Question 1: Do you think the ACCC will approve the merger between Sigma Healthcare (SIG) and Chemist Warehouse? Would you recommend buying shares in SIG now to take advantage of this merger being approved by the ACCC?
Answer: Given that Sigma Healthcare (SIG) is trading on the ASX at $1.25, and the deal was announced when it was trading at 80 cents and a capital raising took place at 70 cents, I think you can assume that the market thinks that the ACCC will eventually approve the deal (effectively a reverse takeover of Sigma by Chemist Warehouse, and the merger of the Amcal and Chemist Warehouse pharmacy businesses). The ACCC has conducted a review (including a call for public submissions) and is due to report by 13 June. That said, it is considered unlikely that the ACCC will immediately give it a “green tick” but rather set out a “statement of issues”, allowing the public further time to make submissions. Bottom line, it could be some months yet before the ACCC finalises its position. Most analysts suggest the valuation is pretty “full”, so I wouldn’t be a buyer.
Question 2: What is your current view of QBE? Most analysts have target prices over $20. Do you think that QBE will get to $20 over the next 12 months?
Answer: QBE has been supported by higher premiums (partly due to inflation) and higher bond yields (which improves its earnings on its investment portfolio). I quite like the company but am fairly neutral on it after a reasonable run up in share price. According to FN Arena, the analysts are supportive of the company. The consensus target price is $18.72, about 4.4% higher than the last ASX price of $17.93. The range is a low of $14 through to a high of $21. While I don’t rule out $20 in the next 12 months, I think it is unlikely as falling bond yields will act as a handbrake to share price growth.
Question 3: Looking to add to my portfolio, I have noticed that Auckland International Airport (AIA) has pulled back a bit. Do you think the current level would be a good entry point?
Answer: I think Auckland International Airport (AIA) looks interesting, but there is some regulatory risk with the pricing review. The brokers seem to like it, most feeling that it is somewhat undervalued. According to FN Arena, the consensus target price is $8.25, about 18.5% higher than the last ASX price of $6.96. I don’t find the forecast dividend yield of around 2% very attractive, and I am not a fan of dual listed (ASX/NZ) companies.
Question 4: Do you have “egg on your face” with your call on Telstra (TLS) on Monday?
Answer: Probably, but I didn’t know they were about to make an announcement. The sell-off seems to have been triggered by a couple of brokers downgrading their rating, small cuts to earnings forecasts and suggestions that Telstra’s dividend might be under threat. I understand they didn’t like the costs to implement the restructure.
My assessment of the announcement was that it should be good for shareholders over the medium term. Most of the job cuts are coming from their underperforming enterprise division (which I talked about). With mobiles, abandonment of the automatic indexation of plans potentially means price increases may be higher.
I put my money where my mouth is. We will see who is right over the next 6 to 12 months.
