Question: I’m thinking of buying some Milton Corp shares for our super fund. What do you think of them or would you suggest something else?
Answer (By Paul Rickard): Milton Corporation (MLT) is a broad based investment company with an outstanding track record.
The question you need to ask is whether you want to pay a premium to invest.
As at 31 July (their last reporting), Milton was trading on the ASX at $4.81 – a 4.8% premium to their net tangible asset (NTA) value of $4.59.
Yesterday, Milton closed at $4.31 – which I estimate to be a premium of approximately 5.0% to their current NTA.
Personally, I wouldn’t pay a 5% premium to invest in this company. Other broad-based listed investment companies include AFIC (ASX Code AFI), which was trading at a 4.6% premium on 31 July and Argo (ARG), which was trading at a 5.6% premium on 31 July.
Given these premiums, an option you may wish to consider is a broad-based ETF, such as S&P/ASX 200 fund (ASX Code STW), which tracks the S&P/ASX 200 index.
Question 2: I would like to take advantage of the lower share prices to buy some more health stocks. What would you suggest? I have a small holding in Medibank Private. Should I sell it?
Answer 2 (By Paul Rickard): The companies I would consider are CSL, Ramsay and Resmed. They are all trading on pretty high multiples – so you really need to take advantage of dips to buy.
In regard to Medibank Private, the market liked the result – which beat market expectations in regard to earnings and margin. The margin was up due to claims management and cost control. At around $2.40, Medibank is trading on a PE of 21.3 for FY16.
I am not a huge fan of Medibank. It is a cost story – not a growth story – so at a PE of 21 times, I think it is pretty fully priced.
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.
