Question 1: Why has Newcrest Mining (NCM) fallen so far?
Answer: Newcrest (NCM), like other gold miners, is out of favour. The gold price in US$ terms is near a low, largely due to the rise in US interest rates. The price of copper, Newcrest’s other commodity, has also eased. Further, cost and labour pressures are making it more expensive to mine.
The brokers, however, see upside. Of the 7 major brokers who track the stock, 3 have ‘buy’ recommendations and 4 have ‘neutral’ recommendation. The consensus target price is $21.53, approx. 25.6% higher than the last ASX price of $17.14. The range is a low of $18.40 through to a high of $26.00.
I am not a “gold bug” per se, but I guess there is a bit of value here. That said, I am more inclined to buy the commodity (through an ETF like GOLD) rather than a gold miner.
Question 2 When do the new rules about the downsizer superb contribution come into effect?
Answer: The Government confirmed in Tuesday’s budget that the minimum age for making a downsizer super contribution would be lowered to 55 years. The downsizer is an additional super contribution of up to $300,000 from the proceeds of selling the family home. The contribution is not part of the normal super caps. Apart from age, the only qualification is that the home must have been owned for at least 10 years. Potentially, a couple could get an extra $600,000 into super.
Legislation is currently before Parliament. It says that it will become law on the first day of the next calendar quarter after receiving Royal assent – so the earliest date it will take effect is 1 January 2023. If not then, hopefully from 1 April.
Question 3: Are off-market share buybacks now dead?
Answer: Yes. The Government hasn’t actually said what the change is going to be, except that from 7.30pm on Budget Night, it is going to align the tax treatment of off-market share buy-backs with the tax treatment applied to on-market share buybacks. If this is the case, then there won’t be any franked dividend component in the proceeds of an off-market buyback.
Off-market share buybacks only work (for some taxpayers) because of the franked dividend component – so effectively, off-market buybacks are now “dead”.
Companies with surplus franking credits might turn to paying special dividends, but there are some other changes around the payment of dividends and the raising of capital that might make them wary of heading down this path.
Question 4: Why did Coles and Woolworths dive on Wednesday?
Answer: Coles (COL) reported its first quarter sales result on Wednesday. Supermarket sales growth of 1.6% (comparable store basis of 2.1%) wasn’t very impressive, particularly when it reported price inflation of 7.1%. In real terms, it went backwards. Further, it said that cost price inflation was expected to worsen in the second quarter, and that the Company was not immune from the general inflationary pressures.
On the back of the Coles outcome, traders and investors sold down Woolworths (WOW). It reports its first quarter sales results on Thursday 3 November.
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