Djerriwarrh Investments H1 Earnings Call Highlights

Djerriwarrh Investments (ASX:DJW) executives used the company’s half-year results briefing to emphasize the listed investment company’s income-first strategy, while also addressing the drivers of recent underperformance versus the broader share market and outlining portfolio repositioning over the past six months.

Income objective and dividend settings

Portfolio Manager Brett McNeill reiterated that Djerriwarrh’s primary objective is to deliver an “enhanced level of fully franked income” with a dividend yield higher than the broader market. As of Dec. 31, 2025, management cited dividends over the prior 12 months totaling AUD 0.155 per share, equating to a 6.6% dividend yield (including franking credits) measured on net asset backing (NAB). On the same basis, management said the ASX 200 yield (including franking credits) was 4%, implying an “enhanced yield” of 2.6%.

McNeill also noted that using the share price at Dec. 31, 2025, Djerriwarrh’s dividend yield was 7.1% (including franking credits). For context, the company referenced a 12-month term deposit rate of around 4.1%.

CFO Andrew Porter said the board declared a dividend of AUD 0.0725 per share for the half-year, which he described as the final six-monthly dividend. Djerriwarrh plans to move to quarterly dividend payments going forward, and Porter noted that this change means shareholders will receive an extra quarter’s worth of dividend in the current financial year. Management said the first quarterly dividend payment is expected in May 2026.

Half-year profit summary and cost ratio

Porter highlighted the company’s “net operating result” as its key profit measure, describing it as profit excluding the impact of the open options position and the figure used by the board when setting the dividend. The net operating result for the half-year was AUD 19.7 million, down from AUD 21.0 million, which Porter attributed largely to lower dividends received compared with the prior corresponding period.

McNeill walked through a summarized profit and loss statement, saying the net operating profit was driven primarily by:

• Dividend and distribution income of AUD 16.6 million, down 8%.
• Option income of AUD 7.5 million, flat versus the prior period.

He said finance costs increased to AUD 0.9 million and administration costs declined to AUD 1.8 million, resulting in an operating result before tax of AUD 22.2 million and an income tax expense of AUD 2.5 million. On a per-share basis, management cited net operating profit of AUD 0.0749 per share, which it said covered the AUD 0.0725 per-share dividend.

On costs, Porter reported a management expense ratio of 0.38% (the cost of running the company over total portfolio value), compared with 0.46% in the prior year, which he described as “unusually high.” He said the current level was more in line with prior years.

Dividend income trends and option income expectations

McNeill said dividend and distribution income has declined over the last two half-year periods, reflecting a broader market backdrop where dividends from large companies—particularly resource stocks such as BHP and Rio Tinto—fell over the last six months. He also pointed to Djerriwarrh-specific factors including portfolio repositioning following option exercises in banks and a more defensive stance that included holding more cash than usual.

Despite the recent decline in dollar income, McNeill said that on a yield basis Djerriwarrh’s dividend and distribution income remained above the market in the most recent periods shown. Looking ahead, he said the expectation is for the portfolio’s dividend yield to be “around the level of the market,” referencing the ASX 200.

On options, management again emphasized covered call writing as a key contributor to the enhanced income objective. McNeill said option income was AUD 7.5 million for the period, and that on a yield basis the option income yield was about 1.7%, the same as the prior year. He added that an option income yield around 1.7% is considered a “reasonable expectation” for future periods, while noting it depends on market conditions.

Why returns lagged the market

While management stressed the focus on income, it also addressed Djerriwarrh’s secondary objective of generating attractive long-term total returns. McNeill said the company’s one-year total return of 5.5% lagged the market’s 11.5%, and that this gap flowed into longer-term comparisons. Over five years, Djerriwarrh’s total return was cited as 8.6% per annum (including franking credits), compared with 11.3% for the broader share market.

McNeill attributed the last 12 months of portfolio underperformance to three broad factors:

• Large holdings that detracted: He cited CSL (down 37% in calendar 2025 on a total return basis) and ASX (down 18%). McNeill described CSL as having suffered a “huge derating” after a poor 2025 profit result, but said the company still sees long-term growth potential and intends to maintain the holding. For ASX, he pointed to higher expenses after a “botched tech upgrade” and ongoing regulatory pressure, while saying the company still wants to own the “dominant exchange operator” over the longer term.
• Small-cap detractors: McNeill cited Equity Trustees (down 23%), IDP Education, and ARB. He said Djerriwarrh was reducing its Equity Trustees position until uncertainty around ASIC action related to the First Guardian super products is resolved. On IDP Education, he said the company bought the stock too early in hindsight after cuts to international student numbers affected profit, but management intends to hold as long as it retains confidence in management and the balance sheet. For ARB, he said the business outlook and balance sheet remain strong, but the stock was derated, prompting the portfolio to add to the position.
• Not owning enough gold exposure: McNeill said gold was a major market story, with the gold price “almost doubled.” While Djerriwarrh owned Newmont—up 156% over the past year—he noted the portfolio did not own other strong-performing gold stocks in the ASX 200 such as Evolution Mining (up 170%) and Northern Star (up 78%), which weighed on relative performance.

Portfolio activity, bank exposure, and outlook

Assistant Portfolio Manager Olga Kosciuczyk described how the portfolio’s call option coverage shifted over the period. She said it began financial year 2026 at 32%, fell briefly to 28% in mid-July after option exercises in several names, then rose as the market advanced, peaking at 48% in late October. The portfolio maintained higher coverage until mid-December, which Kosciuczyk said generated option income but reduced exposure to a strongly rising market. Call option coverage finished calendar 2025 at 37% after significant December exercises. She added the portfolio had no put option exposure at the end of December.

Kosciuczyk said recent transactions included significant option exercises across ANZ, NAB, Westpac, and other stocks including Rio Tinto, Telstra, and Region Group. The company also exited PEXA Group and Domino’s Pizza, which she described as disappointing investments. During the six-month period, she said the portfolio invested almost AUD 240 million as opportunities emerged, including adding to Telstra, Woolworths, Region Group, and Transurban for income, and increasing exposure to REA Group and ResMed for growth. She also said the portfolio added a new holding in Sigma Healthcare following its merger with Chemist Warehouse, describing it as a high-quality retailer with growth opportunities.

In Q&A, McNeill clarified that Djerriwarrh has not exited all banks, but said the weighting is lower than at times in recent years. He said the company still owned ANZ, NAB, and Westpac but fully exited Commonwealth Bank during 2025, largely through option exercises and then active selling above AUD 180. He called CBA “the most expensive bank in the world” and said valuation made it difficult to hold, though he said management is open to buying back in at the right price.

On positioning, McNeill said the market was near all-time highs and “moderately expensive” on long-term valuation metrics, leading the team to remain defensively positioned. He added that dividend income is now more reliant on miners and industrials such as supermarkets and telcos, and “significantly less reliant” on the major banks, while the options book already has “a good amount” of income written for the second half of financial year 2026.

At Dec. 31, 2025, management reported net tangible assets of AUD 3.35 per share versus a share price of AUD 3.12, a discount of about 7%. McNeill said the board and management continue to focus on closing the discount through initiatives including quarterly dividends, marketing efforts, and on-market buybacks to neutralize shares issued under the dividend reinvestment plan.

About Djerriwarrh Investments (ASX:DJW)

Djerriwarrh Investments Limited is a publicly owned investment manager. The firm invests in public equity markets of Australia. The firm invests in diversified portfolio of Australian equities. Djerriwarrh Investments Limited was founded in November 1989 and is based in Melbourne, Australia.