Half-Year Report to 31 December 2024
Our focus on high-quality small and medium-sized companies continues to drive strong performance. The interim result for the six months to 31 December 2024 highlights the strength of this approach, with strong returns and an increased dividend. Below, we outline the financial performance for this period, the key driver of portfolio returns, and the actions we have taken to position the portfolio for sustained long-term success.
For the six-month period, the Mirrabooka portfolio return, including franking, was 11.5%, compared to the benchmark’s 7.5%. This contributed towards a strong 12-month return of 18.2%, including franking, which significantly exceeds the benchmark return of 11.1%, including franking.
Profit for the half-year was $4.6 million, consistent with the prior corresponding period. Revenue from operating activities, excluding capital gains, was $6.2 million, down 5.8% on the previous corresponding period.
The portfolio’s strong performance enabled a fully franked (at 30%) interim dividend of 4.5 cents per share, which is up from 4.0 cents in 2023. This represents an increase of 0.5 cents compared to the previous year’s interim dividend. This dividend will be paid on 18 February 2025 to shareholders on the register on 24 January 2025.
The dividend includes a pre-tax attributable gain, or “LIC capital gain,” of 6.43 cents per share, enabling some shareholders to claim a tax deduction. A final dividend for the 2024 financial year of 6.5 cents per share plus a special dividend of 2.5 cents, both fully franked, were paid to shareholders on 16 August 2024.
These results reflect Mirrabooka’s ability to navigate market conditions effectively and maintain a focus on identifying quality investment opportunities that offer sustainable long-term growth potential.
Portfolio performance and highlights
The robust performance delivered by the portfolio during the half was driven by strong contributions from holdings including Gentrack Group, Pinnacle Investment Management Group, Temple & Webster Group, Macquarie Technology Group, Netwealth Group, and Redox. These companies not only performed strongly in their respective sectors but also underscored the value of our deliberate investment approach. Our decision to maintain an underweight position in mid-sized resource companies, which faced considerable market challenges, further supported our relative outperformance.
Kieran Kennedy, Portfolio Manager, Mirrabooka, says, “It is important to recognise when you're benefiting from tailwinds in the market. Our investment style avoids cyclical companies, focusing instead on buying businesses for the long term. The best results come from companies that deliver the strongest earnings growth over time, and in the current environment, this approach has served us well.
“The broader market landscape in 2024 presented both opportunities and risks. High-growth industrial companies garnered significant investor interest, while resource-heavy sectors grappled with weaker sentiment,” Kieran adds.
Overall, the portfolio activity during the half-year was relatively subdued due to high valuation levels across the small and mid-cap sectors. We maintained a disciplined approach, focusing on opportunities aligned with medium- to long-term growth objectives. Purchases were carefully selected to maximize long-term value. We introduced Cuscal, a company with a critical role in financial infrastructure and a solid foundation for stability and growth. Channel Infrastructure, a dependable and strategic asset, also joined the portfolio. In addition, we added to our holdings in Life360, Cobram Estate Olives, and EVT, where we saw compelling value aligned with our long-term outlook.
We took a strategic approach to managing risk and realizing gains in some of our successful investments, including the takeover of PSC Insurance, which allowed us to exit this holding at a good price.
Given the strong performance and stretched valuations of Pinnacle Investment Management Group, Gentrack Group, and Breville Group, we reduced our positions. While high-quality, growing companies often sustain strong performance beyond expectations, these reductions reflect our careful approach to managing portfolio risk. Importantly, we retain material holdings in each of these companies, reflecting our continued confidence in their long-term potential.
JB Hi-Fi was sold after it pushed beyond what we consider sustainable levels, while Domino’s Pizza Enterprises was divested following disappointing results.
These actions ensure we maintain a surplus cash position of $19 million, or 3% of the portfolio. This cash reserve provides us with the flexibility to respond to attractive opportunities as they arise.
Looking ahead
In terms of the outlook for 2025, Kieran Kennedy, Portfolio Manager, Mirrabooka, says, "We always encourage investors to take a long-term view, as we do. Sustainable growth is built over time by focusing on businesses with strong fundamentals. With patience, focus, and discipline, we believe our portfolio is well-positioned to navigate market fluctuations and deliver consistent value to shareholders.”
Reflecting on the unpredictability of markets, Kieran observes, "When considering the outlook, it is important to acknowledge the inherent uncertainties. One consistent challenge is anticipating market movements over the next 6 to 12 months. While many may claim to have clarity, the reality is that no one can predict this with certainty. What we do know is that high valuations play a significant role in shaping long-term returns. Although they may not provide much insight into short-term outcomes, they reinforce the need for caution in our capital allocation decisions."
Valuation remains central to our decision-making process, guiding both new investments and the management of existing holdings. This disciplined approach ensures we stay aligned with our long-term goals, even as short-term market narratives evolve.
"We’ve been in a good position in equity markets, with recent gains reflecting optimism around abating global inflation and stable interest rates. While we remain cautious of valuation extremes in some sectors and prepared for the inevitable volatility that defines equity markets, our focus is on preserving the portfolio's quality and identifying opportunities aligned with our long-term strategy,” Kieran adds.
Despite market fluctuations, we remain committed to investing in businesses that reflect our principles and support consistent, sustainable performance for our shareholders.