Question 1: Macquarie Bank (MQG) has had a great run over the last month or so. Today’s closing price of $231.65 puts the stock at a 12-month high. In the current interest rate cycle, after looking into your crystal ball, do you think there is continued momentum for the stock? Or should I be taking profit after a great run?
Answer: My view on Macquarie is that it is a bit of a surrogate for the overall market. If you believe the market will head higher, then hold your Macquarie shares. If you believe the market is going to fall, then take some profits with a view to buying back lower down.
Macquarie has done well recently for two reasons. Firstly, the market – institutions can’t afford to sell it because they don’t have a lot of ready alternative investment options, and secondly, the sale of data centre provider AirTrunk for $24bn (twice the amount expected 6 months’ earlier) and the realisation that Macquarie will bank material profits on the sale.
As for the major brokers, they feel that Macquarie is over-valued. According to FN Arena, the consensus target price is $206.42, about 11.3% lower than the last ASX price of $233.23. The range of target prices is a low of $176.00 through to a high of $234.00. There are 2 “buy” recommendations, 2 “neutral” recommendations and 1 “sell” recommendation.
Question 2: With today’s inflation number, it was reported that monthly inflation had fallen to 2.7%, but the trimmed mean inflation rate was 3.4%. They say that this is the number that the RBA really looks at when setting interest rates. What is the trimmed mean inflation rate?
Answer: The consumer price index is calculated by looking at the price changes in a basket of goods. However, big changes (up or down) in particular items can have a big impact on the measure and cause volatility with individual monthly or quarterly measures.
The trimmed mean calculation looks at the same data but excludes the bottom 15% and top 15% of the price changes. Essentially, the price changes are ranked from top to bottom, and the middle 70% are included in the calculation.
The RBA considers it a more reliable measure of underlying inflation because big one off movements, in either direction, are excluded.
Question 3: I think pension payments and other government benefits were recently increased. Did they also increase the limits that determine if you can get the aged pension?
Answer: To be eligible for the aged pension, you must be 67 years old and pass two tests – an income test and the assets test. The limits that determine eligibility were increased on 20 September.
The test that impacts most people is the assets test. To get the full aged pension, a couple must have total assets less than $470,000. This excludes the family home but includes pretty well all other assets including superannuation balances. A part pension is paid up until assets exceed $1,045,500. Non homeowner couples get higher caps.
For a single, the full pension is paid up until assets (excluding the family home) exceed $314,000. The pension cuts out when assets exceed $695,500.
Question 4: I keep on waiting for Audinate (AD8) to rally. It seems stuck around the $9.50 level. What do the major brokers say?
Answer: According to FN Arena, the major brokers see upside in the stock. The consensus target price is $11.53, about 20.9% higher than the last ASX price of $9.53. The range of targets is a low of $9.30 through to a high of $14.60. Of the four major brokers who cover it, there are two “buy” recommendations and two “neutral” recommendations.
