Question 1: Is it wise to chase down the purchase price of AGL ? I bought it months ago but the price has kept falling. Should I hang on and perhaps double-up?
Answer: If you are patient and can wear the pain, I would be inclined to hang on. “Doubling up” is a higher risk strategy – only do this if you can really wear some pain. I wrote about AGL at the end of July when it was $7.22 – see https://switzerreport.com.au/is-agl-in-buy-territory/
AGL reported a couple of weeks back, largely meeting expectations for FY21, but guidance of EBITDA in range $1,200m to $1,400m for FY22 was lower than the market had expected. Brokers remain negative on the stock – 3 neutrals, 2 sells – but target prices are somewhat higher. According to FN Arena, consensus target price is $7.39, about 5% higher than the last price of $6.90 – with a range from $6.88 through to $7.80.
No short-term fix to AGL’s problems but because it has been sold down so hard, my sense is that most of the pain has been taken.
Question 2: I would appreciate your view on the Spark Infrastructure (SKI) takeover and what actions to take. Wait for the takeover to go its course and accept the offer, or sell out now at the highest price possible?
Answer: With the Board having agreed terms and a unanimous recommendation to implement the Scheme, the takeover is certain to go ahead. The only decision you need to make is to sell now at $2.85, or wait probably until December/January and receive the effective price of $2.9375. This comprises the purchase price of $2.7675, a special dividend of 12 cents, and if they can be used, franking credits of 5 cents.
If you don’t need the cash to re-invest and can use the franking credits, wait. Otherwise, sell now.
Question 3: I was wondering what you would personally do if you held Sydney Airport (SYD) shares now. Hang on for a higher offer, or assume the takeover deal is off and sell now?
Answer: I am surprised that the market is so heavily discounting the indicative bid for Sydney Airport (last ASX price $7.75, indicated bid price of $8.45). It is a quality bidding group that is enhanced by Australian Super joining. I have no first-hand knowledge, but my sense is that the bid group won’t go away and at some stage the Boards of Sydney Airport will ‘talk turkey”. If you can be patient and don’t need the money, my inclination would be to hang on.
I think the last paragraph of the Boards’ response to the improved offer of $8.45 is interesting: “The Boards are open to engaging with the Sydney Aviation Alliance should the Consortium be prepared to lift its indicative price to appropriately recognise long term value for Sydney Airport Securityholders”.
Question 4: I want to simplify my portfolio holdings, what is the best ETF for dividends?
Answer: If you want broad market exposure and market based dividends, Vanguard’s VAS would be my recommendation. This tracks the S&P/ASX 300 index.
If you want higher dividends, but perhaps take a little more risk on performance, you could consider VHY from Vanguard. This tracks the FTSE Australia High Dividend Yield index, and h has performed well over the last several years.
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