Profit Falls 25.5% at Salter Brothers Emerging Companies Amid Market Volatility Risks
Salter Brothers Emerging Companies Limited posted a 25.5% decline in profit after tax for FY25 but marked a milestone with its inaugural dividend payment. The fund remains confident in its small-cap investment strategy amid easing interest rates and geopolitical volatility.
- Profit after tax down 25.5% to $3.145 million
- Revenues declined 12.9% to $6.896 million
- Inaugural fully franked interim dividend of 2 cents per share paid
- Final dividend declared at 2 cents per share, 85% franked
- Portfolio focused on Australian emerging companies with micro-cap bias
Financial Results and Dividend Milestone
Salter Brothers Emerging Companies Limited (ASX, SB2) released its annual report for the year ended 30 June 2025, revealing a 25.5% fall in profit after tax to $3.145 million, down from $4.222 million the previous year. Revenue from ordinary activities also declined by 12.9% to $6.896 million. Despite these declines, the company celebrated a significant milestone by paying its inaugural fully franked interim dividend of 2 cents per share in April 2025 and declaring a final dividend of 2 cents per share, 85% franked, to be paid in October.
Portfolio Composition and Performance
The fund maintains a concentrated portfolio of 24 listed and 6 unlisted emerging companies, primarily Australian micro-cap stocks with an average market capitalization of $192 million. The portfolio’s sector allocation is heavily weighted towards Industrials (41.8%), Information Technology (23.9%), and Health Care (18.7%). Notable contributors to performance included Alcidion Group Ltd, Ai-Media Technologies Ltd, and Alfabs Australia Ltd, which showed strong operational progress and growth prospects. Conversely, holdings such as Close the Loop Ltd, MedAdvisor Ltd, and Camplify Holdings Ltd detracted from returns due to operational challenges and market headwinds.
Market Environment and Outlook
FY25 was marked by heightened volatility driven by geopolitical tensions, including trade disputes and conflicts in Eastern Europe and the Middle East. However, easing global interest rates, including two cuts by the Reserve Bank of Australia, have created a more supportive environment for small-cap equities. The fund’s management remains optimistic about FY26, anticipating growth opportunities as the Australian economy benefits from the easing cycle and improving market sentiment. The company also extended its share buy-back program, purchasing over 5.3 million shares for $3.9 million during the year, aiming to narrow the net tangible asset discount.
Governance and Risk Management
Salter Brothers Emerging Companies Limited continues to uphold robust corporate governance standards with an independent board chaired by John Vatovec. The company operates under a comprehensive risk management framework overseen by an Audit, Risk and Compliance Committee. The financial statements received an unqualified audit opinion from Deloitte Touche Tohmatsu, reflecting sound financial controls and reporting integrity. The fund’s management fees and performance fees are aligned with shareholder interests, with a transparent fee structure disclosed in the report.
Post-Reporting Event
After the reporting period, the company disclosed that Top Shelf International Holdings Limited, an investment held at $2 million, entered voluntary administration. While this event is non-adjusting for FY25, it poses a potential risk to the portfolio’s valuation going forward.
Bottom Line?
As Salter Brothers Emerging Companies navigates a complex market backdrop, its inaugural dividend and strategic positioning signal confidence; but investors will watch closely how emerging risks unfold in FY26.
Questions in the middle?
- How will the voluntary administration of Top Shelf International Holdings impact the portfolio’s future performance?
- Can the fund sustain dividend payments amid ongoing market volatility and profit pressures?
- What strategies will management deploy to capitalize on the easing interest rate cycle for small-cap growth?
