Question 1: Flight Centre (FLT) has just had another step down, but management seem to think the worst of it is now over. I don’t currently hold this stock. Given it used to be $65, now at $40, what is your opinion as a long term investment?
Answer (by Paul Rickard): Flight Centre (FLT) is a well-run company but there are headwinds and I am not convinced that these are “blowing away” quickly. Guidance for FY20 has been downgraded
As for the brokers, they are marginally positive on the stock, with 4 buy recommendations and 3 neutral recommendations. The consensus target price is $44.31, an 8.8% premium to the current market price of $40.66. At the top end is UBS with $50.50, Macquarie is at the bottom with a target of $39.10. I can’t get excited at $40.
Question 2: I have a question about listed investment company (LIC) discounts to NTA (net tangible asset) value. Ellerston Global Investments (EGI) recently announced their intention to convert to a trust structure, as a means of narrowing the gap between the share price and the NTA. The shares have rallied strongly in response and I am wondering why.
Answer: EGI has announced that it intends to convert from a listed investment company to an unlisted trust. Presumably, this may include a redemption facility where unitholders apply to redeem units at a price very close to NTA, and new investors apply for units at price very close to the NTA. This is the “traditional” managed fund structure. As we have seen in the past, there is no guarantee of liquidity with this structure. But there’s no point in selling shares on the ASX at a 17% discount when you might, I emphasise the word “might”, be able to redeem the equivalent units at a price close to NTA. I guess this is why it has rallied in the short term.
Question 3: I have shares in Jumbo Interactive (JIN) . They have fallen significantly. Should I sell while I have still a profit? I bought them when they were $2.40.
Answer: That’s a big profit – almost 10 times! I like Jumbo Interactive (as does the market), but it is trading on a pretty heady multiple (34.7 times forecast FY20 earnings and 27 times forecast FY21 earnings). This means that any minor hiccup will get severely punished.
Two of the major brokers cover the stock. Both have buys but Morgans target is $19.17 (below the current price of $20.60), Morgan Stanley’s target is $24. If you are really worried, I would bank some of the investment.
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