I DIDN’T intend that the list of the finalists for the High Yield portfolio should be unveiled in the form of an “Oscars” presentation. The six counters were selected a while ago and there was no reason to delay their unveiling, especially as most of them are also counters in the Private Investor portfolio. The constituents in the High Yield portfolio with the market prices at which their shares were bought are bought are: Grindrod at R17,20, Hudaco at R65, Metropolitan Holdings at R13,35, Pick n Pay at R40,30, Reunert at R65 and Stefanutti Stocks Holdings at R10,80. Today, though, I’m focusing on Imperial Holdings which is one of the heavyweights in Jean’s and my main portfolio. Imperial was not on the short list for the High Yield portfolio because it didn’t meet the historic dividend yield criterion. As you are aware, over the past two years Imperial has streamlined its operations and has disposed some of its operational assets it considered to be noncore, a large chunk of these having been unbundled in a separate listed entity Eqstra.

IMPERIAL is now once again on the acquisition trail, focusing on building its core businesses. Its medium- to long-term growth in earnings and dividends are promising. It could possibly have been the “Power Ball’ in the portfolio. Relative to Imperial’s return, thanks to a reader, I’m able to introduce in the column a useful gauge of return, the internal rate of return. This is not a new gauge. I became familiar with it in 1997 when I first edited the Financial Mail’s annual Top Companies Survey. In this survey, all the JSE’s listed companies were gauged by this measure to find the best performers over five years. The Pretoria University’s Bureau of Financial Analysis produced the table using a formula. The return is on a cash flow basis. The cash outflow is the amount invested (or the market value of the investment at the commencement date). The cash inflows are the value of the dividends over the period added to the value of the investment at the end of the investment period.

The formula, which is time-sensitive to the cash flow, computes the average annual compound return. In 1997, when Nuworld was the Financial Mail’s Top Performer, its internal rate of return over five years between December 1991 and December 1996 was Nuworld, with a return to investors of 120,6%.In that same league Imperial’s return was 18th with a return of 57,81%. Jean interviewed the late Bill Lynch, founder of Imperial for a profile in the survey. I guess this interview was the main reason we some years later I bought our first tranche of Imperial shares. I’ve long regretted that I didn’t have the ability to program the formula for internal rate of return. Enter the reader mentioned above, who must be telepathic. He told me the formula I want is in my PC, in Excel, and even gave me a simple example. I can now tell you that our investment in Imperial just over 10 years has provided an internal annual compound rate of return 12,3% a year. I plan to write more on internal rate of return tomorrow.