited. Audited half year results will be announced to the market in February 2020.

**Based on the 3 February 2020 share price of $1.435 per share.

[taken from email sent out this morning by Geoff Wilson to WMI shareholders and others on their mailing list]

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#Valuation
Last edited one year ago

Just to add to the valuation straw just posted by #CamSmedts34

Firstly, good post.  Plenty of excellent points there.  It's no biggy, but Martin Hickson no longer works for Geoff Wilson or Wilson Asset Management Group (WAMG).  Marty left before the last WAM & FG Funds roadshow (which occurred in November 2019).  I spoke to Oscar Oberg in November and he is now the sole portfolio manager of WAM, WAX, WAA & WMI, while Matt Haupt is the lead PM of WLE and Catriona Burns is the lead PM of WGB.  Oscar said that Geoff has stepped back from portfolio management and with Chris Stott, their previous CIO (Chief Investment Officer) leaving and now starting up his own firm, the everyday portfolio management decisions are really left up to Oscar, Matt & Catriona, who have their own support teams of course.  Geoff has also recruited a new guy with plenty of experience in managing alternative assets to manage their new Alternative Assets LIC, which will be their 7th LIC.  Initially it will be the BAF assets that were previously managed by Blue Sky (BLA).  Management of BAF is in the process of being transferred to WAMG currently.  This has been announced by the BAF board to the ASX and I have spoken to one of the members of the BAF board - Miles Staude - who has confirmed that to me also.  BAF was trading at a 22% discount to their NTA when I last checked (last week), so you would also expect that to narrow once its management has fully transferred to WAMG and they start to promote the fund.  I currently hold BAF, WAM, WLE & WGB, and have held WMI, WAA & WAX in the past, and probably will again.

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#Company Presentations
Added 2 years ago

19-Nov-2019:  November 2019 Shareholder Presentation

Note: This Presentation is related to the WAM Group (WAM Funds) + FG (Future Generation) Funds November 2019 Australian Roadshow (which I'll be attending here in Adelaide next Wednesday) and covers all of WAM Group's 6 LICs:  WAM Global (WGB), WAM Leaders (WLE), WAM Capital (WAM), WAM Research (WAX), WAM Microcap (WMI) and WAM Active (WAA).

This one is for the Sydney leg of the roadshow, which includes their AGMs, but similar Presentations will be made at all of the venues they attend during the roadshow over the next couple of weeks.

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#Reports
Last edited 2 years ago

March 2019 Report for all the Wilson LICs - including WMI - see here.

WMI had a pre-tax NTA of $1.27 on March 31st.

 

September 2019 Report for WMI and the other Wilson LICs - see here.

WMI had a pre-tax NTA of $1.43 on September 30th.

WMI's outperformance against the ASX Small Ordinaries (ASX:XSO) Accumulation index is +3.1% in September, +10.4% over 3 months, +14.8% over 6 months, +10.1% over the year to September 30, and also +10.1% per year since inception (June 2017).  All positive ourperformance, hard to achieve for a micro-cap fund, especially since Oscar and Marty went to cash towards the end of calendar 2018 and missed the start of the rally in January 2019, so had substantial underperformance (-3.9%) against their benchmark index (XSO Accumulation index) in January.  They've staged a good recovery from there.  Marty has followed Chris Stott out the door, and it looks like Oscar Oberg is now the sole PM for WMI (WAM Microcap), WAM (WAM Capital), WAX (WAM Research) & WAA (WAM Active).  Matt Haupt and John Ayoub are still running WLE (WAM Leaders fund, the large-cap fund), and Catriona Burns is still in charge of WGB (WAM Global).  Geoff watches over them all of course but he has other priorities as well these days (philanthropy, protecting franking credits - and activism mostly it would seem, as well as spending time with family and smelling the odd rose, plus promoting healthy eating and how a healthy gut positively affects mental health).  I have shares in WAM, WAX, WLE & WGB, and it looks like this ex-dividend period might be a good time to get back into WMI.  The WAM funds often fall by more than the grossed up value of their dividends in the fortnight following their ex-div dates, as some people rotate into something else, and WMI went ex-dividend on October 7th (along with WAX & WAA).  WGB & WLE went ex-div on 11th October, and WAM (WAM Capital) went ex yesterday (17th October) so we're in that "ex-div" period now.

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