Question 1: I’m a holder of Star Entertainment Group (SGR), having bought in at current levels around a year ago. With its current problems do you have any recommendation as to what to do: hold or sell? Or is it one of those “fearful” moments that Peter talks about where we might consider buying more?
Answer: My guess is that Star Entertainment will follow a similar path to Crown – new CEO, probably a new Board, inquiries about its fitness to hold a licence in NSW and probably in Queensland – but ultimately, both State Governments need it from a revenue and tourism perspective. In the “too big to fail” category.
That doesn’t mean that there won’t be more pain for shareholders – but my sense is that a lot of the bad news is probably in the price.
According to FNArena, the current broker consensus price is $4.19, about 30.9% higher than the current ASX price. These targets were set before the revelations relating to Anti-Money Laundering offences – but the costs/penalties here (new Management, material fine) are more likely to be a “one-off” rather than ongoing and may not have a big impact on valuation.
A hold, maybe a speculative buy. If you are a buyer, I think you will need to be patient.
Question 2: If a company chooses a buyback over a special dividend, as an investor don’t we eventually get a larger dividend as the shares outstanding are less and thereby profits are distributed over a smaller base of shareholders? Theoretically, the dividend yield should go up?
Answer: Yes, in time you will get a bigger dividend because the buyback leads to shares being cancelled. But it is small – always less than 10% and usually no more than 5% of the shares outstanding. So in theory, your dividend yield should improve by about 5%.
With a special dividend, there is no reduction in the share base so there is no improvement in the dividend yield.
So why do some companies prefer to pay a special dividend rather than do a buyback? It is cheaper and quicker (no buyback booklet to prepare and then no buyback to administer), some shareholders believe it is “fairer”, and it definitely signals that the profit gain is a “one-off” and won’t automatically lead to an ongoing boost in the ordinary dividend.
Question 3: I am 80 years old and happily manage my own SMSF and have accepted the Hochtief offer for my Cimic (CIM) shares. I paid $4 for my original Leighton shares which then became Cimic, and am not too worried about paying capital gains tax. But does this mean that ultimately my two children will have to pay capital gains tax somewhere down the track when they inherit my estate?
Answer: No, accepting Hochtief’s offer is a disposal for CGT purposes and you will pay the tax now.
When your children inherit your estate, they will pay CGT on the disposal of any assets (using your cost base). So if you invest the cash you get from Hochtief in other shares, when they inherit those, they will be liable for CGT when those shares are sold.
Question 4: I bought NUIX (NXL) shares some time ago. I paid $2.90 for them and it has basically been downhill ever since. Do you think I should continue to hold, or sell and take my loss?
Answer: My calls on Nuix haven’t been the best – I bought in at $4.00 and took my medicine by selling out at $2.40. At the time, it didn’t look like a good sale – but the stock is now about $1.60. I have given up on the company.
Only one major broker covers the stock and that’s Morgan Stanley. They have an “overweight” recommendation and target of $5.50. I don’t want to bag Morgan Stanley but they have been horribly wrong on this stock.
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