Question: I have no utilities in my SMSF, which is in pension mode. AGL is held in both your income and growth portfolios. It is around $19 per share but has a PE of around $29 – fairly high! Is there value in this stock at this point of time?
Answer (by Paul Rickard): Thanks for the question. I wouldn’t be too worried if I didn’t own any utilities. They are not a critical sector.
They have had a great run, largely driven by lower bond yields.
AGL has done well and is a sound company – but it is not particularly cheap.
According to FNArena, the brokers have it trading on an underlying multiple of 16.8 times FY17 earnings, yield of 3.9%. The consensus target price is $19.76.
Hope this helps.
Question: Nib reported on Monday, and being a long term share holder, I was initially happy. Profit up, dividend up but what about the share price? Down 36 cents. There wasn’t a high turnover but a lot of small sales up to 3,000 shares. What’s going on? Is somebody shorting these shares?
Answer (by Paul Rickard): While nib reported a record result, they warned about tougher conditions ahead saying: “soft market conditions likely to continue into FY17”. Guidance for next year was not that much higher than this year’s profit – range of $130m to $140m compared with $132m.
I think the outlook for both Medibank and nib will be more challenging going forward. Very hard to repeat the same increase in margin, and the Government will be under pressure not to approve such large increases in premiums.
Put it down to profit-taking. I think both these stocks have seen their highs for the time being.
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