Question 1: I saw an article in the AFR about private credit funds, in particular, those operated by Metrics Credit Partners. It said that a leading financial planning group, Count Financial, had placed a “sell” recommendation on three funds, including the ASX-listed Metrics Master Income Trust (MXT). Are these funds safe?
Answer: I will write more about this on Monday, but in the case of Metrics, yes. Investing in private credit is not without risk, but Metrics is one of the better operators and their funds are well diversified, with loans to hundreds of different borrowers from a range of industries/sectors and a weighted average credit rating of BBB-. The number of problem loans or loans on a watchlist is very low.
In the case of MXT, I take comfort from the daily net asset value, which for 18 March was $2.0076 per share. The stock closed on the ASX on 19 March at $1.99. Zenith and Lonsec continue to rate the fund as “highly recommended”.
Question 2: Qantas (QAN) is back over $9. Surely with the competition coming from Virgin/Qatar, plus consumer backlash over ticketing and pricing, it won’t be as easy for them to rake in such big profits. What do the brokers think? Do they think the share price can go higher?
Answer: Yes, while acknowledging the competition, they all think the share price can go higher. All have targets above $9, with Morgan Stanley the standout with a price target of $11.50. The consensus is $9.91, about 10% higher than the last ASX price of $9.
Interestingly, the brokers have Qantas trading on a very low multiple of only 8.2x forecast FY25 earnings and 7.7x forecast FY26 earnings. It is yielding a prospective 5.5% (fully franked).
Question 3: I have held Region Property Group [RGN] since they separated from Woolworths and ever since Covid, the share price has been on the decline. I was hoping they may improve with interest rates on the way down. I am looking at selling out. Do you think they’re worth holding onto for a bit longer?
Answer: Region (RGN) is the operator of 88 regional shopping centres across Australia (a bias to Queensland). Many have a Woolworths store as the anchor tenant. By gross rent, specialty stores make up 54% of the income. Region’s preference is for non-discretionary tenants, targeting convenience retail sales.
It is very low growth with Region targeting 3% to 4% pa. Gearing is around 33%, but almost all the debt is hedged or fixed. Region highlights this as a positive, saying “with 94% of debt hedged in FY25 and high levels of hedging until FY28, interest rate headwinds are limited”. Unfortunately, this means it won’t be a beneficiary (in the short to medium term) of falling interest rates.
There is very little interest in Region, with its share price falling back from a high of $2.40 to just over $2. The brokers are a bit mixed on Region, with a consensus target price of $2.37, about 15.1% higher than the last ASX price of $2.06. But there is a reasonable range (from $2.03 to $2.63), and two brokers have sell recommendations.
I don’t think it is going anywhere fast. Sell if you have better things to invest in, keep if you want the income (a relatively attractive yield of 6.7%).
Question 4: Macquarie Bank can exchange its Capital Notes 2 (MBLPC) for $100 on 21 December 2025 (and two dates in 2026) prior to mandatory exchange in 2028. Do you think it is likely to do this at the end of this year?
Answer: The market certainly expects the issue to be exchanged for cash in December. The coupon margin of 4.75% is well over current secondary market yields, so you would expect Macquarie to call this at their first opportunity.
