Bourse Discourse: ARG, BEN, BPT

Company News

by Glenn Dyer

Even with market sentiment having improved a bit, the pressure on companies to deliver this reporting season is higher than ever. While LIC Argo Investments met the challenge, both Bendigo and Adelaide Bank and Beach Energy felt the brunt of disappointing the market.


Adelaide-based Listed Investment Company (LIC) Argo Investments (ASX:ARG) has lifted final dividend sharply after reporting a surge in earnings for the year to June thanks to higher payouts and buybacks from banks, demergers and resource companies.

Argo reported a record full year profit of $312.9 million for the year to June and lifted final dividend 21.4% to 17 cents a share.

That took full year payout to shareholders to 33 cents a share, up nearly 18% on 2020-21’s 28 cents a share.

Excluding demergers in the year, Argo reported net earnings of $251.2 million, up 62.2%.

Argo said its higher profit “was driven by record dividend income received from companies in the investment portfolio, including significantly higher dividends from BHP and Rio Tinto.”

“Profit was also bolstered by one-off, non-cash income of $61.7 million due to the merger of BHP’s oil and gas assets with Woodside Energy and Tabcorp’s demerger of The Lottery Corporation.

During a volatile period, particularly in the second half, Argo said it outperformed the Australian share market by 4.2%.

“Our investment performance, measured by NTA )net Tangible Asset) return after management costs, was -2.3% compared to the S&P/ASX 200 Accumulation Index return of -6.5% over the 12 months to 30 June 2022. (In other words Argo’s returns fell, but at a slower rate that the wider market because of a different investment strategy)

“This strong relative performance reflects Argo’s conservative investment approach which focuses on company fundamentals, including profitability.

“As a result, we avoided several companies and sectors with inflated valuations, including many overpriced technology stocks and speculative mining businesses which fell sharply during the year.”

“Argo’s share price returned +1.6%, outperforming Australian shares by +8.1% and closed at a slight premium to the per share asset backing,” the company said in Monday’s ASX release.

Several holdings were removed from the portfolio due to mergers or takeovers reflecting the high levels of corporate activity during the year.

Argo said capital from these transactions was re-deployed into new investments and added to existing holdings. Overall, the total number of stocks in the investment portfolio increased slightly from 90 to 93.

Argo said top up or new purchases included Aristocrat Leisure ,Aurizon Holdings, BHP, EML Payments, Lendlease Group, Megaport (new) RAM Essential Services Property Fund (New) Santos, Superloop.

Sales or disposals through accepting takeover offers included: AGL Energy, Australian United Investment Company, Boral, Crown Resorts, Oil Search (takeover), Spark Infrastructure (takeover), Sydney Airport (takeover), Washington H. Soul Pattinson.

Looking at the coming year, Argo was guardedly optimistic, though very cautious.

“In more recent weeks, Australian (and global) shares have rallied on expectations that interest rates will peak sooner than previously expected. Despite the general optimism, current indicators provide conflicting signals for the trajectory of the Australian economy.

“On the one hand, company balance sheets remain strong and consumers appear reasonably resilient with high savings in reserve, unemployment at historic lows and wages rising, albeit modestly.

“However, there are numerous uncertainties in the economy, including softening commodity prices, continuing COVID-related disruptions such as workforce shortages and adverse weather events which are having prolonged effects on parts of the economy. Overseas, geopolitical factors threaten stability in the region and globally.

“Households are likely to come under growing pressure as living costs increase and inflation remains at 30-year highs. Interest rates are rising and are now at levels not seen since 2016. Following a decade of cuts to the official cash rate, many home-owners are facing the first ever increases to their mortgage repayments,” Argo said.

The shares edged up 0.7% to $9.57.


Investors gave a real thumbs down to the full year result from regional lender Bendigo and Adelaide Bank (ASX:BEN) on Monday, even though it reported a 9.4% rise in cash profit for the year to June and lifted annual dividend 6%.

Cash earnings nudged over the half a billion mark for the first time but its net interest margin (NIM) was crunched again.

