Question 1: With the Woodside/BHP transaction, what will be the cost base for my new Woodside shares? What happens to the cost base for my BHP shares? How big is the special dividend?
Answer: Let me deal with these questions in reverse order. The special dividend is approximately $5.38 per BHP share. It is fully franked and has franking credits of $2.30 per share. Rather than being paid in cash, you are receiving Woodside (WDS) shares in lieu – on a ratio of 1 Woodside share for every 5.534 BHP shares owned. If you multiply $5.38 by 5.534, this comes to approximately $29.76.
$29.76 is the cost base for your new Woodside shares (this was also the closing ASX price for Woodside (WDS) on 31 May). As the special dividend is taxable and not a return of capital, there is no change to the cost base for your BHP shares. If you originally bought your BHP shares for (say) $14.00, then for CGT purposes, the cost base stays at $14.00.
Question 2: Is IGO a buy?
Answer: IGO is transforming itself from a gold and nickel company to a nickel and lithium company. Its purpose is to be a “supplier of products that are critical to clean energy”. These include lithium, nickel, copper, cobalt etc.
With the lithium, it is a 49% JV partner in the TEAL consortium, which owns 50% of a major hard rock lithium mine in WA and 100% of the Kwinana Lithium Hydroxide refinery. In nickel, it has recently acquired Western Areas and owns the producing Nova mine.
The brokers generally like the stock, but feel it was somewhat overvalued when it was about $15.00. They are more comfortable at today’s price of $11.12. The consensus target price is $12.82 – range is a low of $8.80 from Ord Minnett/JP Morgan through to a high of $16.20 with Credit Suisse.
A positive for IGO is that it has real earnings, a clear strategy and arguably, the team to do it. The negative – there are quite a few moving parts (many risks), it is not a “pure play” lithium stock.
I think I am a buyer closer to the bottom of the range.
Question 3: Why has Credit Corp’s (CCP) price been smashed?
Answer: Credit Corp’s price has come down from a high of $36.25 at the start of February to about $23.20 today. While this is a steep drop, it is not as bad “relatively” compared to some other high multiple/high growth companies.
I guess the trigger for the fall has been a warning by Credit Corp that market conditions are challenging in that the volume of collectable debts is falling. CCP buys from banks and other lenders their collections book – but the banks aren’t writing the same volume of new consumer loans because of ‘buy now/pay later’ and other innovations in consumer financing.
CCP was trading on a really steep multiple. At $23.20, it is now trading on a multiple of 16.1x FY22 earnings and 14.2x FY23 forecast earnings. For a small-cap financial, this feels about the right magnitude.
The brokers, however, really like the stock. Only three major houses cover it, but they all have buys and target prices substantially higher – in the order of 54% higher. Macquarie has an ‘outperform’ and target of $37.80; Ord Minnett/JP Morgan has an ‘accumulate’ and target of $36.00; and Morgans an ‘add’ and target of $33.35.
Question 4: What are the biggest short positions in the market?
Answer: The top short positions (based on the percentage of shares sold short) are:
- Flight Centre (FLT) 3%
- Betmakers (BET) 7%
- Nanosonics(NAN) 5%
- Polynovo (PNV) 4%
- Webjet (WEB) 9%
ASIC publishes a list of short positions [1] around midday each day. This lists each stock, the number of shares short-sold, and short sales as a percentage of the total number of shares on issue. You can also look at our table each week in Saturday’s Switzer Report, which ranks the most shorted stocks.
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.