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Questions of the Week

Question 1: Could you please let me know when the share price is used to calculate the yield % of a stock. Is it taken at the close of trading on the CommSec site, or on the ex-dividend date?

Answer: There is no standard when it comes to a yield calculation. Usually, what you will see on a site like CommSec is historic calculations based on historic dividends. That is, the previous (historic) full year dividend, divided by the current share price. I couldn’t tell you whether they use the current market price or last night’s closing price – check with CommSec – most likely the previous day’s closing price.

I prefer yield calculations based on prospective dividends – this year’s expected dividend divided by the current share price.

Question 2:  Given the Chinese bid for Bellamy’s (BAL), do you have a view on A2 Milk (A2M)? Assuming the Foreign Investment Review Board (FIRB) gives the Bellamy’s takeover the go ahead, do you think the Chinese will stop buying A2 Milk and cancel / not renew licensing contracts?

Answer: I am a little surprised at how the market has reacted to the takeover offer of Bellamy’s (BAL). Not to BAL’s share price (which is at a small discount to the effective bid price of $13.25, implying that the market accepts that the most likely outcome is for FIRB to approve the proposal) but to the reaction to A2 Milk (A2M). After initially pushing the price up, it has now fallen by around 4% to $12.60.

I really couldn’t say whether the bid by China Mengnui for Bellamy’s will stop the Chinese buying A2’s products or cancel licences. I would say an unlikely rumour. A2 Milk gave quite a detailed investor presentation on its business in China yesterday – it seems to be very focussed on growing this business.

If anything, I think the current dip could yet prove to be a buying opportunity in A2. According to FN Arena, the current consensus target price is $14.63, a 16.1% premium to the last traded price of $12.60. But rumours are rumours – they might yet un-nerve some other investors.

Question 3:  How does the Bellamy (BAL) proposed takeover affect people involved in the class action?

Answer: I think you’re going to have to direct that question to the legal firm running the class action!

It hasn’t been discussed in the material presented by the company. In fact, Bellamy’s said that there is no outstanding legal action to disclose.

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