Question 1: Is Magellan Financial Group (MFG) ever going to be any good, say back to $65, or is it a dead duck?
Answer: I think Magellan (MFG) is a good company, but I can’t see it getting back to $65 in a hurry. Around $3, I think there is some value and I am tempted to buy.
The reason Magellan’s share price has been under pressure is that its recent investment performance has been underwhelming and as a result, it is experiencing funds outflow as some financial planners switch their clients’ monies. Also, its decision to fund investment bank Barrenjoey has caused disquiet in the market.
According to FN Arena, the brokers as a whole see value with a consensus target price of $44.27, 24% higher than the last ASX price of $35.70. But the range is wide, from $34 from Morgan Stanley to a high of $54.85 from Morgans. UBS is also a bear, with a target price of $35.
Question 2: I would be much obliged if you could give your thoughts about investing with global trading entities like TriumphFx. What risks should I consider?
Answer: I don’t know much about TriumphFX per se, but I do know that investing in foreign exchange is high risk. In what is essentially a zero-sum game, you will be competing with investment banks, institutions and corporations – organisations that can devote infinitely more resources than you can to analysing the market – and the odds are you will lose money. Some retail investors will make money (and you might be amongst this group), but most will lose money.
I though TriumpFX’s risk warning (at the bottom of their website home page) is quite instructive:
“Trading in the foreign exchange markets on margin carries a high level of risk and may not be suitable for all individuals. The high degree of leverage offered in the Forex markets can work against you as well as for you. Before deciding to trade in the foreign exchange markets, you should carefully consider your investment objectives, your level of experience and your risk appetite. The possibility exists that you could sustain a loss of some or all of your equity and therefore you should not invest money that you cannot afford to lose. Only true excess disposable cash should be used in trading. You should make yourself aware of all the risk associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.”
Question 3: What is your current view on APA, given its proposal to buy AusNet (AST)? Will there be significant synergies on the combination? Is it a buy at current levels – around $8.75?
Answer: I am a bit nervous about APA because if the bid succeeds, they will need to raise about $1.5bn in equity. That’s why they have been sold down, and will probably drift lower, until the outcome is known. Whenever there is a sniff of an equity raising, the market knocks the price down.
Are there synergies? APA claims there are cost synergies and revenue growth opportunities – but hasn’t quantified them. The market is a little more sceptical, noting that most of AusNet’s assets are regulated assets.
APA could be a good buying – but timing will be the key. For the record, the current broker consensus target price is $10.06.
Question 4: There have been a number of articles in the Switzer Report on A2 Milk (A2M), however keen for your view on goat milk and infant nutrition company BUBS Australia. The share price has dropped significantly, and I wonder if it’s worth adding more to my portfolio?
Answer: Bubs Australia (BUB) is in the small cap camp, having just been dropped from the ASX 300. Only 1 major broker now covers the stocks – and that Citi who has a target price of $0.41 (last ASX price of $0.36).
Its poor performance is blamed largely on the impacts of Covid-19, with CEO Kristy Carr saying in August that: “There is no doubt that the disruptions caused by the COVID-19 pandemic significantly impacted our performance, with international border closures triggering a severe demand shock and sharp decline in revenues in the first quarter, followed by subdued Daigou sales throughout the remaining three quarters. In addition, we experienced disruption and increased costs associated with outbound international supply chain logistics”. As a small cap, you will be on your own in investing in Bubs.
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