Question 1: I bought Treasury Wine Estates (TWE) in early January, the day before US reports of suggestions that health warnings be placed on wine bottles. The price has tanked almost a S1 as I write. Are there any other factors you would be aware of leading to this drop and what are your views on a fair value for TWE?
Answer: Treasury Wine Estates is a stock out of favour with many investors. Concerns about China, tariffs, the strength of their US business and perhaps not meeting profit guidance (or delivering at the bottom of the range) are all factors. Maybe the potential for health warnings is another factor. The major brokers remain supportive of Treasury Wine Estates. According to FN Arena, the consensus target price is $13.71, about 30.3% higher than the last ASX price of $10.52. The range is a low of $11.50 through to a high of $14.80. On multiples, TWE is trading around 17 times forecast FY25 earnings and 14 times FY26 earnings.
There is no doubt that TWE is cheap. I am a believer, but it will need to deliver some good news to drive market attention. Maybe this will come with its half year results in February, where expectations are quite low.
Question 2: I’m interested in diversifying into bonds, both Australian and US. Could you give me some direction as to find a bond trader or trade platform to research and buy bonds or would a bond ETF be sufficient for this?
Answer: There are severable fixed interest brokers that could help you. One that we use is FIIG (see www.fiig.com.au). The main caveat is that you will need several hundred thousand dollars sto get a diversified bond portfolio. These brokers typically don’t like dealing in parcel sizes of less than $50,000. You can also look at bond ETFs such as VAF or IAF for Australia, or on the international side, VIF. A challenge with these ETFs is that they are tracking very broad-based bond indices (with a very heavy weighting to government bonds).
Question 3: Is the DFND ETF (Global Defence ETF from Vaneck) worth buying?
Answer: The Vaneck Global Defence ETF (DFND) tracks an index that includes the largest and most liquid listed companies that generate at least 50% of their revenues from military or defence industries. This includes companies whose business activity from the military and defence industries relates to: aerospace and defence products and services; communications systems and services, including satellites; unmanned vehicles; event response, security, or safety-related software; information technology hardware and services; cybersecurity software; training and simulation software and products; and digital forensics, detection devices, and e-authentication/biometric identification.
It is a market cap weighted index (with individual securities capped at 8%), with a minimum of 25 stocks each with a minimum of US$1bn market cap. Not surprisingly, US companies currently make up 62%. France is next with 10%. The management fee for the ETF is 0.65% pa.
The ETF has performed strongly since its launch in September (up over 16%), in part due to strength in global share markets, defence companies doing well due to global conflicts/threats, and the weakness of the Australian dollar (the ETF is unhedged).
For a long term investor, I guess you look at DFND if you feel that the next decade will see increased conflicts or governments will see the need to increase their defence spending. Certainly, the ETF offers access to an industry and companies that aren’t listed on the ASX (there are no major defence companies on the ASX).
Question 4: I am interested in CYC (Cyclopharm). What are your thoughts?
Answer: The share price for Cyclopharm Ltd (CYC) has doubled since the start of the year. CYC answered “negative” to an ASX price query in early January but subsequently made an announcement a couple of weeks later about a major contract win. There is only one major broker who covers the stock. Bell Potter has a buy rating (from last August), target price of $2.70 compared to the last ASX price of $2.40.
