Eureka Correspondence

Rules for preference shares, Eureka recommendations, investing offshore using ETFs, and more.

Rules for preference shares

In Banks – how to duck looming volatility the table referred to all the bank hybrids as preference shares. If this is the case, does the Australian Taxation Office (ATO) also regard them as preference shares for the franking credit holding period? There is a rule, apparently, that the holding period for preference shares is 90 days, as opposed to shares of 45 days. According to my tax agent this applies to some preference shares (not specified). In addition franking credits under $5000 total in any one year, the ATO does not worry about them. Can you help me in this matter?

Ron Hill

Rosemary Steinfort’s response: According to the Australian Tax Office (ATO) the 90 day rules (excluding the buy and sell dates) applies to preference shares, being a class of shares in a company that are less risky than ordinary shares in the company. Hybrid bank shares meet these conditions so are classified as preference shares for taxation purposes. The 45 and 90 day rule do not apply if the total franking credit entitlement is less than $5000.

I advise you to talk to your accountant about this and ask to seek further information from the ATO about your particular situation.

Querying Eureka recommendations

Hi, was just wondering if there were any new opinions on a couple of companies which were suggested in the report some time ago: Silex (SLX), which has fallen 65%, Universal Biosensors (UBI), which has fallen 75%, and Bradken (BKN), which has fallen 30%.

BK

Brendon Lau’s response: I have Universal Biosensors rated as a “hold” and my recommendation and valuation remains the same even though its latest quarterly came in slightly ahead of expectations. You can read my latest article on the stock here.

As for Silex, it is under review as I have yet to construct a financial model for the stock. I should get to it in the coming weeks. The stock has been struggling because of the weak uranium market and news of its restructure to conserve cash. The end game is still the final go-ahead for the Paducah uranium enrichment plant. If the US government and GLE (the company that has licensed Silex’s technology for enrichment) can reach terms to build the plant, there would be a very strong re-rating for the stock. There’s little argument that Silex is a high-risk play.

Eureka Report hasn’t issued a recommendation for Bradken. The stock has, however, appeared in one of our recent Collected Wisdom articles. Collected Wisdom looks at a wide range of broker reports and newsletters to determine what consensus has to say about a stock; in Bradken’s case, most sources rated it as a buy in late May.

Investing overseas with ETFs

Following Alan Kohler’s and Robert Gottliebsen’s urgings to invest outside of Australia (see Alan’s weekend briefing and It’s time you went overseas) and the introduction of Clay Carter to subscribers, will Eureka Report offer advice on the best overseas investment options? If yes, will Eureka Report give comment on ETFs – especially those with an overseas exposure?

Kevin Meagher

Editor’s response: Thanks for your letter. Eureka Report recently published an article on the wide range of exchange-traded funds listed on the ASX, which provide easy access to offshore markets as well as countries, sectors and commodities.

Unfair sophisticated investor rules

May I suggest that you good folk lobby for an amendment to the present rules re sophisticated investors? I have had a call from Sentinel advising that no accountant certification is required to invest with them provided a minimum of $500,000 is invested in any one individual trust. Otherwise it’s either: present evidence of income (minimum $250,000 over the past 2 years) or assets of at least $2.5 million, as you have correctly observed earlier.

I can’t quite stretch to $500,000 for any one asset, but I do have a lifetime property background, including as a company director heading a commercial and industrial sales and leasing department. One of our activities was assembling private commercial property trusts! Why on earth can’t someone like me “opt in” to such an investment as Sentinel is offering after doing my own research and acknowledging that as no prospectus has been issued then I am on my own? The assumed logic that connects my wealth with my ability to assess an individual investment is easily tested by anyone who might wonder if some wealthy drug lord or show biz celeb who qualifies under these absurd rules is better able to judge a property investment than I am. On behalf of the thousands of others in situations somewhat similar to mine, may I appeal to you (especially you, Alan) for support?

At present we are all being denied access to good returns from some demonstrably high quality properties that should be accessible to any reasonably experienced super fund trustee. Meanwhile, any pen jockey who can show on the back of a napkin that 4% of $100,000 is $4,000 can call himself a financial adviser and sell product for a bank to any vulnerable mum and dad. Is this a correct description? A better one would be “financial sales representative”.

DK

A graphite recovery?

In regards to Tim Treadgold’s article Speculator rush signals something more, there is renewed activity in graphite with Syrah resources copping a speed ticket and currently in trading halt. Followed closely by Uranex, which is also in a trading halt. Meanwhile, Talga Resources is in a technical uptrend but missed the regulator’s attention. The company’s managing director, Mark Thompson, and mining analyst Warwick Grigor hit the acquisition trail with 11.41% and 6.1% respectively of the stock.

Fancy a trip to Mozambique, Tanzania and Sweden to enlighten us?

Vasso Massonic

Finding ex-dividend dates

How can I find out when a company is going ex-dividend so that I can purchase their shares and qualify for franking credits? I would need to know about a week in advance so that I can ensure there is enough cash in the cash account and then put through the buy order. Any and all advice would be greatly appreciated.

Michael Hambrook

Editor’s response: Companies often don’t know when their ex-dividend date is because they aren’t sure when they will release their results until several weeks before. However, larger companies can be more reliable as they often have financial calendars for the year, such as Commonwealth Bank’s, which includes ex-dividend dates.