Question 1: Sonic Health Care (SHL) appears to be a company with a solid footing and rising yields. We have no health care in our portfolio and are looking to address this but would also like “safe income”. Does Sonic fit the bill?
Answer: Sonic Health Care (SHL), a global business providing pathology and imaging services, is one way to play the health sector megatrend. I think you can count on reasonably reliable income, growing over the medium term at 5% to 10% pa.
Sonic got a huge boost during the pandemic due to its Covid testing, so growth going forward will come from market growth and by acquisition.
The brokers feel it is pretty fully priced, trading on the ASX at $35.24 compared to a consensus target price of $35.62. On a multiple of around 23 times forecast FY24 earnings, and a prospective yield of 3.1%, it is not particularly cheap.
In the health care sector, my preference would be CSL. That said, if you are looking for “safe income” with some exposure to the health sector tailwinds, Sonic would meet the test.
Question 2: I am a long-suffering shareholder in vegetable and fruit grower Costa Group (CGC). I understand that there has been a takeover offer. Should I be thinking about accepting it?
Answer: Costa Group hasn’t received a takeover offer but has received an indicative, non-binding and conditional offer from private equity firm Paine Schwartz Partners. This is at $3.50 per share and would be implemented through a scheme of arrangement.
Paine Schwartz already owns 13.78% of Costa Group which it bought in October 2022 at around $2.60 per share.
According to Costa, it has been talking to Paine Schwartz for some time and has granted them a period of 8 weeks non-exclusive due diligence, which expires towards the end of July.
With any non-binding indicative offer, there is always a high risk that it will come to nothing (i.e., the bidder will walk), and that is why the shares on the ASX are trading around $3.30 compared to the indicative bid price of $3.50. However, Paine Schwartz has already received preliminary approval from the Foreign Investment Review Board and as a key existing shareholder, should be in a good position to complete. That’s why the discount is relatively small.
I think there is a strong chance the offer will be finalised, and the scheme will be put to shareholders. If it gets the tick from shareholders ($3.50 should be enough), you won’t need to accept – it will be automatic. Your shares will be acquired at $3.50.
Question 3: With overseas shares, can I hedge my currency exposure?
Answer: It is very difficult, nigh almost impossible, for an individual investor to fully hedge the currency exposure on an overseas share portfolio. A strategy using FX options could be employed in some cases.
Some actively managed overseas share funds, and passively managed ETFs, are currency hedged. For example, you can invest in iShares S&P 500 ETF (IVV) which tracks the performance of the US S&P 500 index, or IHVV, which tracks the performance of the same index but takes out a currency hedge to mitigate the FX risk. The same with BetaShares NASDAQ 100 ETF (NDQ), the unhedged version that tracks the NASDAQ 100 index, or HNDQ, the currency hedged version of the same product.
Question 4: Have there been any changes to the super contribution caps this year?
Answer: No, there are no changes to the caps. The concessional super contributions cap for 23/24 is $27,500 and the non-concessional super contributions cap for 23/24 is $110,000.
Concessional contributions are the employer’s 11%, any amount you salary sacrifice, and personal contributions you claim a tax deduction for. Non concessional super contributions are contributions from your own (after tax) monies.