Question 1: We have to rebalance our SMSF and need some recommendations in the Fixed Interest category. Are there some ETFs that are good in this sector in addition to VAF?
Answer: IAF from iShares is essentially the same as VAF (Vanguard Australia Fixed Interest). They are index funds tracking the same index. If you want to consider a little more credit risk and potentially running yield, you could look at the iShares Core Corporate Bond ETF (ICOR). This tracks an index of investment grade corporate bonds. Distributions should be higher, however as the duration is lower, if yields fall, then it won’t produce the overall performance that you would get from VAF or IAF.
An actively managed ETF is Betashares Western Asset Australian Bond Fund. It trades under the ticker BNDS. It has net assets of around $750m and management fees of 0.42% pa. It pays distributions monthly. While performance has improved over the last 12 months, it is largely matching the index over 3 and 5 years (after fees) and since inception.
Question 2: Promedicus (PME) just keeps going higher and higher and higher. How high do you think it can go?
Answer: I really wish I knew. I have been trying to buy Promedicus (PME) at around $130 for some months now…waiting for that elusive pullback. Sometimes, the market pays no attention to valuations.
According to FNArena, the major brokers feel PME is way overpriced. The consensus target price is $128.50, some 32.5% lower than the last ASX price of $190.24. Even the most bullish broker (Macquarie) has a target of only $150, with the most bearish broker at $100.
I would like to say that $200 will top out the run, but really, I am just guessing.
Question 3: Appen (APX) has announced a share purchase plan at $1.92 per share. I originally bought my Appen shares some years ago when they were worth over $15, so I am feeling a bit reluctant to give them more of my capital. Should I take part and “double down”?
Answer: Appen’s share purchase plan (SPP) is after an institutional capital raising of $50m to strengthen the company’s balance sheet. The raising follows Appen’s return to profitability, with both EBITDA and cash EDBITDA positive in the third quarter. Notwithstanding the loss of its contract with Google, Appen is finding an increased demand for its services, partly as it flexes to cater for the demand for generative AI services.
Looking at its share price, once over $40, down to as little as 20 cents earlier this year, now trading around $2.16, I would only invest in the SPP if I thought that the Company had really turned the corner, and that the revenue growth was sustainable.
Only 1 major broker tracks the stock and that is Ord Minnett. They have just lifted their target price from $1.00 to $2.50, and their rating from “lighten” to “accumulate”.
An option may be to sell your shares on the ASX now, and replace at a lower price ($1.92) in the SPP. It is capped at $30,000 and is scheduled to close on 1 November.
Question 4: Are the brokers bullish about APA? How much upside is there?
Answer: In an aggregate sense, the major brokers see moderate upside for APA. The consensus target price is $7.93, about 4.4% higher than the last ASX price of $7.60.
However, there is some divergence. UBS is quite bearish with a target price of $6.60. It is worried about APA’s balance sheet and says that a capital raising/hybrid debt issue may be required. It has a “sell” rating. The other brokers are more positive, with two “buy” ratings and two “neutral” ratings. The highest target price is $8.60.
Distribution guidance is flat, with the brokers expecting a total distribution of 57c per unit for FY25, rising very modestly to 57.6c in FY26. This puts APA on a yield of 7.5%.
