Question 1: Adelaide Brighton (ABC) recently announced that it would not be paying a final dividend. I hold a parcel. Should I sell them or hang on? How do you see their future prospects?
Answer: Adbri (formerly Adelaide Brighton) is in the “falling knife” category. It has been a one-way trend down in price since 2018, back then around $7, today friendless at $1.65. Last Friday, the company announced a further cost blowout on the upgrade to the Kwinana cement project. The company is already quite indebted. The major brokers are neutral to negative on the company. According to FN Arena, a consensus target price of $1.69 (about 2% higher than the last ASX price). The range is a low of $1.50 through to a high of $1.80. Recommendations are either ‘sell’ or ‘neutral’. There is no doubt that the stock is cheap. Has it bottomed? On management track record, I don’t think it is a company you need to back. If you have something better to do with your money, take the medicine and cut the position.
Question 2: Is JB Hi-Fi a good buy?
Answer: I am a huge JB Hi-fi fan – in my opinion, unquestionably Australia’s best-run retailer. So, if you want to invest in discretionary retailers, it would be my pick. The brokers have been bearish on the retailers because of their concerns about the impact of higher interest rates. As such, they don’t see a lot of upside – a consensus target price of $45.20 compared to the last ASX price of $45.48. But the range is wide – from a low of $35.50 through to a high of $55. Wednesday’s trading update (which detailed third quarter sales) showed that JB Hi-Fi is performing well and consumer demand is resilient. Buy when the market is taking a breather or in a pullback.
Question 3: Many years ago, I bought two speculative companies Vintage Energy (VEN) and Comet Ridge (COI). Both have vast amounts of saleable gas with Vintage already pumping gas to AGL and being asked for gas by other companies. Comet has buyers at their door but is not pumping at this stage. Share prices are stagnant and low. With your crystal ball, can you give me an idea as to what you think may happen?
Answer: 80% of resource companies will go broke, so the odds are against you when investing in speculative small caps. The positive is that Vintage Energy is producing (although has pre-sold to AGL and been paid in advance for some of the gas), Comet Ridge (COI) looks more promising for the longer term.
Vintage Energy doesn’t have a lot of cash ($4.4m at 31/3) and is burning cash, COI has around $14.6m.
I don’t know much about the particular companies, but you asked for a “crystal ball”. Here goes…Vintage Energy could run out of cash, COI might survive. But both are still speculative. Keep your eyes on the 4Cs (cash flow statements they post after every quarter).
Question 4: Will the Budget contain any new super taxes?
Answer: We will find out on Tuesday, but I don’t think so. I think we got the news on this front with the announcement in February about a higher tax rate for members with super balances over $3 million. The things I am watching for are decisions not to progress the automatic indexation of the super thresholds. For example, the transfer balance cap (that’s the amount you can hold in the pension phase of super) should rise from $1.7m to $1.9 if the indexation rules are applied.