Question of the Week

Questions of the Week

Co-founder of the Switzer Report
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Question 1: Do you know why Tabcorp (TAH) is doing so badly at the moment besides the carnage last week? FNArena says that the analysts are reasonably positive.

Answer: I think the market has come to realise that Tabcorp is an incredibly poorly managed company, as demonstrated by the mess it has made of the Tatts acquisition and integration. There need to be wholesale changes to the Board and Management.

The analysts see value with a target price of $4.61, 24% higher than last night’s close of $3.71. But like the market, they have been horribly wrong to date.

Attractive as a yield stock, but not much else. I don’t think this stock is going to be re-rated quickly. In the absence of major changes, avoid.

Question 2: What is your view about the Qantas (QAN) off-market share buyback?

Answer: Off-market share buybacks are attractive to low rate taxpayers, and wholly unattractive to high rate taxpayers. If your marginal tax rate is 30% or more, don’t even open the offer booklet – throw it out!

The key point to remember with an off-market buyback is that you are selling your shares – so what is your strategy with the cash you will receive? Buy other shares? Repurchase Qantas shares on market? Stay in cash?

As far as the Qantas buyback is concerned, it is pretty standard:

  • A fixed discount of 14% to the market price:
  • The market price will be set based on ASX trading over the week ending 8 May;
  • A relatively small capital component of $1.19, with a material franked dividend for the balance. Based on today’s QAN price of $5.10, this implies a buy-back price of $4.39 comprising a capital component of $1.19 and a fully franked dividend of $3.20 per share;
  • Minimum of 100 shares to be tendered;
  • Total buyback of up to $150m (small, so expect a scale back)
  • Closes 7pm on Friday 8 May.

Question 3: Link Administration (LNK) reported pretty poorly and was sold off hard. Is this stock a buy?

Answer: There was considerable disappointment with the Link result and its downgrade to profit guidance for the full year. A lot of “egg on face” – mine included! The analysts still see value, with a consensus target price of $6.13, about 32% higher than the last price of $4.66 The range is quite wide, from a low of $5.30 to a high of $7.10.

This all said, I don’t think the market is going to be quick to re-rate. It is in “third strike” territory. Prefer others.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

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