Eureka Correspondence

Linc Energy, SMSF the NRAS way, and Uncapped 100 recommendations

Linc Energy

I read in company announcements today that Linc Energy (LNC) is set to delist from the ASX and list on the Singapore exchange.
Where does that leave current LNC shareholders? Your comments would be very much appreciated.
Name withheld
Editor’s response: Thanks for your letter. Linc Energy is seeking shareholder approval to delist from the ASX and list instead on the Singapore Exchange (SGX). Linc has said the rationale behind the decision is to broaden the investor base and improve access to international capital.
The move is still subject to Australian and Singaporean regulatory approval, as well as shareholder approval. If it goes ahead, existing ASX shares will be converted into shares in the SGX listed company at the time of the delisting, at a value ascribed by the SGX.

SMSF the NRAS way

My current super status is poor. The article SMSF Property the NRAS way shows how a lean super may be boosted in retirement. I would like to learn more about it. The NRAS way looks worthwhile due to the tax incentives but must be well planned and organised, so I would need a good SMSF manager and would need to keep up to date with the details. This article may help me consider an SMSF. Thanks.
Name withheld

Uncapped 100 recommendations

It will be really good if the current recommendation for the stocks on the list could be included on the list at the time of publication.
I am not sure which of the current stocks are the 19 with a buy/outperform recommendation mentioned in last week's report.
Name withheld
Brendon’s response: Thanks for the suggestion. I’ll put it on the list for possible enhancements for Uncapped. In the meantime, I will try to include the table in my stories, whenever I can. I have included the buy calls in this week’s article, Universal Biosensors gets tested.

Another way to understand franking credits

If you are a business owner that carries stock, like say a retailer in sporting goods, you may start out having all your stock funded by a bank loan. Over the years however, you may decide to own some of that stock by using company profits at the end of each year. If you made $100,000 profit you could pay $30,000 company tax and reduce your stock loan with the bank by $70,000. Your company would now own not only $70,000 in stock but also a $30,000 franking credit (franking credits are paid company tax). In the future when your business is sold the purchaser would pay your company $70,000 for the stock. Whoever receives the now liquid $70,000 would also be entitled to the $30,000 paid company tax as a franking credit. This could be distributed at any time in part of full at the discretion of the directors. For example, if a director is retired with no other income he/she could take a tax effective $35,000 distribution and $15,000 in franking credits for each of two years.
MU

Pension Concessions

A recent Tax with Max question asked about keeping income down to access the value of pensioner concessions. I can’t understand the hang up on this, or why there’s no mention of the Commonwealth seniors health card. This card gives pretty much all the same concessions: low prescriptions, power, water, rates etc and is available if your taxable income is less than $80,000 per couple or $50,000 per single (I think they do the usual adjustments for rent losses etc to avoid people artificially reducing their taxable income).
Getting this card is much easier than getting a pension, which is in any case not limited by taxable income but by Centrelink’s own definitions of income and assets.
Hope this information is of help to the newly aged. 
Ken Hodgkin

Value investing

When applying Buffet's method for finding the true value of shares, the first step is to predict future earnings. The last step is to find the price using the P/E ratio. Thus the larger the current P/E ratio the better the forecasted price, which implies that overvalued shares will remain overvalued. Is there a better way to evaluate share value?
Clive Berger
Scott's response: Thanks very much for your letter. The topic of value investing is a fascinating one, and because proponents of value investing are adamant that their methods produce above average returns, it is a crucial one for investors. Indeed, there is evidence that a 'value' approach does deliver superior returns, making it fascinating and potentially profitable.
The more 'academic' approach to value investing, expanded by USA academics Fama and French, look at using the price to book value ratio as a signal of value. The lower the price to book ratio, the greater the 'value' effect. Dividend yield has also been seen as a value indicator - the higher the dividend yield, the greater the 'value' characteristic of the company.
In reality we could write many articles on 'value investing', however this might provide a bit of a start. I will have a chat to the editor and see if it might be worth putting together an article on 'value' investing - the art and the science of it.