Judd wrote:He, he, he. Sometimes it works, sometimes it don't. And still they make some money. Very interesting comment on the assessed value of SOL.

AFIC return stymied by sharp share rise
Ian McIlwraith
October 11, 2011

That bastion of conservative investing, Australian Foundation Investment Company, has been caught out on what ought to have been a profitable little $5 million play in Washington H. Soul Pattinson. Not that AFIC is likely to lose any money on the deal, it is just not going to realise what Insider calculates to have been a 15 per cent short-term return because of the sharp rise in Soul Pattinson's shares in recent weeks.

AFIC revealed late last week it had bought 30.66 million shares, or 5.2 per cent, of Souls Private Equity (SPE) - most of it in two large purchases from Perpetual and Select Asset Management. While the $5 million investment is a drop in AFIC's $4 billion ocean, it showed interesting strategic thinking.

Perpetual has been tipping out shares in SPE since its parent, Washington H. Soul, announced in September it wanted to privatise the company, due to what appeared to be a lack of market interest.
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Perpetual was no doubt driven by the fact that SPE shares were 7¢ before Soul Pattinson said it would spend some $85 million to buy everyone else out at 16.3¢ a share.

The funds manager has also been a critic of Soul Patts' corporate structure for its cross shareholdings that investors feel have been depressing the share price.

Soul Patts' offer for SPE also includes a share-swap option, based on the volume-weighted average price (VWAP) of its shares over the past two weeks.

The chief executive of AFIC, Ross Barker, who was in Sydney yesterday meeting shareholders, confirmed his group had been looking to swap its SPE shares for Soul Patts because the latter had been discounted in the market.

Unfortunately for Barker and AFIC, Soul Pattinson shares have leapt by almost $2 in just over a week after news that its 60 per cent-owned coal associate, New Hope Corp, had opened itself to offers after receiving unsolicited and unofficial bids.

That means the VWAP of Soul Pattinson shares, on Insider's calculations, has jumped from around $12.08 when the SPE bid was announced in mid-September, to $13.82 as of yesterday. If that is the case and the SPE takeover scheme goes ahead, AFIC could expect to get about 50,000 fewer shares in Soul Pattinson than previously expected - worth about $700,000.

The good news is that Soul Patts' market value of $3.3 billion is only the same as the value of its 60 per cent New Hope stake, based on yesterday's $6.24 close of the coal company. That means the market is valuing all its other assets at zero.

While there will undoubtedly be a tax bill for Soul Patts if it cashes in, given that New Hope directors are looking for a price north of $7 a share, that suggests there is still some upside in the share price.

Read more: http://www.smh.com.au/business/afic-ret ... z1aPYgTxGP

AFI – dividends of 13c and 8c (August NTA $4.38)
S/P now $4.05
Price target = $4.20, for Yield of 5%
Price target = $3.50, for Yield of 6%

ARG – dividends of 13c and 13c (August NTA $5.57)
S/P now $5.09
Price target = $5.20, for Yield of 5%
Price target = $4.33, for Yield of 6%

MLT – dividends of 39c and 37c (August NTA $16.04 less 44c ex-dividend = $15.60)
S/P now $13.80
Price target = $15.20, for Yield of 5%
Price target = $12.67, for Yield of 6%

AUI – dividends of 14.5c and 12c (August NTA $ )
S/P now $5.58
Price target = $5.30 for Yield of 5%
Price target = $4.42 for Yield @ 6%,

WHF – dividends of 8.5c and 8.5c (August NTA $ )
S/P now $2.54
Price target = $3.40 for Yield of 5%
Price target = $2.83 for Yield of 6%
Price target = $2.43 for Yield of 7%,

MIR – dividends of 6.5c and 3.5c (August NTA $1.79)
S/P now $1.65
Price target = $2.00, for Yield @ 5%,
Price target = $1.67, for Yield of 6%
Price target = $1.43 for Yield of 7%,

DJW – (August NTA $3.20) dividends of 16c and 10c
S/P now $3.45
Price target = $3.71, for Yield of 7%,
Price target = $3.25, for Yield of 8%,
(Because it has a policy of yield enhancement through covered calls, DJW gives up some share price growth in good markets)

MILTON INCREASES HALF YEAR PROFIT AND LIFTS INTERIM DIVIDEND

With additional shares on issue following the merger with Choiseul, Milton’s weighted average earnings per share, based on the underlying operating profit, grew by 6.5% to 44.4cents per share.

This enabled directors to declare an increased fully franked interim dividend of 38 cents per share. The interim dividend will be paid on 29 February 2012 to shareholders on the register on 15 February 2012.

“Milton’s larger investments performed well during the half with increases in ordinary dividends from Westpac, Commonwealth Bank of Australia, Washington H Soul Pattinson, BHP Billiton, National Australia Bank, Campbell Bothers and Bank of Queensland,” Mr Gooch said. “I think this result demonstrates the benefit of Milton’s long held investment philosophy which is to be a long term owner of well managed companies that reward shareholders with dividends,” he added.