Question 1: I’m keen to know your thoughts on Sandfire Resources (SFR). What do the analysts predict? It’s been a bit volatile over the last couple of weeks but made good progress over recent times.
Answer: Sandfire Resources (SFR) has been on a bit of a tear this year – up roughly 50% since November. This is on the back of an improving copper price and its position as Australia’s biggest “pure-play” copper stock. While it is head quartered in Perth, its mining assets are on the Iberian Peninsula in Portugal, the Kalahari in Botswana and if approved, a mine in Canada.
The analysts are generally supportive of the stock but feel it is over-valued. The ramp up of mining in Botswana has been well received and made up for some disappointing cash returns from its Iberian operations. On valuation, the consensus target price according to FN Arena is $7.88, about 13.1% lower than the last ASX price of $9.05. The range of targets is a low of $7.00 through to a high of $9.00.
In terms of recommendations, there are 3 “buy” recommendations, 2 “neutral” recommendations and 1 “sell” recommendation.
My sense that the rise in share price has been too rapid and that patient investors will be offered lower entry prices.
Question 2: We own shares in Electro Optic Systems (EOS) who have a share purchase plan (SPP) at $1.70 per share. Today’s close on the ASX for EOS was around $1.57. The SPP doesn’t stack up for me, am I missing something?
Answer: EOS is trading a little better today on the ASX at $1.675, but you are spot on…the Share Purchase Plan is at $1.70. The offer price is the same price paid by institutions in an underwritten placement of $35 million.
Perhaps the placement led to a bit of indigestion…too many shares in loose hands. If you want to participate in the SPP, it closes on Tuesday 16 April.
Question 3: What are your suggestions for a quality ETF that focuses on Mid Cap stocks on the ASX?
Answer: In many ways, I think you might be better off with an actively managed fund rather than a passively managed ETF, as this is one area where active managers can potentially add value. Another problem with index ETFs is that there is no definition of what constitutes a “mid cap” stock, and the ETFs follow what on paper look to be a less than fit-for-purpose set of indices.
Here are some you can consider:
Maybe too big to be “midcap”, Betashares Australia Ex-20 ETF (EX20) tracks the 180 stocks outside the top 20, effectively stocks ranked 21st to 200th in market cap. It doesn’t use the S&P/ASX 200 index as its base, but rather a very close replica in an index from Solactive. With the top 20 accounting for about 60% of the total market cap, this gives you exposure to the remaining 40% (less the micros).
There are two ETFs that track the Small Ordinaries Index, which are stocks ranked 101st to 300th by market cap. SMLL from Betashares and ISO from Blackrock/iShares.
VanEck has MVE which tracks the Midcap 50 index, effectively stocks ranked 51st to 100th by market capitalization. A challenge with this index is that there are probably “midcaps” at both ends – ranked around 30th to 50th and 101st to 125th.
VanEck also has MVS, the Small Companies Master ETF. It tracks a constructed index of Australian Small Cap Dividend Payers, which has rules around the number of stocks and market weighting. Recent performance has been good, but longer term, it has underperformed compared to the straight Small Ordinaries Index.
Question 4: Can you comment on the ChemX Materials (CMX) share purchase and options plan. Should I participate?
Answer: ChemX is a stock for the “true believers”. It is building a high purity alumina pilot plant with the aim of commercialising the technology.
To help finish the plant, it raised about $1m through a private placement and is seeking to raise another $0.5m through a share purchase plan (SPP). New shares under the SPP are being offered at 4.8c per share, with a maximum subscription of $30,000. There is also a “free” option attached, issued at on a 1:2 basis (1 option for every two shares purchased), to buy new shares at 9c each any time in the next three years. The closing date for the SPP is 23 April.
I don’t know anything about the ChemX technology. But if history is a guide, when companies get this small and are raising miniscule amounts of money, the next stop is often the receiver. As I said, you need to be a “believer” to invest.