Question 1: We have a $200,000 shareholding in Suncorp (SUN). What are the chances of the ANZ buying the bank? If this happens, we will be left with an insurance company. What is the outlook for this new SUN and insurance companies in general?
Answer: My guess (and it is only a guess) is 60/40. ANZ and Suncorp have appealed the decision of the ACCC, and it now sits with the Australian Competition Tribunal. A decision is expected by February 20. If they uphold the appeal, it will still require sign-off from the Federal Treasurer and some legislative amendments in Queensland.
If ANZ buys the bank, then Suncorp will just be an insurer, with brands such as AAMI, Apia, GIO, Shannons, Bingle and Vero.
Insurance companies have fared reasonably well over the last couple of years, mainly because they have demonstrated pricing power by being able to increase premiums in an inflationary environment, but also because they benefit from higher interest rates which positively impact their investment portfolios. The downside relates to the perceived risk of increasing natural hazards (and claims losses) from climate change.
Question 2: With Evolution Mining (EVN), I have a decent holding as advised by my stockbroker who considered them a good longer term play. However, recent press is giving them a hiding and advising sell fast! Should I cut and bail?
Answer: Evolution Mining (EVN) has been under pressure following its acquisition of an 80% share of North Parkes copper and gold mine and subsequent capital raising at $3.80 per share which met with a “luke-warm” reception from institutional investors, and then a very disappointing 2nd quarter production report which highlighted issues with its Red Lake mine in North America.
I have to be honest and say that while Evolution Mining has never been my preferred gold play (I prefer Northern Star), it is starting to look cheap on most metrics at around $3.10. The analysts are moderately bullish, with a consensus target price of $3.68, about 15% higher than the last ASX price. The range is a low of $3.50 up to a high of $4.05.
The challenge in the short term is that there is probably quite a bit of stock in loose hands (with raising plus retail share purchase plan), and it is difficult to see what the near term catalyst for a price bounce (apart from a surge in the gold price) might be. Evolution Mining is due to report on 14 February.
Question 3: Rio Tinto (RIO) has performed exceptionally well in recent times, thanks to strong iron prices and demand for other materials. There is no doubt that this have been a good time to sell. What would be your exit price?
Answer: I don’t understand the iron ore price…but despite all the predictions of bust…it doesn’t seem to be going down much. With most analysts using a long term price of around US$90 per tonne in their models and the current spot price around US$130, I am not sure I get the argument to exit holdings. I am staying moderately overweight these stocks.
But if you are bearish on iron ore or feel you are overweight, the current level is as good as any to get out. For what they are worth (they really depend on long term commodity price forecasts), the broking analysts have a consensus target price of $129.67 on the stock (about 1.6% below the current ASX price). The range is a low of $116.00 from Ord Minnett up to a high of $145 from Morgan Stanley.
Question 4: There is quite a bit of noise around graphite. Are there any well run producing ASX graphite companies?
Answer: Syrah Resources (SYR) is the obvious stock. Here is a link to an article James Dunn wrote on graphite stocks last year. https://switzerreport.com.au/two-graphite-stocks/
