Question of the Week

Medibank and which bank?

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Question: I have an income portfolio. Should I be looking at banks again, if so which ones?

Answer (By Paul Rickard): I think the banks look reasonable value at these levels – although there may be another kick down from Wall Street first – so I would be looking at opportunities to nibble.

I don’t really support the current hypothesis that the “yield trade is over”, firstly because the US isn’t going to raise interest rates quickly, and secondly, because there are not a lot of ready investment alternatives.

Which bank? There really aren’t that many differences at the moment between the majors. If you want a call, I rated them as 1. CBA 2. Westpac 3. NAB and 4. ANZ. The broker analysts see it slightly differently, preferring ANZ and then NAB marginally, over WBC and CBA.

Question 2: I have about $75,000 in cash (SMSF) and have a Medibank policy and registered for the upcoming IPO. How much of this do you think I should allocate to Medibank versus other stocks (CSL, Woolworths, Resmed, Amcor. Telstra etc) that seem to be good buys at this time due to the correction.

I presently am underweight in health stocks (although of that, I own mostly CSL).

Answer 2 (By Paul Rickard): I really want to see what the prospectus says first – let’s find out how expensive or cheap it is – and what dividend it is going to pay. Also, what the allocation policy is going to be.

The government has just announced that over 750,000 Australians have pre-registered, including over 270,000 Medibank Private or AHM policy holders.

It now expects to lodge the Medibank Private Share Offer Prospectus with the Australian Securities and Investments Commission (ASIC) on 20 October 2014. We will provide in-depth analysis from us as soon as it becomes available.

That said, with a market cap of circa $4 billion – and in an industry (health insurance), which is interesting but not compelling – it is unlikely to be a core stock in portfolios.

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.

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