Listed investment company Argo Investments is looking to rev up its returns with the addition of a motorcycle distributor to its portfolio.
Argo has invested in Motorcycle Holdings (ASX:MTO), which was listed in April last year when it raised $46.3 million in its initial public offering. At listing it had a market capitalisation of a little over $75 million.
The stock rose steadily from its offer price of $2 a share after listing, hitting a peak of $4.48 in March. It fell back to $3.44 in May but has since climbed back to the current level of around $4.25.
Argo is a long-term Australian equity investor and obviously expects big things from Motorcycle Holdings.
The company has been in operation for 28 years and is Australia’s largest motorcycle dealership operator. It has 34 franchises operating out of more than 20 dealerships in New South Wales, Queensland and the Australian Capital Territory.
It sells new and used bikes, accessories and parts, and provides service, repair, finance, insurance and warranty. It sells most of the top-selling brands.
Profit was up strongly in 2016/17 and was well ahead of the prospectus forecast. Revenue was $209.3 million and net profit was up 74 per cent from the previous year to $8 million.
According to the prospectus, the company’s focus is on growing its core business organically and through acquisitions. With scale, it expects to improve margins by securing improved terms from suppliers.
Since listing it has acquired Sunshine Coast Harley-Davidson in Queensland, adding $8.5 million in annual turnover, Evolution Motorcycle in Epping, Victoria ($10.8 million turnover) and Action Motorcycle on the Gold Coast in Queensland ($6.8 million turnover).
Motorcycle Holdings was not the only new stock to enter Argo’s portfolio over the past year. Other new investments included QANTM Intellectual Property, oOh!media, Speedcast International and Murray River Organics Group.
It added to 26 existing holdings (there are 98 stocks in the portfolio), including Boral, CBL Corp, CSL, Estia Health, Rural Funds Group, Tabcorp Holdings, Tassal and Vocus Group.
It sold out of Asciano and DUET Group (both were subject to takeover), and ASX Ltd. It reduced its positions in Australian United Investment Co, Downer EDI, Milton Corp and Rio Tinto.
For the year to June, Argo’s net tangible asset backing rose 12.9 per cent after deducting all costs and tax, compared with the 14.1 per cent return of the ASX.
According to Argo’s financial report, its underweight position in the materials sector hampered performance relative to the broader market. “This portfolio positioning is not unusual due to Argo’s preference for companies that can generate growing dividend income, it does occasionally result in underperformance when mining stocks are in favour,” it says.
It paid a final dividend of 16 cents a share, fully franked, taking the total payout for the year to 31 cents. It was a record high dividend and it was the fifth year in a row that the payout was raised.