Question 1: The ASX (the listed company) has a great chart and reasonable dividend. I see Credit Suisse has a target price of $60 on it. Most brokers have a sell or hold. Why is the ASX not good buying for conservative investor looking for fair dividend with growth?
Answer: I’m with the brokers regarding the ASX and think it’s horribly expensive. A sell!
According to FNArena, a consensus broker target price of $60.10, 21% below the current price of $76.10. 2 neutral recommendations, 6 sell recommendations. Trading on a forecast PE of 30 times FY19 earnings, 29 times FY20 earnings.
Sure, the ASX is a monopoly and has annuity like earnings. But the yield is just 3%, and the growth rate in earnings was 7.1% for FY18 over FY17, a forecast 5.7% for FY19 over FY18, and a forecast 3.4% for FY20 over FY19.
This isn’t a growth stock and I really can’t get excited by a 3% yield. Not for me.
Question 2: What is your opinion of BlueScope Steel (BSL)?
Answer: Following the big fall in price, there is probably some value in BlueScope Steel (BSL). At around $10.84, it is trading at a discount of 32.8% to its current broker consensus target price of $14.39. There is, however, quite a range on these targets: a low of $10.15 to a high of $17. According to FNArena, there are 2 buy recommendations, 4 neutral recommendations and 1 sell recommendation.
BlueScope Steel is confronting higher input costs and slumping prices for its steel products in the US (North Star is about 50% of its revenue). Several brokers expect that the Company will post an earnings downgrade.
Question 3. I’d like your opinion please on the future for IOOF Holdings Ltd (ASX:IFL). I bought at about $8/share several years ago, mainly for the attractive dividend yield. The share price rose pleasingly to around $11/share but post the Royal Commission the trend has been bearish to around $5.30 now. I think that a pending acquisition of ANZ Pensions & Investments business could be important for the future. Is this acquisition likely to proceed? Even if it proceeds, are there other feature of the IOOF business that you like or don’t like for future value and dividend yield?
Answer: Sorry to be the bearer of bad news but I never liked the IOOF (ASX:IFL) acquisition strategy (buying financial planning businesses) and I’m not that surprised that it has ended somewhat in tears. Very hard to say whether the acquisition of the ANZ business will go ahead – broker consensus opinion seems to be that there may be further delays.
Downside risks for IOOF are that customer remediation costs will be a lot higher than anticipated, and that like AMP, its tarnished reputation will impact funds flow and new business (i.e. customers will vote with their feet). The upside is that it is very cheap – and the dividend yield is very attractive.
According to FNArena, the broker consensus target price is $5.63 (range $5.05 to $5.95), about 5% higher than the market price of $5.37. There are 4 neutral recommendations and 1 sell recommendation.
There is an old investment adage that “your first loss is your best loss”. I sense this might apply to you and IOOF.
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