Question 1:  Since last year, only wholesale investors can buy hybrid securities issued by our four banks at the issued price. How do individuals apply to become a wholesale investor? Why can some of the bank hybrids still be bought on the ASX?

Answer: One of the more curious (and stupid) actions by ASIC was to ban the offering of new hybrid securities (bank capital notes) to retail investors via a primary market issue. Retail investors can’t take part in a new issue, or rollover an existing capital note that is being redeemed into the replacement issue. Yet, they can buy any hybrid issue on the ASX through their broker just like any other share. How stupid is that!!

There is an exemption to this — they have to be a client of one of the syndicate brokers, receive advice from a financial adviser and be classified as a sophisticated investor. This means an accountant’s certificate that shows that they have net assets of more than $2.5m or income of more than $250,000 pa. All hybrids (once issued) can be bought or sold on the ASX.

 

Question 2: CSL seems to be holding above $300 despite the market sell-off. Do you think CSL has finally broken through and can go higher?

Answer: The market seems to be taking a more positive view of CSL. CSL is due to report its full year profit next Tuesday (13 August). It has guided to a full year profit of between US$2.9bn and US$3 bn. I sense the market is thinking that CSL might surprise on the upside, due to a lessening of competitive pressures and the second half profit typically being smaller than the first half (i.e. we know the first half, so less chance of error). Looking at the brokers, the consensus target price is $322.95, about 6.1% higher than the last ASX price. All the brokers are positive. Provided there is no surprise in the profit result with CSL Vifor (the kidney disease business CSL bought), I think CSL can go higher.

Question 3: I see that Transurban has announced an increased distribution and expects to pay a bigger distribution next year of about 65c per unit. However, it is not franked. Why isn’t the distribution franked?

Answer: Transurban is starting to pay tax and the final distribution for FY24 of 32c per unit is partially franked (23.17% is franked). That said, the bulk of the distribution is unfranked because the company doesn’t pay much tax due to its interest expense and amortisation. Essentially, it distributes all its free cash flow.

Looking ahead, however, Transurban will increasingly pay more tax, and the franked component of its distribution will increase. A step change will come in FY27 when most of its earnings on Australian motorways will become exposed to tax.

For FY25, it has guided to a total distribution of 65c per unit, up from 62c in FY24.

Question 4: What are the broker targets for Pro Medicus (PME)?

Answer: The brokers continue to say that Pro Medicus is over-valued. The consensus target price is $108.50, about 12.9% lower than the last ASX price of around $125.00. The range is a low of $85 through to a high of $127.50.

Pro Medicus reports next Wednesday (14 August).