Question 1: Given the recent price fall, is a2 Milk now a buy?

Answer: I have been a big fan of a2 Milk (A2M), but I have to say that I am  disappointed by  their recent trading update. It came only 40 days after they provided guidance for FY21 with their annual results, and after some insider selling by Management and a Director at the end of August. This raises governance concerns.

A positive in their trading update is that they didn’t downgrade their EBITDA margin. This implies it is more of a temporary revenue problem. However, the revenue forecast for FY21 now requires a material uplift in the second half compared to the first half.

The brokers haven’t lost too much faith. According to FN Arena (see above), there are 4 buy recommendations and 3 sell recommendations. The target price is $16.12, about 14.8% higher than the last price. I guess I am a cautious buyer, but I don’t think you need to rush.

Question 2: Dexus (DXS) earnings are mostly rental income from its Australian property portfolio – majority are CBD offices. The Covid-19 pandemic has resulted in many people working from home and it is highly possible that some companies will rethink about paying for expensive office space. The tenant lease expiry date and negotiation of new rental will be considered in a cost saving exercise. Most likely, office building vacancy rates will rise and rental income will fall.

Dexus share price was $13.42 (20 February), $8.21 (23 March) and since then has been hovering between $8 to $9. Is it a buy, hold or sell?

Answer: Dexus (DXS)  has recovered from its lows, but I sense that the commercial property market has yet to fully factor in lower rental returns and higher capitalisation rates for valuation purposes. At $9.23, I lean towards a sell.

The picture has been complicated a little by reports of foreign capital flowing in to lend support to valuations.

According to FN Arena, the major brokers have a target price of $9.35 for Dexus, approx. 1.3% higher than the current price. Range is a low of $8.15 from Morgan Stanley, to a high of $10.47 from UBS. 3 buys, 2 neutrals, 1 sell.

Question 3:  What is your favourite tech ETF stock?

Answer: It really depends on what you’re after. If you want exposure to robotics, automation and AI, I would look at ETF Securities ROBO. Here’s a link to a review I wrote on this: https://switzer.com.au/the-experts/paul-rickard/are-you-ready-to-invest-in-robotics-automation-and-ai-megatrends-here-are-two-simple-ways/

If you want exposure to the major tech companies, I would look at FANG from ETF Securities. This tracks 10 stocks, the so-called FANG + group.

Question 4: Is Nufarm (NUF) a buy?

Answer: Nufarm (NUF) has been a pretty disappointing company over the last few years. It doesn’t have many friends. I guess that goes to explain why it is trading near a 10-year low.

If you listen to the brokers, they see value in it. According to FN Arena, the consensus target price is $4.96, about 27.2% higher than the current price of $3.89. The range in forecasts is a low of $4.50 from Macquarie through to a high of $5.30 from Citi. 5 buy recommendations, 2 neutral recommendations.

Not a stock on my radar, however.

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