Argo has lifted first-half profit on the back of improved dividends from its investments in BHP Billiton and Rio Tinto.
The company on Monday said profit for the six months to December 31 rose 6.2 per cent to $110.5 million, driven by a 8.4 per cent increase in dividend revenue.
Argo reaped the benefits of stronger commodity prices that allowed Rio Tinto to declare a record interim dividend in August, and helped BHP Billiton lift its dividend after returning to profitability.
But managing director Jason Beddow warned the relative spike in dividends was largely because the same companies had reduced their payouts when under pressure 12 months earlier.
He said growth in revenue from resources investments should continue in the second half, albeit at a slower pace.
“We expect the dividends to grow from the mining companies, but nowhere near that sort of magnitude,” Mr Beddow told AAP.
“The cash flow of the mining companies is pretty good and they are at a point in the cycle where they are generating a lot of cash and not spending a lot of money on capital, and commodity prices are pretty good.”
Argo purchased $99 million worth of long-term investments over the period – including in Telstra and Westpac – and received proceeds of $49 million from long-term investment sales such as Westfield and Woolworths.
The number of stocks held in the portfolio reduced slightly to 96 and the cash balance was $235 million, representing 4.2 per cent of the company’s total assets.
Revenue rose four per cent to $118.9 million, while earnings per share grew 4.6 per cent to 15.9 cents.
But the group remains cautious on new investments, despite the positive economic outlook for Australia, and is wary of relatively high valuations in some sections of the Australian share market.
“We feel that valuations are looking further stretched with some frothy areas of the market emerging,” Argo said.
“The larger-cap end of the Australian market outside of resources looks to be where there may be some better value.”
Mr Beddow said February’s upcoming “tsunami” of company results may provide some opportunities for further purchases.
“We are about to walk into reporting season over the next few weeks and that usually throws one or two ideas,” he said.
“It is a time when you see the accounts again, meet management and you get to re-base your expectations, either positive or negative.”
Shares in Argo were down one per cent to $8.00 at 1240 AEDT on Monday.
ARGO’S DIVIDEND BENEFIT:
* Profit up 6.2pct to $110.5m
* Revenue up 4pct to $118.9m
* Interim dividend up 0.5 cents to 15.5 cents per share, fully franked