Question 1: If I wanted an investment in bonds, would you suggest Vanguard Australian Government Bond Index ETF (VGB) or iShares Core Composite Bond ETF (IAF)? Are there any other options that should be considered?
Answer: I wouldn’t invest in Vanguard Australian Government Bond Index (VGB) unless I thought that bond yields were going to fall quickly. The iShares Core Composite Bond (IAF) or Vanguard’s equivalent (the Vanguard Australia Fixed Interest ETF (VAF)) tracks the broader bond market, which includes government bonds, semi-government bonds and some corporate bonds. Typically, they will have a higher running yield than VGB. They both have very low management fees.
There are several alternatives to the passive index ETFs. Active (unlisted) bond funds are available on most investment platforms and in some cases, you can apply directly (for example, PIMCO). Betashares also has a listed active bond fund, the Betashares Western Asset Australia Bond Fund, BNDS. You can also purchase bonds directly through brokers such as FIIG.
Question 2: Cochlear (COH) reported poorly and got belted. Where do the brokers see Cochlear heading?
Answer: The brokers are largely neutral on Cochlear. The company’s downgrade to guidance (albeit to the bottom of their range) plus a fall in services revenue led most brokers to downgrade their targets. Overall, the consensus target price of $287.54 is 9.2% higher than the last ASX price of $263.30. The range is very tight – from a low of $282.15 through to a high of $300.00. According to FN Arena, there is 1 “buy” recommendation and 4 “neutral” recommendations.
Question 3: Should I take part in Goodman Group’s (GMG) share purchase plan?
Answer: Goodman Group (GMG) raised $4bn in equity in late February from the institutional market to fund its development pipeline of data centres and improve working capital. The raising was at $33.50 per share, a tiny discount of just 6.9% to the then ASX price of $35.98.
The $400m share purchase plan is an opportunity for retail shareholders to participate. At the same price as the equity raising of $33.50, retail shareholders can apply for up to $30,000 of shares in Goodman Group. The minimum application is $2,500. The share purchase plan closes next Thursday, 13 March.
Should you participate? At the moment, prima facie, no because the Goodman share price on the ASX ($32) is less than the share purchase plan price. As is often the case after very big capital raisings, the share price sinks due to the flood of paper on the market. It takes a while for the shares to find “permanent” homes.
But Goodman is a great company and a stock that should be in most investors’ portfolios. The institutional response to the raising tells you what the big end of town thinks. So, if you don’t participate, I would be using this opportunity to top up my holding.
For the record, the brokers are relatively bullish on the stock and see upside. The consensus target price for Goodman is $38.42, about 20.1% higher than the last ASX price.
Question 4: There is considerable commentary about dividends being cut, but when I look at CBA, its interim dividend is up from $2.15 per share to $2.25, and Telstra is up from 9 cents to 9.5 cents per share. Where are the dividend cuts?
Answer: The story is possibly a bit of a beat-up, but there are cuts to dividends by resource companies, accompanied by low growth/no growth in most other sectors. For the resource majors: BHP’s interim dividend is cut from approx. $1.10 to $0.79 per share; Rio from $3.93 to $3.53; Fortescue from $1.08 to $0.50 and Woodside from $0.92 to $0.83. In consumer staples, Woolworths goes from $0.47 to $0.39 per share, while Coles adds 1c from $0.36 to $0.37 per share.