Cash earnings just made it over the half a billion mark to $500.4 million – statutory profit was $488.1 million, down 6.9%.

Revenue for the year edged up 0.4% to $1.09 billion. Bendigo and Adelaide saw second half revenues dip as margins fell under pressure from the record low rates which only started being reversed towards the end of the June period.

The bank’s net interest margin fell 21 points to 1.74% thanks to the final impact from the low interest rates which hit margins in the second half.

Operating expenses were down 1.1% to $1.016 Billion which helped take the bank’s cost to income ratio under 60 cents in the dollar to 59.4 cents from 60.3 cents in 2020-21. That was due to a fall in expenses in the June half.

The bank will pay a final of 26.5 cents a share, taking the full year payment to 53 cents a share up 6% from the 50 cents paid the year before.

“This decision supports our strong capital position and business outlook, while balancing our commitment to supporting shareholders with a fair return,” directors said in Monday’s release.

Directors were also confident the fall in the NIM would be reversed, saying in the statement to the ASX that its “net interest margin (NIM) declined 11 basis points on the previous half reflecting the historically low interest rate environment.”

(But the real comparison wasn’t with the previous half but with the previous full year and there the damage was more significant – down 0.21% or 21 basis points.)

“Variable and fixed rate residential loan competitive pressure contributed around 15 basis points of decline over the half, partially offset by improved funding costs,” directors said.

“The positive impact of rising rates is flowing through to NIM and will have a more significant impact in FY23,” they added.

“Impaired loans have continued to fall and credit expenses were a net positive as we recorded a $27.2 million write- back, continuing the steady unwinding of provisions raised directly in response to the pandemic. The Bank remains well provisioned and has raised new overlays to address forward looking risks given the economic environment.”

Directors added the bank’s “credit quality remains sound with gross impaired loans down 36 percent – or $75.7 million – to $133.1 million year-on-year accounting for 0.17 percent of gross loans. Arrears rates across the portfolio remain benign.

Despite these small positives, investors focused on the slump in its net interest margin and sold off the shares by more than 8% taking them to a close of $9.88 on Monday.

CEO Marnie Baker said on Monday, “These results show we have delivered what we promised in a challenging and competitive environment. Bendigo and Adelaide Bank has delivered continued growth in loans, deposits and customer numbers. We have reduced costs and improved our cost to income ratio while maintaining a strong balance sheet and preserving our credit quality.

“We have achieved a fourth consecutive half of positive jaws and our transformation agenda is on track. Our performance for FY22 is evidence that our strategy is working. The Bank is proud of the progress it has made and the discipline we have shown however we know we have more to do.

“We are Australia’s most trusted bank and stand out with our leading customer advocacy and satisfaction scores. Our purpose of feeding into the prosperity of the community, and not off it, sets us apart and gives us a competitive edge.”

“Our journey to become a bigger, better and stronger bank continues. We have reduced the number of core banking systems and technology applications, while our new digital mortgage offering, Up Home, has taken its first applications,” Ms Baker said.

“The external environment has become more complex and this has sharpened our focus and concentrated our efforts. We will continue to manage costs diligently, strengthen the returns we derive from our investments, and improve returns to shareholders.

“While our strategy and vision remain the same, as we enter a new financial year we will continue to strengthen our focus on returns, execution and sustainable growth and capital generation as we drive the business forward supporting and enhancing the experience for our customers.”


Shallow pockets in the boardroom and investor scepticism about the quality of parts of the result made for a rough day on the ASX yesterday for Beach Energy (ASX:BPT) in the wake of the release of its 2021-22 results, which saw the shares close down 11%.

Beach reported a 13% lift in revenue as higher world prices for oil and gas allowed it to more than offset despite the already reported dip in production for the year to June, a cut in its reserves and a not very upbeat production forecast for the new financial year.

Production fell 15% to 21.8 million barrels of oil equivalent (MMboe) in the year to June, which was revealed in the company’s 2021-22 production and sales report in July, so that wasn’t new.

