Question 1: On Tuesday the share price of Resmed (RMD) plunged 13.2% after US pharmaceutical giant Eli Lilly announced trials in weight loss drug tirzepatide were successful. The Ozempic competitor was found to have reduced sleep apnoea severity, potentially under-cutting Resmed’s key market. I am thinking of selling all my Resmed shares and am looking to put the money in another more stable sector. What is your view of Resmed in the short and long term as an investment?
Answer: If I look at the brokers’ analysis of the announcement, the general consensus was that weight loss drugs might impact Resmed’s TAM (total addressable market), but not impact near term (FY25, FY26) profits. Citi cut its target price from $36.00 to $30.00, but Morgan Stanley left it unchanged at $33.70.
According to FN Arena, the consensus target price now sits at $33.23, about 20.2% higher than the last ASX price of $27.65. Range is a low of $30.00 through to a high of $34.85. I am no expert on weight loss drugs, but my guess is that Resmed will, after such a steep fall, shortly find a base before heading higher again. A bit like when the impact of weight loss drugs first hit it. Still a long term proposition.
Question 2: What are your thoughts on the Deterra Royalties (DRR) takeover of Trident Royalties and their change in dividend policy? From what I read, it appears they have paid a fair price and most of Trident’s assets fit their business model. Having the ability to pay down debt rather than dividends seems logical. My concern is what it will do to the share price, noting most shareholders were probably focused on the dividend. Buy, sell or just hold?
Answer: Deterra’s communication with the market on the acquisition of Trident Royalties has been poor. The change to the dividend payout ratio came as a shock.
It is hard not to think that they have overpaid for the acquisition, given the premium. While in keeping with their strategy, unclear how Deterra adds any value. Exposure to lithium will suit some investors but worry others. I am not surprised by the market’s reaction to the purchase. But around $4.00, Deterra is probably closer to fair value (I am not sure why Deterra’s share price ever went over $5.00). According to FN Arena, all the major brokers are now “neutral” on the stock. The consensus target price is $4.25, about 5.4% higher than the last ASX price of $4.02. The range is a low of $3.70 through to a high of $5.00. Forecast dividend yield of 5.4% for FY25 (fully franked) is interesting, but perhaps not compelling for a royalty company given current bond yields. Not a buy. Hold if you can’t find better.
Question 3: Is it too late to claim the tax offset for spouse super contributions?
Answer: No, but you will need to hurry – contributions must reach your spouse’s fund on or before 30 June. Assuming your spouse meets the income tests, if you contribute $3,000 to their super, you will get a tax rebate of $540. More details can be accessed at https://switzerreport.com.au/5-super-actions-to-take-before-the-end-of-the-financial-year-3/).
Question 4: I received NRMA (IAG) shares in the public float many years ago and I can’t find the cost price to enter into my spread sheet. The share registry doesn’t show it either. Can you help?
Answer: NRMA shares were originally issued with a cost price of $1.78 (under the demutualisation). In 2002, NRMA changed its name to IAG. In 2018, there was a capital return of 19.5c per share. So, your cost base per share should be $1.78 less 19.5c.
