Magellan Flagship Fund Limited Monthly Net Tangible Assets ("NTA") per share at 31 August 2007
NTA per Share Before Tax$1.01 After Tax 31 August 2007 $1.00
MFF's pre tax NTA increased about 7% in August in volatile equity and debt market conditions. As at 31 August 2007 MFF remained heavily weighted to cash at A$81 million having increased cash reserves by A$7 million in the month. The Manager continues to adopt a very cautious stance and, as well as maintaining high cash reserves, MFF has its full borrowing capacity available.
The NTA increased during the month principally because: -Nestlé, one of MFF's largest holdings appreciated 14% (in base currency) in the month after reporting strong profits; -a number of other holdings appreciated, including our 3 Bank holdings which each appreciated about 6% (in base currency) after Berkshire Hathaway announced during the month that it had increased its investments in these Banks. These price increases were modestly offset as some other holdings depreciated in the month; and -the AUD was moderately lower than at the previous month end after a month of considerable fluctuations. We continue to be very positive about the quality of MFF's portfolio and the risk adjusted medium-term prospects for the portfolio companies, as well as MFF's risk management and portfolio construction processes in these volatile markets.
We are always cautious about risks in financial systems and this has been a constant focus of our ASX communications. These risks have become more acute as more people become aware of them and this in turn impacts confidence and increases underlying risks. During August, credit market participants put a higher weighting than equity market participants on both the probability and impact of a financial crisis. It is important for investors to anticipate the global nature of the risks; for example, securitised debt is being written down by entities in many countries including Australia, bad debts are increasing in many markets off historically low bases and liquidity and credit issues are increasingly global in nature. Some significant financial excesses continue to build and have not washed through the system.
Whether or not a full blown financial crisis develops, MFF will continue to focus on cash generating, high return on capital, `out of favour', quality companies most of whom we expect to earn materially higher cash earnings per share in future years irrespective of fluctuations in stock markets, economic growth, currencies, commodities, interest rates, politics or other variables.
MFF's investments are concentrated in outstanding companies, many of which have industry leading balance sheet capacity and products that will not be impacted materially by a financial crisis, if it develops. MFF's results will overwhelmingly be determined by the operating performances of the companies in which we have invested, and the Manager will seek to benefit from cheaper entry prices that occur during financial downturns. We will seek to benefit from our disciplined risk management and portfolio construction processes to acquire attractive investments in outstanding companies.
Note
The NTA after tax is based on investments at market value after provision for tax on net realised and unrealised gains.
David Simpson General Counsel and Company Secretary 10 September, 2007
MFF Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