The low dividend, the 16% plus fall in reserves and a small rise in forecast output this year at best saw investors sell down the share by more than 11% to $1.64 on Monday.

That was despite that 13% rise in total revenue of $1.8 billion; the 17% lift in underlying EBITDA to $1.1 billion and a 39% jump in underlying net profit after tax up to $504 million.

The Kerry Stokes dominated company – his Seven Group Holdings owns 30% – could only manage a parsimonious payout of one cent a share for the unchanged final after a one cent a share for the unchanged interim. The two cents a share was unchanged from the previous year.

The report revealed that Beach had experienced a 16.5% in reserves over the year, partly due to downward revisions in reserves as well as production which was not replaced..

“Beach ended FY22 with 283 MMboe of 2P oil and gas reserves (30 June 2021: 339 MMboe). The decrease was mainly attributable to production (-22 MMboe) and Bass Basin revisions (-25 MMboe). The opportunity to increase reserves was limited without exploration or appraisal drilling in FY22 outside of the Cooper Basin.

“Bass Basin revisions resulted from re-classification of the Trefoil project from reserves to contingent resources and an associated reduction of Yolla economic life. This follows deferral of the Trefoil development decision, as announced on 20 May 2022. Other revisions included:

  • In Western Flank Oil (Cooper basis), exploration success, appraisal of Martlet, infill drilling and production performance at Spitfire and Growler, offset by fracture stimulation results at Balgowan, infill drilling results at Kalladeina and production performance at Bauer;
  • Revised modelling assumptions in Western Flank Gas and the Taranaki Basin;
  • Additional development of Moomba South and production performance in the Cooper Basin JV; and
  • Infill drilling and production performance in the Otway Basin.

Those significant changes were not highlighted in commentary by Beach or CEO Morne Engelbrecht, who said in the report:

“The 2022 financial year brought into sharp focus the important role natural gas currently plays in providing energy security, and will continue to do so for decades to come. Beach continues to play its part by investing in new gas supply for domestic users.

“Beach’s multi-basin strategy is to develop the assets within our portfolio, keep our plants processing at higher rates for longer, and in doing so maximise gas supply. The benefits of this strategy were clearly evident in our financial results this year.

“Despite lower production, increased demand and pricing for our products saw a rise in earnings and cash flows. Total revenue increased 13% to $1.8 billion and underlying earnings before interest, tax, depreciation and amortisation increased 17% to $1.1 billion.

“These results contributed to a strengthening of our financial position. We ended the year with total available liquidity of $765 million and $752 million in free cash flow pre-growth expenditure generated. This leaves Beach in great shape to deliver its current growth projects and balance longer-term growth aspirations with capital management initiatives.

“In the field, Beach is demonstrating its ability to deliver large and complex projects. Beach is safely achieving key milestones which are de-risking growth and strengthening the foundation for our FY24 production growth target.

“In the offshore Otway Basin, the seven-well drilling campaign was successfully completed and delivered one new gas discovery at the Artisan field and six successful development wells in the Geographe and Thylacine fields. Geographe 4 and 5 were connected to the Otway Gas Plant and contributed to a 47% increase in Otway Basin production. Connection of the final four wells in mid-2023 is targeted.

“In the Perth Basin, the transformational Waitsia Stage 2 project commenced with good progress made on plant construction and development well drilling. First LNG sales in the second half of 2023 is targeted, which will herald Beach as a new entrant in the global LNG market.

“Another key milestone was the recent signing of the LNG Sale and Purchase Agreement which will see bp purchase all 3.75 million tonnes of Waitsia Stage 2 LNG. This is equivalent to ~200 million MMBtu of LNG which represents material revenue from LNG to Beach over the five-year term.”

Investors were also not encouraged by no real growth in the 2022-23 production guidance of between 20 to 22.5 MMboe in FY23 compared to 2021-22’s 21.8 MMboe.

Capital expenditure is predicted to be between $A800 million and $A1 billion, in comparison to $A872 million 2021-22.

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