Question 1: In terms of a 5-year investment at current prices, does Santos (STO) or Woodside (WPL) present the better opportunity? I am quite aware of WPL but less aware of the quality of Santos and their projects. Further, with Santos is the balance sheet strong enough to withstand another rout of the oil price if it were to happen?
Answer: In the energy sector, Woodside (WPL) and Santos (STO) are my preferred plays. I think Woodside has better assets, but there is always the question about whether they can execute these enormous projects – the development and partner risks are so high. Woodside has been going to do “great things” for decades, but somehow, seems to struggle to pull these off. Santos has cleaned up its balance sheet and is in a much stronger position than it was 24 months ago.
Santos is probably more exposed and leveraged to the oil price, so if you are bullish on oil, I would suggest Santos. If you are neutral on the oil price, I would go with Woodside (which is arguably a more defensive play).
After the recent rally, the broker analysts now see downside for both companies. According to FN Arena, they have a target price of $6.90 for Santos (last price of $7.51) and $24.15 for Woodside (last price $26.68). These target prices need to be interpreted with caution, as they are hugely sensitive to their medium term forecast on oil prices. My take on this is that they are slightly more bullish on Santos than Woodside.
Question 2: How do I access the metrics on ADI (APN Industria REIT)? What are your analysis and assessment of its Security Purchase Plan issue price of $2.817?
Answer: You can access the metrics in their investor presentation of 10 December (for the purchase of the additional properties, and the capital raising). These include:
- Forecast FY21 yield of 6.0%
- Proforma NTA of $2.92 per share
- 9% pro-forma gearing
- Portfolio of 37 assets worth $952m, 96% occupied, 5.2 year WALE
From FN Arena, broker consensus target price is $3.045 (current price is $2.96).
The share purchase plan is only raising $5m and closes on 22 January. It is at a fixed price of $2.817. Given the discount to the current market price, small size, yield outlook, and positive reaction to acquisitions, I would be investing.
Question 3: What are your thoughts on Paygroup (PYG)?
Answer: I don’t know a lot about payslip processor Paygroup (ASX: PYG) and can’t find any broker research. My sense is that they are in a pretty competitive space any before investing, you would ideally want to get a handle on the group from their competitors.
Although they are not burning cash, they don’t have that much on hand ($5.3m on 30 September). This could inhibit growth aspirations.
Question 4: When do I receive my franking credits?
Answer: Franking credits are like a tax-offset so their value is only realised when you complete your activities with the Australian Taxation Office. For example, if you have a SMSF in pension mode, franking credits will increase the size of your tax refund after you lodge the Fund’s Annual Return. If you are slow to lodge the Annual Return, then you will be slow to receive the value of the franking credits. If you are an individual taxpayer, they will act as a tax offset and reduce the total amount of tax you will pay, or increase your refund, after you lodge your tax return.
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