Question 1: I am an AGL shareholder. I am interested in your views on the proposed demerger. Can you outline the rationale for the proposal?
Answer: I haven’t seen Mike Cannon-Brookes’ argument for opposing the AGL demerger, so I am not going to comment on it.
But in relation to the Board proposal (and Scheme Meeting on 15 June), it is essentially about unlocking shareholder value. They argue that the demerger into Accel Energy (the “dirty” coal-fired electricity power businesses) and AGL Australia (the “green” energy businesses, plus retail electricity and gas) will:
- Create the potential to maximise growth in the value of your shares by giving each company the freedom to pursue individual strategies and growth initiatives;
- Support shareholder returns through distinct dividend policies and capital structures; and
- Leave the future value of two ASX listed companies with you the shareholder.
The main disadvantage is the cost (about $200 million to implement, plus additional ongoing corporate and operating costs). Further, it leaves two smaller, less diversified ASX companies.
Demergers have a good track record in Australia. They have worked on about 80% of occasions – the idea being that refreshed, focussed management teams, with their own dedicated capital stack, can drive their particular segment harder and make it more profitable.
This demerger is a little different in that pressure from shareholders and ESG concerns are driving it. My inclination is to back it because I don’t know what the alternative is.
In addition to the Scheme Booklet, there is quite a good investor presentation available here. [1]
Question 2: Can I get your thoughts on why the Goodman Group (GMG) share price continues to fall?
Answer: With regard to Goodman Group, I don’t think there is any company-specific reason. There have been no news or broker reviews.
Rather, Goodman has been caught up in the market being “hard” on higher growth, higher PE companies. Further, the real estate sector will face headwinds as interest rates rise – Goodman is not immune from these pressures.
Question 3: Arb Corporation, the company that makes and distributes gear for 4WDs and SUVs, has come off quite significantly lately and is trading on a P/E of about 20. Do you think there is value here?
Answer: I quite like the look of Arb Corporation (ARB) around $30 – it has come off a long way from its high of $55.00. The March quarter update was a slight “miss” according to the analysts, but demand and orders remain strong. Full-year sales guidance is at $700 million (compared to the consensus of $729 million).
The brokers like the stock. According to FNArena, the consensus target price is $43.91, about 40% higher than the current ASX price. On multiples, it is trading at 20.8x forecast FY22 earnings and 19.9x forecast FY23 earnings. Not super cheap, however.
Question 4: When is the Westpac dividend paid? When does it go ‘ex-dividend’?
Answer: Westpac goes ‘ex-dividend’ on Thursday 19 May, so if you want to receive the interim dividend of 61c, you need to buy the shares by COB Wednesday 18 May. The dividend will be paid on 24 June.
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