Question 1. Do you have a view on NAB’s new hybrid securities offer? Does the higher margin warrant an interest?

Answer: Yes, I think they look OK. A margin of 4% is starting to look attractive. I will be writing about the offer in Monday’s Switzer Report.

Question 2. Your model portfolios both include Orora and the growth portfolio Ramsay. Can you comment a little more on these inclusions?

Answer: Ramsay Healthcare (RHC) is Australia’s leading private hospital operator. It is the second largest company (by market cap) in the healthcare sector and has been one of the best performing companies on the ASX over the last decade. Over the last 12 to 18 months, it has been a little challenged by its acquisitions in France and the UK, and a tougher environment locally. This is why the share price has come off from over $80 to a low of around $52. Today it is around $58, and while somewhat expensive (all companies in this sector are expensive), I think there is still upside with the company. Ramsay is due to report on February 28.

Orora (ORA) is a spin-out of Amcor and, since listing, has been a very steady performer. It reported yesterday with sales up 9.9%, EBIT up 5.9% and EPS up 6.9%. It has a strong balance sheet, with gearing at 34%. While arguably an industrial company, it is classified in the ‘materials’ sector and represents a way to play the non-ferrous part of this sector.

Question 3. I hear that the proposed franking credit laws that Labor are wanting to enact will adversely affect SMSFs but not industry/retail funds. Can you explain why?

Answer: The ALP’s policy is to abolish the refunding in cash of excess franking credits. It is not abolishing franking credits per se – but rather, if they can’t be used as a tax offset, the refunding in cash of any excess credits. Most super funds are net tax payers and are not impacted. This is because they pay tax on investment earnings at 15%, and also tax on member contributions at 15%. This includes SMSFs in accumulation mode, and most industry and retail super funds. SMSFs in pension phase, which don’t pay tax, will be impacted.