Question 1: Do you believe Metcash (MTS) would be a good buy at these levels?
Answer: You can certainly make a reasonable case for buying Metcash (MTS) at these levels. It is trading near its 52-week low, on an attractive forward multiple around 13 times earnings, and prospectively, yielding over 5%. The analysts feel there is reasonable upside, with a target price of $4.04, about 14.6% higher than the last ASX price of $3.53. The range of targets is a low of $3.83 through to a high of $4.30. According to FN Arena, there are 3 “buy” recommendations and 2 “sell” recommendations.
Metcash’s share price has been dragged lower by the focus from Government/ACCC/Consumer Groups on the large supermarkets, plus market concern about its acquisitions in the hardware category.
The challenge I have with Metcash is around its positioning as the number 4 player in groceries and the “independent” corner store model, and in hardware and alcohol, as a distant second/third to Bunnings and Dan Murphys/Liquorland.
Interesting to note that the analysts also see 11.3% upside for Woolworths and 11.1% upside for Coles, although both stocks are trading on multiples of more than 20 times.
Question 2: How does RIO propose to fund the US$9.9bn acquisition of Arcadium Lithium. Will there be a share issue?
Answer: At the moment, RIO is saying that it will draw down on existing facilities and debt fund it. This will take its debt to over US$12 billion. It has also said that the transaction won’t affect its dividend policy, nor its current capex plan which includes commitments for the new iron ore mine in Guinea. However, it hasn’t ruled out a share issue and it is likely that there will be some pressure from analysts and investors to consider an equity raise for part of the amount. Time is on RIO’s side in that the transaction isn’t expected to complete until mid 2025, but the prospect of a share issue may act as a dampener on the share price.
Question 3: When will I find out the result of the NEXTDC share purchase plan?
Answer: The result has been announced today (Thursday). Somewhat surprisingly, it wasn’t oversubscribed, so shareholders will get the amount they subscribed for (up to the maximum of $30,000). The issue price for the new shares is $17.01, which doesn’t look too bad compared to their ASX price today of around $18.02.
Question 4: Do the brokers see upside in Resmed (RMD)?
Answer: The local broker analysts feel that at around $35, Resmed is fairly priced. According to FN Arena, the consensus target price is $35.83. The range of targets is a low of $33.10 through to a high of $39.25.
