Question
I recently purchased VTG (Vita Group) for $1.64 (by my calculations I was buying VTG at a discount to its IV). The price for VTG has dropped to $1.175. My question is: have I been the victim of a “value trap”? (VTG has recently purchased a new business, but I thought VTG’s business fundamentals had not changed).
Answer (Paul Rickard)
Probably. Like any model, intrinsic value has its flaws. The only broker (Morgans) who covers Vita Group (ASX Code VTG) has a target price of $1.54 on the stock, but a hold rating. Like him, I am struggling to understand the strategic rationale for the Clear Complexions acquisition.
Question
What is your view on Reckon (RKN)? Buy, hold or sell at the current price?
Answer (Paul Rickard)
The brokers think that the deal (sale of its accountants practice management business to MYOB) will be supported by the market. After repayment of debt, they forecast Reckon may pay a special dividend of around $1.00 per share. After that, the remaining business should generate around $15m in EBITDA. Like them, I am neutral on the stock, leaning towards a medium-term sell. Not convinced about the growth prospects of the business that remain post sale.
Question
I would like to know how safe it is investing in infrastructure funds (for example AMP Capital) compared to other investments such as shares, mortgage funds, etc?
Answer (Paul Rickard)
“Safe” is a relative term. Relatively, they are as safe as investing in any other share. Could you lose your money? Yes, but probably unlikely.
Question
I’ve a fair amount of FXL shares with a cost price of $3.20. They’re now trading about $1.55. Should I cut my loses and sell up now? If so, what would be some potentially better companies in which to invest the funds? Or should I keep the funds in cash?
Answer (Paul Rickard)
Flexigroup’s (FXL) business is not really the sort of financing business that I like to invest in. That said, it has a talented Managing Director and the pricing is very compelling (trading on a multiple of 6.9x FY18 and 6.4 x FY19 forecast earnings).
The brokers are moderately supportive (having been burnt before). According to FN Arena, there are 2 buys and 4 neutral recommendations – with targets ranging from $1.75 to $2.15, consensus $1.91). Given that the AGM is Monday, I guess I would wait to see what is said. The company hasn’t provided an update since its FY results in August – I am sure they will say something about how it is travelling. The risk is probably an upside bounce.
Question
I have read all the info from the Myer Board and Mr Lew regarding the AGM and board’s future composition – but I am none the wiser! Do you have an opinion?
Answer (Paul Rickard)
I would be very wary about supporting Premier Investments/Solomon Lew. I am not convinced that their interests are in your interest, notwithstanding their expertise in running retail businesses.
Question
Specifically, what does Charlie Aitken consider to be “bond like equities”?
Answer (Paul Rickard)
This was covered in Charlie’s earlier article and would include stocks like Sydney Airport, utilities and infrastructure assets such as APA, property trusts and other REITs, probably Transurban, and possibly even Telstra. In other words, securities that have stable and predictable revenue streams, highly geared with debt, and usually are priced on the basis of their yield.
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