Mirrabooka AGM: key insights and updates
We proudly celebrated 25 years of investing for Mirrabooka at our 2024 Annual General Meeting (AGM). It was an opportunity for our investment team to present recent financial results and highlight how our portfolio has significantly outperformed both our benchmark and the ASX 200 Accumulation Index over our history. Here’s a recap of the key points discussed via shareholder questions at the AGM.
FY24 Performance Recap
Since inception in 1999, Mirrabooka has specialised in small and medium-sized companies on the ASX and NZX, delivering an impressive annual return of 12.4% per annum. This outpaces the S&P ASX Mid Cap 50 and Small Ordinaries benchmark return of 8.4% and the ASX 200 Accumulation Index return of 9.7%.
In FY24, Mirrabooka achieved a portfolio return of 17.4% (including franking), far exceeding the benchmark’s 8.7%. Our profit was $10.7 million, slightly down from $11.3 million last year, largely due to reduced contributions from trading activities.
Shareholders received total dividends of 13.0 cents per share, fully franked. This included a final dividend of 6.5 cents, a special dividend of 2.5 cents, and an interim dividend of 4.0 cents. Both final and special dividends were sourced from realised capital gains, offering potential tax benefits.
25 Years of successful investing
Investing in small caps involves higher risk but can deliver significant returns over time. This chart highlights what consistent outperformance can deliver over an extended period with the benefit of compound interest. It shows that $10,000 invested in Mirrabooka at inception has grown to 14x its initial value, far surpassing the ASX Small Ordinaries benchmark (8x) and the ASX 200 Index (9x).
Our long-term focus enables us to identify value in emerging companies before their growth potential is fully realized.
What are the main factors driving Mirrabooka’s outperformance, and what will sustain it?
Investing in emerging companies offers superior long-term returns. Early investment in quality companies provides attractive valuations before their potential is fully recognized, though it also involves increased risk.
Mirrabooka allows shareholders access to small and mid-cap companies that our experienced fund managers deeply analyse. Our key drivers of outperformance and sustained competitive advantages include:
Investment duration
Mirrabooka is a closed-end fund, which enables us to target long-term returns.
Mirrabooka is a closed-end fund, enabling a long-term focus. This approach allows us to invest during periods of market uncertainty, buying quality businesses well in advance of their success.
For example, we acquired Macquarie Technology Group (MTG) in 2017 when its earnings were dominated by declining telco revenue. We saw the potential in its pivot toward data centres, backed by a strong family founder. This foresight led to Macquarie Technology Group becoming our largest holding today, benefiting from the extensive growth in data centres.
2. A broader universe of quality companies
By investing in both small and mid-caps, we can hold on to winning companies as they grow.
Traditional small-cap managers must often sell holdings when valuations push them into mid-cap territory. Mirrabooka retains such companies, allowing shareholders to benefit from their long-term growth. For example, we held Car Group, REA Group, and Reece well beyond their transitions from small to mid-cap stocks, generating significant compounded returns.
3. Portfolio size: optimized for performance and cost efficiency
Our $650 million portfolio is ideal for finding smaller, under-researched companies.
We invested in HUB24, a technology provider for the wealth industry, in 2015 when its market cap was just $80 million and had minimal broker coverage. Since then, HUB24 has grown to $4.8 billion, with 13 brokers now covering it. Our early investment allowed us to capture years of earnings growth.
4. Company Access
Being part of a larger group allows us to regularly meet management and ask long-term strategic questions.
At Mirrabooka, we are in a relatively unique position in that companies generally desire us on their register. Being part of the wider AFIC group also helps us to get access to company management, and instead of focusing on what the next financial result will look like, we ask about long-term opportunities, and we get to go on that journey with them.
An example of why consistent and ongoing access to management is important is Gentrack. We met with Gentrack, a cleantech software provider, for years before investing. This relationship allowed us to understand its long-term outlook and invest decisively when the time was right. We bought Gentrack in May 2022 at $1.60; it is now worth over $10.
Are there plans to pass on more franking credits?
Mirrabooka consistently distributes franking credits responsibly while maintaining sustainable dividends.
After paying our FY24 final dividend, we retained approximately 33 cents per share in franking credits, a prudent reserve to support future dividends. As a listed investment company (LIC), we can smooth dividends over time using reserves, even during volatile markets.
One of the advantages of a LIC, particularly one with some scale as we have, is the ability to build up profit reserves over time to be able to continue paying dividends during times of market volatility. We can use reserves to smooth out dividends over time; in comparison, an ETF generally has to pay out all their profits in the form of distributions to their shareholders every year, preventing them from building reserves and increasing the risk of not being able to pay dividends through more turbulent economic times. Our long history of delivering fully franked dividends underscores our reliability and consistency.
Here's to another 25 years!
We remain committed to uncovering more compelling emerging listed Australian companies while maintaining our long-term investment in quality companies.