Time for an update

Thought it was time for an update to some of the issues that have been kicked around over the past couple of months.

Let’s start with Qantas. As expected, the Federal Government has given the seal of approval to the takeover of Qantas by the private equity consortium. Despite this the prospect of two institutional shareholders refusing to accept means that the bid still isn’t seen as a certainty, leaving the share price at a 21c discount to the dividend-adjusted bid price of $2.45. So buying now could deliver a gain of approximately 4% assuming the takeover goes through. Qantas lost 7c on Friday and if the drop became a bit overdone it could be worth a go.

Cardno was flagged as a stock for the watchlist with the caveat that it was priced for growth. In my opinion the company needed to deliver EBIT growth of 17% p.a. over the next decade to justify a then-share price of $6.10. Since then it has released some half yearly results which seemed to indicate that EBIT grew by only 6.3% for the half. NPAT on the other hand was up 16.3% with the bottom line benefiting from lower effective tax rate and lower financing costs. It looked like the company’s financial position improved over the half with debt servicing stronger and working capital improvements. I am a bit puzzled with one aspect of its cashflow so that will need a bit more investigation. However the bottom line is the share price had a bit of a run up leading to the profit release, hitting $6.50 albeit on light volume. Since then it’s fallen perhaps 10% and now trades at $5.87. In my opinion it’s still overpriced but I’m happy to keep an eye on it.

Towards the end of January I looked at BHP, then trading at $25.33, from which point it’s since rallied perhaps 10-15% and still seems to be a broker favourite.

And lastly, I’ve talked about my reasons for selling one of my small cap stocks. It was a tough decision but one I’m glad I made. The little fellah has lost 15% since I bailed.

Actually on the topic of small caps during the correction at the end of February I noted in a post that liquidity in my small caps just evaporated – in a couple of cases it hasn’t returned. Spreads are still enormous and there’s no volume to speak of. Maybe it’s stock specific? I’ll have a look around, but if anyone else has noticed this with their favourites please let me know (no, you don’t have to tell me what they are). There might be some good companies on the cheap in that segment so I’m going to put some energy into that over the next few weeks.