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85.0¢ australian leaders fund limited

Ann: Net Tangible Asset Backing, page-25

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nickbell47

416 Posts.

27/02/17

11:58

Post #: 22930655
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Originally posted by marketmaker ↑

ALF has cut the dividend as I had suspected in one of my earlier posts. They've moved the dividend to 4c this half and only 50% franked! That means on a gross basis the dividend has declined from 7.1c (5c fully franked) to 4.9c. That is a 31% decline - quite a nasty surprise for those who rely on the sustainability of this dividend.

I thought I would re-run my previous analysis to incorporate January's performance to assess whether ALF will need to cut the dividend again in the next half and the numbers aren't looking too good.

ALF's profits reserve as at 31 Dec 2016 was $9.28m. To begin with, there appears to be some questionable accounting in the period. ALF made a profit for the first half of $4.22m but the profits reserve miraculously increased by $8.17m. In every previous result, the addition to the profits reserve has always been equal to the profit in that period - this is the first time that the numbers vary and that to by a very significant magnitude ($3.95m variance). Interestingly, this is also the first time that the sum of the profits reserve and accumulated loss reserve is actually negative which means ALF has already exhausted all prior period profits by paying dividends. I am very curious what the auditors checked when they signed off on these latest set of accounts but let's assume it is okay for the purposes of this analysis.

Assuming we believe the profits reserve is actually $9.28m, ALF has committed to paying $10.85m of dividends in April 2017 which are yet to be reflected on its balance sheet. Once these dividends are paid in April, ALF's profits reserve falls to -$1.57m! In addition to this, ALF's net performance in January was -0.7% which means that ALF has lost c$2.44m in January. Therefore, ALF's profits reserve is now down to -$4m on a pro-forma basis. In order for ALF to pay a 4c dividend in the second half, it needs to have $10.85m of earnings to distribute. Given it is starting from a base of -$4m, it needs to earn $14.85m in the period from 1 Feb - 30 Jun 2017. This means that ALF needs to generate a return of at least 3.12% in these five months to even maintain the rebased 4c dividend. If we back out the questionable profits reserve top up during the first half of $3.95m ($8.17m increase less the actual profit of $4.22m), ALF needs to earn $18.8m in the next five months or a 5.4% net return. While this is entirely possible, ALF has only managed to make a return of 2.4% in the last 1 year and 4.9% over the last 3 years which to me then suggests that this is a fairly hefty target for ALF.

I will be closely monitoring performance in the coming months in order to assess the sustainability of this 4c dividend but at this stage, it looks like it might be a stretch. ALF is still trading at a 7.7% premium to its $1.30 NTA when performance has been dismal and dividends are in decline! I was also a bit put off by the timing of the result announcement. Did they really think that by releasing the result after 5pm on a Friday night that no one would see it?

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Hi Marketmaker,

There is unlikely to be any premium after this goes ex (or maybe even today!) and I agree with nammuldi that management does believe its own bs. My so-called financial planner bought ALF for me Nov 2013 at $1.67, I doubled up at $1.435 in Dec 2014 (just before Braitling decided to sell down his holding) and even the cheaper half has spent little time since in the black.

The "we can't lose" is pretty right - from management's perspective. These guys took a huge "performance bonus" for FY2106 after recovering from the mess they made, cling to "performance since inception" and show no empathy to shareholders in my experience.

Nick

ALF Price at posting: $1.32 Sentiment: None Disclosure: Held
1 Upvote

0 Great analysis

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