Question 1: Will the Woolworths off-market share buyback be scaled back like the CBA buyback was? How would you advise tendering?
Answer: The Woolworths buyback is even more attractive than CBA’s buyback (higher relative franked dividend component), so I expect it to be very popular. They are buying back a higher proportion of shares (about 4.6% of the ordinary shares compared to CBA’s 3.8%), so the scaleback may not be as severe. Also, it may not have quite the concentration of super fund owners.
After the minimum, CBA’s scale back was 79.4% (you were only accepted for 20.6% of the shares you tendered). My guess is that Woolworths will be a little higher – probably around 40%.
I would advise tendering at a discount of 14%, or ‘final price’. The buyback closes on Friday 15 October.
Question 2: Which listed investment company (LIC) is better to invest in for the long term? I was considering AFIC, Argo, Milton Corporation and MFF Capital.
Answer: Milton (MLT) is now part of Soul Pattinson (SOL) and no longer trades. MFF Capital (MFF) invests in overseas shares.
If you are after broad based exposure to the Australian share market, Australian Foundation (AFI) and Argo Investments (ARG) have similar investment styles and over the long term, will produce similar portfolio returns. I would look closely at their relative discount or premium to their Net Tangible Asset (NTA) value. Argo is trading on the ASX at about a 2% discount, AFI is trading at an absurd and unsustainable premium of about 8%. If you are a long term investor and want Australian share market exposure, definitely Argo.
Question 3: Are the tech shares Elmo Software (ELO) and Appen (APX) in the buy zone?
Answer: Peter wrote about Appen (APX) the other day – here is the link https://switzerreport.com.au/should-you-buy-hold-or-sell-a2-milk-appen-altium/ [1]
I think both companies are in the “buy” zone, but you will need to be patient because it is hard to see what will be the catalyst for a re-rating by the market in the short term.
The analysts see upside. Morgan Stanley is the only major broker that tracks ELO – they have a target price of $7.80, about 75% higher than the current share price of $4.46. With Appen, there are two buy recommendations and 2 neutral recommendation – the consensus target price is $13.78, about 58% higher than the last ASX price of $8.72. Range is a low of $11.00 through to a high of $18.80.
Question 4: Do you think it wise to subscribe to the latest Hotel Property Investments (HPI) share purchase plan?
Answer: I think it is a line ball call, given that the shares are currently trading at $3.40 – the same as the share purchase plan price. On paper, Hotel Property Investments is a nice yielder (6.0%), but I guess ESG concerns will temper investors’ appetite (the funds being raised are being used in part to purchase poker machine licences).
Two major brokers track the stock – both have buy recommendations but don’t see a lot of upside. Morgans has a target of $3.56, Ord Minnett a target of $3.60.
If I was looking to expand my income investments, I would probably participate. Otherwise, I would pass. The SPP closes on 13 October.
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