Question 1: What are your thoughts on the Macquarie Group Share Purchase offer? Should I participate?
Answer: Macquarie Group has announced a share purchase plan (SPP) that provides an opportunity to invest in additional Macquarie Group shares.
It follows an institutional placement of $1.5bn following the announcement of their profit results for the half year ending 30 September. Although this capital raising was somewhat opportunistic, it attracted very strong interest and was completed at a price of $194.00 per share. Under the SPP, a shareholder can apply to purchase up to $30,000 of new shares. The minimum application is $2,500, and then in multiples of $2,500. If the offer is over-subscribed, a scale back may be applied to applications.
The purchase price for new shares will be the lesser of $191.28, or a 2% discount to the average market price for Macquarie shares in the week leading up to the close of the offer (i.e. from 22 November to 26 November inclusive). The offer price of $191.28 is the same price that the institutions paid, adjusted for the dividend payment of $2.72. (New shares issued under the SPP will not be eligible for the dividend payment on 14 December).
Macquarie is a key portfolio stock. Subject to the availability of cash and overall exposure limits, participation seems to be an attractive option. Macquarie is currently trading close to $203.00. Further, major broker recommendations are positive, with the consensus target price (according to FNArena) at $214.60 (range of $195.00 to $245.00).
Question 2: What do you think of Harvey Norman (HVN)? According to CommSec it has a dividend yield of around 6% fully franked.
Answer: On paper, Harvey Norman looks pretty attractive. According to FNArena, it is trading on a FY22 forecast multiple of 12.0 times earnings and 12.2x forecast FY23 earnings. Dividend yield forecast of 6.2%. Broker consensus target price of $6.26, about 21.6% higher than the last ASX price of $5.15. Range is a low of $5.65 through to a high of $7.00, with 3 buy recommendations and 1 neutral recommendation. And with consumer confidence high and the economy booming, trading conditions should be favourable into well past Christmas.
Despite being more expensive (multiple about 15 times, dividend yield of 4.4%), I prefer JB Hi-Fi. I just feel it is a better retailer and its structure is more transparent. But I can see the case for Harvey Norman.
Question 3: Why are the share prices of Australian Finance Group (AFG) and Liberty Finance Group (LFG) falling?
Answer: Both Australian Finance Group (AFG) and Liberty Financial Group (LFG) are small cap stocks in the financial sector. It doesn’t take much to change sentiment.
One of the causes is APRA’s announcement on serviceability ratios for home lending – I think the market feels that the housing market and home loan market will tighten, so brokers such as AFG and third tier lenders such as LFG will find business tougher.
The brokers think there is upside. According to FNArena, AFG has a consensus target price of $3.39, about 42% higher than the last ASX price of $2.39, range is a low of $3.18 to a high of $3.60. For LFG, 36.3% upside to a target of $7.71, current ASX price is $5.66.
Question 4: Polynovo (PNV) has taken a dive recently with the resignation of its CEO. Cited by the Polynovo Board as “due to differences in management style”, is this stock a buy now or are there more fundamental problems with the performance of the company?
Answer: Normally, the unexpected departure of a CEO after 7 years due to ‘management differences’ would not be considered as a signal to buy a stock. Buying now is for the “brave”. High risk.
Important:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
