Question 1: I am total confused about ZIP Payments (ZIP). It has a ‘buy’ rating, but keeps dropping. Why?
Answer: Firstly, I don’t agree that the consensus broker recommendation is a ‘buy’. In fact, quite the opposite. According to FN Arena, of the 5 major brokers that cover the stock, 3 have ‘sells’ (Macquarie, UBS and Citi), and 2 have ‘neutrals (Ord Minnett/JP Morgan and Morgans). The consensus target price is $0.67, close to the last ASX trading price of $0.64.
ZIP is facing a number of challenges: a de-rating of technology and payments companies; higher interest rates, which make buy now/pay later less “profitable” and potentially increase consumer losses; cash and capital burn; and a struggling “rest of world” business (i.e. ex Australia and the USA).
My sense is that in the absence of a catalyst such as ZIP exiting some or all of its international operations, the market won’t be in a hurry to re-rate it. That said, it does look like it is forming a bit of a base around 60c per share.
Question 2: I’d like to get your thoughts on ELMO Software (ELO). Do you think the acquisition will go through? I’m wondering if I should sell now around $4.63, or hold out for the higher offer price at $4.85?
Answer: I can’t see why the acquisition won’t go ahead. The purchase price of $4.85 by K1 Investment Management represents a 100.4% premium to the last ASX trading price immediately before ELMO said it was considering offers. By all standards, it is a big price. Further, it is supported by the Board and the two largest shareholders.
Because the offer is being implemented through a Scheme of Arrangement, it takes time to put this into effect. Further, 75% of shareholders voting need to approve. So, there is always a risk that the Scheme is not supported, or something else emerges from left field. The bidder, being foreign, also needs FIRB approval.
That probably explains why ELMO is trading at $4.69 (compared to the scheme price of $4.85, a discount of 3.3%). However, it is a small discount, so the only thing you can conclude is that the market expects the Scheme to go ahead. I concur.
Hold on.
Question 3: Why has Codan (CDA) fallen so much? Should I sell now while I have a small profit?
Answer: Due to a challenged sales environment in Africa for its MineLab product (metal detection), it has forecast a profit for the first half of $25m to $30m, down from the $50m profit in 1H22. Further, it won’t return to positive cash generation until 2H23.
The company is not closely followed by the major stockbroking houses, and gets cut from some institutional fund buy lists due to size/ESG concerns. Suffice to say that there is not much commentary/discourse on the stock.
On paper, it looks cheap on a forward multiple basis.
Question 4: When does ANZ trade ex-dividend? Do I need to buy the shares before this date to get the dividend?
Answer: ANZ goes ex-dividend on Monday 7 November. If you want to receive the fully franked final dividend of 74c per share, you will need to buy it on the ASX by COB on Friday 4 November.
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