Question 1: Do you see any value to hold on to two dog stocks, Star Entertainment (SGR) or Pact Group (PGH)?
Answer: There is an old saying that goes: “your first loss is your best loss” and in my experience, this turns out to be correct 7 times out of 10. This goes for selling out early when you know you are in a dud.
In the case of Star Entertainment (SGR), my inclination is that it is in the “too big to fail” category (i.e. too important to the NSW and QLD Governments) and my inclination would be to hang on. In saying that, I have no idea what the catalyst would be for a share price recovery.
The brokers are not raving about it, although their target price is quite a bit higher. The consensus target price is $1.54, about 44.5 % higher than the last ASX price of $1.065. According to FN Arena, the range is a low of $1.25 through to a high of $1.80.
I have never been that keen on Pact Group (PGH) and it is now virtually “friendless” is the market. Only 1 major broker (Macquarie) covers the stock. They have a target price of$0.95, 54.1% higher than the last ASX price of $0.605. At this price, it is trading on a forecast multiple of just 4.9 times forecast earnings……..super cheap!
If I could use the capital loss, I would probably sell Pact, otherwise, if I had worn the pain you obviously have, I would probably hang on. Again, I can’t see any immediate catalyst that will prompt a rally in the share price.
Question 2: Yesterday, broker UBS cut it targets for a number of retail stocks, including JB Hi-Fi (JBH). What is your view on JB Hi-Fi – are you worried about the gloomy outlook?
Answer: No I am not worried. A “gloomy” outlook for discretionary retail is not “new” news. UBS’s changes took their forecast for FY24 earnings to 330c per share (bang on market consensus), and their target price only reduced by $2.50 to $45 from $47.50.
What I have learnt about watching the discretionary retailers is that the market always goes too far…too negative in bad times, too bullish in good times. At the moment, we are in a cycle of “bad news”, so I think there may be better buying opportunities over the next 4 to 6 weeks. However, I am not as bearish as the market and with JB H-I Fi set to report in early August, the danger for “bears” is the risk of an upside surprise…that is, it is not all “doom and gloom” in retailing.
Question 3: I keep hearing that the government will match super contributions and put in $500. What are the rules about this?
Answer: I covered this on Monday (see https://switzerreport.com.au/6-top-tax-tips-for-2023/ [1] ) To recap:
The Government matches on a 50% basis. This means that for every dollar of personal contribution made, the Government makes a co-contribution of $0.50, up to an overall maximum contribution by the Government of $500.
To be eligible, there are 3 tests. The person’s taxable income must be under $42,016 (it starts to phase out from this level, cutting out completely at $57,016), they must be under 71 at the end of the year, and critically, at least 10% of their income must be earned from an employment source. Also, they can’t have exceeded the non-concessional cap or have a total super balance over $1.7 million.
Get in quick……..contributions need to be made and banked by next Friday. Importantly, you don’t need to take any action (or fill out any form) to claim the co-contribution – payment is made automatically by the Government when your SMSF (or Public Offer Fund) lodges their annual return.
Question 4: I have a $30,000 hybrid issued by National Australia Bank, NABPI. It is supposed to pay distributions at a rate of 90-day BBSW +3.15%, which should be over 7% pa. I calculated that the last two quarterly dividend payments came well short of this, with the June payment only around 5.0%. Am I missing something or is this wrong? If so, what can I do about it?
Answer: No mistake or calculation error. Hybrid securities (capital notes) pay dividends at 70% (or 0.7 times) of the margin + the 90 day BBSW rate.
The “70%” comes from the fact that the distribution is fully franked. The balance of 30% are the franking credits, for which there is no cash payment.
An example: margin of 3.15% and 90 day bank bill rate of 4.0%, actual distribution in cash is 0.7 x 7.15% or 5.00%. Franking credits (non- cash) will be an effective 2.15%.
Sorry to be the bearer of bad news…but you are not the first investor who wasn’t aware of how the distributions are calculated.