Question 1: Are you recommending Pro Medicus (PME)? This stock has been on a tear. Rudi commented a while ago that he liked the shares but was waiting for a pullback, but the pullback has never come. What do you think?
Answer: Pro Medicus (PME) has had a spectacular run, from a price of around $20 five years ago, to yesterday’s $116.92. An IT healthcare company headquartered in Melbourne, Pro Medicus specialises in enterprise imaging and radiology information systems. Its software is used by most of America’s leading hospitals and healthcare facilities.
It claims that of the total addressable market in the USA for its services, 85% is addressable and its current penetration is only 7%. There are also huge opportunities in Europe and other western markets.
Financially, revenue was up 30% in the last half to $74.1m and NPAT up 33.3% to $36.3m. It boasts an EBIT margin of over 66%. It is debt free, has a strong balance sheet and is even paying a small franked dividend.
However, it is trading on crazy multiples. With a market cap of over $11.8bn, it is trading on a revenue multiple of something like 70x and PE multiple around 160x. The brokers think it is overvalued, but there is divergence. Macquarie is most bullish with a target price of $120, Morningstar most bearish with a target of $34.50. The consensus is $78.90, about 33% lower than the last ASX price.
The two areas I don’t understand are competition, and whether AI is actually an “accelerator” (as Pro Medicus claims) or a threat.
Pro Medicus is owned 50% by its two founders, so the free float isn’t large. I am starting to think it is a “stock you have to own”, but whether you wait for a decent pullback or just jump in, I really don’t know.
Question 2: Is Woolworths a buy now or if not, at what price do you think it would be good value?
Answer: I guess I am tempted to be a little greedy and wait a little longer before I buy Woolworths. There are still 4 more Government initiated looking at the supermarket duopoly to enquire and report!!
According to FN Arena, the brokers are a little more positive. They have a target price of $32.83, about 6.2% higher than the last ASX price of $30.92. The range is a low of $27.50 through to a high of $39.00.
On metrics, Woolworths has cheapened, but is not that cheap. A multiple of around 22.4x forecast earnings, dividend yield 3.7%.
Close, but I can afford to wait. I would like to see it under $30.
Question 3: I see that Westpac is paying both an ordinary dividend and a special dividend. It says that it will “neutralise” these dividends. What does “neutralise” mean?”
Answer: If a company has a dividend re-investment plan, new shares are created when the dividend is paid in this manner. Potentially, this dilutes other shareholders who don’t participate in the DRP.
Typically, institutional shareholders don’t participate in DRPs and don’t like being diluted. If a company has sufficient capital, it buys back on the ASX the exact same number of new shares that it issues under the DRP and cancels the shares bought back. This is called “neutralisation”. So in Westpac’s case, it will issue shares in the DRP, and buy back the same number back on the ASX (which are then cancelled).
Question 4: What is the last day to get ANZ’s dividend?
Answer: ANZ’s dividend of 83c per share, franked to 65%, will be paid on 1 July. If you want to receive it, you must buy the ANZ shares before they go ‘ex-dividend’, which is Monday 13 May. So the last day to trade on the ASX is this Friday.
If you are in the DRP, the last day to change your plans (either be part of or exit) is Wednesday 15 May.
