Question 1: With deposit rates gradually increasing, where can I get a good rate of return for a term deposit for my SMSF?
Answer: Try some of the second or third tier banks. They all have the explicit Commonwealth Government Guarantee (up to $250,000 per individual/entity). Banks such as Judo Bank, AMP Bank, Bank of Sydney, RaboBank.
Judo Bank, for example, is paying the following:
3 months 3.90%
6 months 4.35%
1 year 4.60%
3 years 4.85% (interest paid annually)
5 years 4.95% (interest paid annually)
Of course, you will need to open an account and be identified according to the AML/CTF requirements.
Question 2: I would like your thoughts on the offer of securities under a securities purchase plan for HMC Capital Ltd (formerly Home Consortium). I have a small holding and am thinking of taking up the offer.
Answer: On the face of it, you should participate…the shares are trading on the ASX at $3.85, you can buy in the share purchase plan (SPP) at $3.50. As a minimum, you can always sell now on the ASX and buy back in the SPP.
With HMC (formerly Home Consortium), the share price has almost halved over the last 12 months. This gives some concern, particularly as the outlook for the sector is still for higher capitalisation rates (which will further reduce property valuations).
The brokers are moderately bullish on HMC. A consensus target price of $4.87 (26.3% above the current ASX price), with a range of $4.35 through to $5.51.
Noting the fall in share price and the purpose of the capital raising (to help fund the purchase of private hospitals from Healthscope), I guess I would be inclined to participate. However, if allocating material funds to this sector, I would choose a ‘top tier’ player rather than a ‘second tier’ player such as HMC.
Question 3: Why isn’t Newcrest Mining’s (NCM) share price trading closer to the takeover price of $32.87 proposed by Newmont? Will the offer go ahead?
Answer: Newmont is offering scrip, rather than cash. The offer would see Newcrest shareholders receive 0.40 shares in Newmont for every Newcrest share held, plus a special franked dividend of US$1.10. When announced, this valued the consideration at A$32.87.
Today, when I calculated the value, it was down to around A$31.65 per share (Newmont’s share price has fallen, plus the exchange rate had moved). With Newcrest trading on the ASX at $29.80, this represented a discount of about 6% to the offer price.
My sense is that the discount is quite small given that there isn’t any firm offer yet, there is always a discount for scrip consideration, and that any offer will be subject to regulatory approval (which in this case will include the FIRB).
I think the market is giving this deal a high probability of being successful.
Question 4: Do the broker analysts prefer BHP or Rio?
Answer: They marginally prefer BHP (Macquarie is one that does), but the preference is not strong.
Judging by consensus prices, BHP comes out marginally ahead of Rio. According to FN Arena, the consensus target price for BHP is $44.33, about 6.0% lower than its current ASX price of $47.16. For Rio, the consensus target price is $113.58, some 6.9% lower than the ASX price of $121.99. On recommendations, the brokers are largely the same for both companies.
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.
