Question 1: Is rail operator Aurizon (AZJ) in the buying zone around 52-week lows of $3.37?
Answer: The market didn’t get too excited about Aurizon’s proposed purchase of One Rail and divestment of East Coast Rail. Although in keeping with Aurizon’s strategy to reduce its exposure to the haulage of coal (when the deal goes ahead, revenue from the haulage of bulk [non-coal] commodities will increase as a share of revenue to 40%), they seem to be a touch worried by the debt Aurizon is taking on, plus the divestment of East Coast rail (the rail track in the Hunter Valley used to haul coal). The market is not confident of an attractive exit price.
With the additional debt, the dividend payout ratio is expected to slip to about 70% over the next 2 years. That said, on forecast, it is still yielding about 7.3% pa. (Consensus sees the dividend falling from 28.8c per share in FY21 to 25c in FY22).
According to FNArena, the major brokers see 11.9% upside with a target price of $3.85 compared to the last ASX price of $3.44. The range is a low of $3.50 through to a high of $4.14.
I am a cautious buyer. The market probably overreacted to the announcement – but with ongoing ESG pressures, it is difficult to see the immediate catalyst for a re-rating.
Question 2: It is getting harder and harder to find companies in the infrastructure space to diversify in my portfolio. I have Sydney Airport and Transurban (and I took up entitlement in the recent offering). Do you have any suggestions?
Answer: There is a paucity of local infrastructure stocks. I think I would be looking offshore. Two of the better ASX listed infrastructure funds are MICH from Magellan (the Magellan Infrastructure Fund) which is currency hedged, and Argo Global Listed Infrastructure (ALI). Although the latter is not currency hedged, it has performed credibly. Further, it is trading near a 5% discount to its NTA (net tangible asset value).
Question 3: Will the Macquarie Share Purchase Plan be scaled back?
Answer: Macquarie (MQG) hasn’t said how much they intend to raise, so it is difficult to make a definitive call. But with the shares on the ASX trading at over $200 and the share purchase plan price no higher than $191.28, it should be widely supported. I would expect a scale back to apply.
If they do scale back, it is likely to be related to the size of your existing holding. The SPP closes tomorrow (Friday) at 5.00pm EST.
Question 4: Why do tech stocks fall when interest rates go up?
Answer: Briefly, because more of their “value” is in the future and so when interest rates go up, this is worth less in “today’s dollars”. For the full explanation, read my in-depth breakdown here. [1]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.