Dividend Drought Continues as Morphic Ethical Equities Fund Focuses on Buybacks
Morphic Ethical Equities Fund Limited reported a strong turnaround in FY2025 with a $5.44 million net profit and portfolio returns surpassing its benchmark, while continuing aggressive share buybacks despite withholding dividends.
- Net profit after tax of $5.44 million reversing prior year loss
- Portfolio outperformed MSCI ACWI benchmark with 23.44% gross return
- No dividends declared due to lack of franking credits
- Share buybacks of 14.54 million shares during year, plus 420,363 post-year-end
- Ethical investment mandate maintained with ESG screening
Strong Financial Turnaround
Morphic Ethical Equities Fund Limited (ASX – MEC) has reported a significant financial recovery for the year ended 30 June 2025, posting a net operating profit after tax of $5.44 million. This marks a reversal from the previous year's loss of $950,349, reflecting improved market conditions and portfolio management. The fund's net tangible asset (NTA) per share increased to $1.2474 after tax, up from $1.0765 in the prior year.
Outperformance Amid Market Volatility
The fund's investment portfolio delivered a gross return of 23.44% for the year, comfortably outperforming its benchmark, the MSCI All Countries World Daily Total Return Net Index in Australian dollars, which returned 18.38%. This outperformance was driven by strategic holdings in companies such as TKO Group Holdings, Greatland Resources, and Nebius Group, which benefited from sector-specific growth and opportunistic acquisitions during market volatility.
Capital Management and Dividend Policy
Despite the positive earnings, the Board elected not to declare dividends for the year due to an absence of franking credits. The company highlighted that dividend resumption depends on crystallizing unrealized gains to generate these credits. Meanwhile, the Board has been proactive in capital management, executing a substantial share buyback program. During FY2025, the fund repurchased 14.54 million shares at an average price of $1.0287, and an additional 420,363 shares at $1.1220 post-year-end. This initiative has successfully narrowed the discount between the share price and the NTA, benefiting continuing shareholders.
Ethical Investment Commitment
Morphic continues to uphold its ethical investment mandate, screening out companies involved in environmentally damaging activities such as coal and uranium mining, oil and gas, tobacco, armaments, and gambling. The fund remains certified by the Responsible Investment Association Australasia and aligns with the Principles for Responsible Investment, underscoring its commitment to sustainable and responsible investing.
Governance and Outlook
The fund’s governance remains robust, with stable director remuneration and an unqualified audit opinion from Ernst & Young. The upcoming Annual General Meeting on 20 November 2025 will seek shareholder approval for a further share buyback of up to 20% of outstanding shares, signaling ongoing focus on capital management. While the fund navigates uncertainties such as geopolitical risks and tariff impacts, management is cautiously optimistic about capturing upside opportunities while limiting downside risks.
Bottom Line?
Morphic’s strategic buybacks and ethical focus position it well, but dividend resumption hinges on unlocking unrealized gains.
Questions in the middle?
- When might the company realistically resume dividend payments given current franking credit constraints?
- How will ongoing geopolitical tensions and tariff policies impact the fund’s portfolio composition and returns?
- What are the Board’s plans for balancing growth opportunities with maintaining the ethical investment mandate?
