ECP Reports $8.45 Million Loss with 103.4 Cent NTA and 3.15 Cent Dividend

Sharp Underperformance Amid Sector-Wide Sell-Off

ECP Emerging Growth Limited (ASX:ECP) suffered a significant setback in the 12 months to 30 June 2026, with its investment portfolio delivering a negative return of 20.4%. This starkly contrasts the ASX Small Ordinaries Index, which rose 5.5% over the same period. The fund’s net loss after tax ballooned to $8.45 million, a tenfold increase from the previous year’s $724,000 loss, underscoring the severity of the downturn.

The underperformance was broad-based across holdings, largely driven by macroeconomic shocks and sector-specific headwinds. Notably, the so-called “SaaSpocolypse”; a market sell-off triggered by fears that AI advancements would disrupt traditional software-as-a-service business models; weighed heavily on technology stocks that form a substantial part of ECP’s growth-focused portfolio.

Dividend Maintained Despite Losses

In a move that may surprise some investors, the board declared a fully franked final dividend of 3.15 cents per share, unchanged from the prior year. This brings the total dividend for FY2026 to 5.55 cents per share, representing an 8.3% yield on the closing share price of $0.665 at year-end. The dividend is supported by $1.2 million in realised gains and a strong profits reserve, enabling the company to sustain distributions despite the negative portfolio performance.

ECP’s status as a Listed Investment Company (LIC) allows it to smooth dividends over time, retaining gains and distributing them consistently. The company’s profits reserve and franking credit balance position it to maintain dividends for the next four years even if investment returns remain subdued.

Net Tangible Asset Backing Takes a Hit

The net tangible asset backing (NTA) per share dropped sharply to 103.4 cents from 160.1 cents a year earlier, reflecting the portfolio’s unrealised losses. The decline in NTA aligns with the 44.6% fall in ECP’s share price over the year, from $1.20 to $0.665. While this marks a painful correction for shareholders, the board emphasised that the drop does not reflect a permanent loss of value, highlighting the quality and resilience of the underlying businesses in the portfolio.

Long-Term Track Record and Investment Discipline

Despite the recent volatility, ECP’s long-term performance remains robust, with an average annual portfolio return of 10.1% since inception 12 years ago, outperforming the ASX Small Ordinaries Index by 6.4 percentage points. The investment manager maintains a disciplined approach, focusing on high-quality small and mid-cap Australian growth companies with sustainable competitive advantages.

The chairman, Murray d’Almeida, acknowledged the challenging environment but underscored the importance of sticking to the investment philosophy rather than chasing speculative trends. He noted that many portfolio companies continue to perform in line with expectations and are leveraging AI to enhance profitability, contrary to market fears that have driven the recent sell-off.

Operational and Governance Stability

Operationally, ECP kept costs under control, reducing expenses slightly to $759,328 from $810,608 the previous year. The company’s governance framework remains intact, with no significant changes to board composition or management. Convertible notes issued in 2022, which carry a 6.5% interest rate following a step-up in April 2025, are classified as current liabilities due to their April 2027 maturity date.

One notable valuation challenge involves Corporate Travel Management Limited (CTD), a suspended stock that the company has moved to a Level 3 fair value hierarchy due to a lack of market data. The valuation relies on internal estimates, and potential delisting risks remain a concern.

Dividend Reinvestment Plan and Shareholder Engagement

The board encourages shareholders to participate in the Dividend Reinvestment Plan (DRP), which could help preserve cash within the company and support the share price. A special dividend of 10 cents per share has been previously proposed if DRP participation exceeds 80%, though this remains a target rather than a certainty.

Looking ahead, ECP’s management and board are focused on navigating the volatile market environment while adhering to their proven investment discipline. The company’s ability to maintain dividends and preserve capital through reserves provides some cushion as it waits for market conditions to stabilise.