Question 1: I am in retirement and hold Medibank (MPL) for good dividends and franking credits. They were bought on listing and the shares are still trading above the listing price, so I can sell with a small capital gain. However, Medibank looks to be in awful trouble and the price has crashed, and returns may be badly compromised for some time. Should I sell?
Answer: I think I would hang on to Medibank (MPL). The great imponderable is “brand damage” and what this may mean to the number of policyholders going forward. Clearly, Medibank is going to incur additional expenditure on improving the security of its IT systems, plus is likely to face class actions from policyholders and others. How big these are going to be, or how costly, no one can tell at this point in time.
But the market will tend to see these as “one-off” costs and they may not have a huge impact on valuation. If policyholders exit and Medibank starts to shrink, that is likely to have a much bigger impact on valuation.
Medibank has already lost about 20% in market cap since the security/privacy incident was announced. Knowing that Australian consumers are “incredibly sticky”, my sense is that most policyholders will stay and that in the medium term, they will be able to restore some brand credibility.
What do the brokers say? According to FN Arena, the consensus target price is $3.24. The range is a low of $3.00 to a high of $3.70, well above today’s ASX price around $2.87. I would hang on.
Question 2: Should I sell Ramsay (RHC)? Ramsay shares have not moved for many years now, especially after the founder passed away.
Answer: You can read my thoughts here.https://switzerreport.com.au/ramsay-offers-value-for-the-long-term-investor/ [1]
The fact that a well-respected PE firm was prepared to pay $88.00 for Ramsay Health Care (RHC) tells you something about the stock. Further, the stock never went much lower than $60 during Covid suggesting that it has a pretty strong support from institutional shareholders.
I wouldn’t sell out, but you will need to be patient, because there is no obvious trigger for a market re-rating,
Question 3: How much of success story is Xero (XRO) when it can’t ever make a profit after decades in operation? Should I continue to hold or sell?
Answer: I am a believer in the Xero story, so I am hanging on. You can read my thoughts here: https://switzerreport.com.au/3-stock-tips-a-roughie-for-2023/ [2]
But don’t get too carried away about “profit” – you can be a very successful business and not profitable. If a company chooses to re-invest its earnings in growth activities, most of this investment will be treated as an expense, which reduces profitability.
Growth companies re-invest, mature companies typically don’t. Xero is “profitable” in the Australian and NZ markets, which it then uses to invest in the UK and USA, where it is currently “unprofitable”. Xero has positive EBITDA (earnings before interest, tax, depreciation and amortisation), but a small negative NPAT.
Profit is an “accounting concept” – with its own standards and sometimes bizarre rules of measurement. It is one measure of “financial health’………but by no means the only one.
Question 4: When do the big banks pay their dividends?
Answer: ANZ pays its final dividend of 74c per share on 15 December; NAB pays its dividend of 78c per share on 14 December and Westpac pays its dividend of 64c per share on 20 December.
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.