Question 1: I bought Treasury Wines (TWE) some months ago and was very happy at the increase in share price. But recently it has been going down and I don’t really know why. Should I hang on?
Answer (by Paul Rickard): I think Treasury Wine Estates is in the “hold” category. There is no immediate catalyst for it to be re-rated. China remains closed, and it is way too early to determine how their strategy of diversifying to other markets will pan out.
The share price has a bit of a floor because it remains an interesting asset, potentially a takeover target.
The brokers are neutral on the stock. According to FN Arena, there are 6 neutral recommendations and 1 sell recommendation. The consensus target price is $10.61, about 3.1% higher than the last ASX price. The range is tight, from a low of $9.30 to a high of $11.30.
Buyers and holders will need to be patient. If you can invest for the long term, hang on.
Question 2: For ETFs, what happens to the dividends and franking they would receive as owners of a share? Do they make a distribution to the owners of an ETF, and if so at what time relative to the ex-date of the shares the ETF owns?
Answer (by Paul Rickard): ETFs are trust structures and act as “pass through” vehicles. They typically distribute at the end of a calendar quarter or half year. Unlike LICs which are companies, there is no discretion as to what they will distribute – they distribute in full all the income they receive (dividends and interest on their investments, realized capital gains). At the end of the financial year, they will reconcile the distributions and advise you of the tax components (typically, you will get any of the franking credits they receive).
Because the timing of dividends in Australia is lumpy (concentrating in the Feb/Mar and August/September periods), ETFs that track the Australian sharemarket (for example, VAS or IOZ) have lumpy distributions – the April and October distributions are typically a lot higher than the distributions paid in January or July.
Question 3: What are your thoughts on the proposed listed investment company from Wilson Asset Management, WAM Strategic Value Limited. It will focus on identifying and capitalising on share price discounts to underlying asset values of listed companies, primarily listed investment companies (LICs), listed investment trusts (LITs) and other closed-end investment vehicles.
Answer (by Paul Rickard): WAM Strategic Value Limited looks interesting. Buying $1.00 of assets for 80c is exactly what Geoff Wilson has done over many years – so on paper, he should be able to make this work. The caution however is that realizing the value in mispriced assets can often take a long time, so it could be somewhat of a slow burner in terms of returns.
I will reserve judgement until I have seen the prospectus, but certainly I want to learn more about it.
Question 4: Is A2 Milk (A2M) worth buying at current levels?
Answer (by Paul Rickard): Although I have been a buyer of A2 Milk, I feared a ‘fourth downgrade” which is what we got on Monday. Unfortunately, that did not leave me with a heap of confidence that all the bad news is out. Stock write-offs are easy to understand, but the challenges with re-starting the daigou trade and increasing competitive pressure impacting its Chinese label brand remain headwinds.
The brokers have turned somewhat bearish. According to FN Arena, of the 7 major brokers, there are 2 buys, 1 neutral and 4 sells. The target price has been cut to $6.30, about 11% higher than the last price of $5.68. Range is a low of $5.00 to a high of $7.70.
I have been a big fan of this company – but I have to admit I have been wrong. I think the A2 brand and business is a valuable asset to a foreign competitor, potentially making A2M a takeover target. This will help to put a floor under the price. But in the short term, I can’t see the catalyst for the market to re-rate. Management has lost all credibility with the market. Time is on your side, buyers will need to be patient.
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