Question 1: Is Elders (ELD) in buy territory and do its long-term prospects and management team look promising?
Answer: I guess that when a stock is trading at a 52-week low, and on a multiple of forecast FY23 earnings of 8.5 times and forecast FY24 earnings of 9.0 times, you could make a case that it is in “buy” territory.
However, I avoid agricultural companies because the vagaries of the weather and other exogenous factors just make them too hard. So, Elders is not on my “buy” list.
As for the experts, they are largely on side. According to FN Arena, of the major brokers, there are 4 ‘neutral’ recommendations and 1 ‘buy’ recommendation. The most bullish has a target price of $12.00, almost 100% higher than the last ASX price of just $6.14. The most bearish has a target price of $7.45, still 21% higher. The consensus is $8.86, 44% higher.
There has been some turbulence in the senior leadership team, but the CEO Mark Allison, who has been there almost 10 years, has confirmed he is staying on.
Question 2: Why did CSL come out with a trading update if their profit fort this year is largely unchanged? Have you changed your opinion?
Answer: The main reason that CSL issued a trading update is that their budget for FY24 is well short of what the analysts were expecting.
Overall, CSL is forecasting a profit of between US$2.88bn and US$3.01bn for FY24, which on a constant currency basis, represents an increase of between 13% and 18% compared to FY23. This is well below what many broker analysts had pencilled in, which on consensus was about USD3.5bn.
They also confirmed that FY23 profit would come in at the top of the range (US$2,800m at constant currency), but due to currency headwinds (the impact of a strong US dollar), be around US$2,550m on a net profit basis.
While the announcement is disappointing and the market reaction of a drop of around 7% to be expected, it doesn’t change my opinion of the company. I maintain that CSL is one of the better value stocks on the Aussie market and within the next 12 months, will test $350.
Question 3: If the transfer balance cap (TBC) is increasing to $1.9m on July 1, should I wait until then before starting a super pension?
Answer: If you are starting a pension from scratch, I would wait until 1 July. Potentially, you will be able to move $1.9m into the pension phase. If you did it today, you would only be able to place $1.7m into the pension phase.
Question 4: Why have bank hybrid securities (capital notes such as CBAPL or AN3PK) fallen in price?
Answer: For two reasons. Firstly, there has been quite a bit of new supply. For example, CBA has just issued PERLS XVI (CBAPM) which pay a floating rate distribution of 3.0% over the 90-day bank bill rate. The other reason is that bank ordinary share prices have fallen, and dividends yields risen…and there is correlation between dividend yields and margins on hybrid securities. The effective interest rate or margin goes up when the price of the hybrid security (capital note) falls.