Robin Hood joins the fray
Kate Howitt, the portfolio manager of the Fidelity Australian Opportunities Fund, says she feels nervous when she hears rumblings about why Australia should do away with the franking of dividends. She is a big fan of the franking regime compared to the situation in the US, where there is a trend for companies to engage in stock buybacks.
Howitt says franking creates an efficient corporate regime where the money is paid out to investors through dividends, which are sometimes re-invested in small companies with great growth prospects. She calls it the “Robin Hood argument for franking” and says everyone has access to innovative small companies because they are pub- licly listed. By comparison, in the US innovative small companies tend to be private and unlisted so that only wealthy people with big amounts of money can invest in them.
As for Australian companies that have good prospects for the coming 12 months, Howitt likes three in particular: Lynas, Atlas Arteria and TPG.
Lynas is a high-grade rare earth mining group with a mine at Mt Weld in Western Australia that is in the process of setting up a processing plant in Malaysia. The shares lost 95% of their value after an election in Malaysia resulted in further investigation into the environmental impacts of the mine but Howitt says Fidelity’s ESG (environmental, social and governance) team has visited the mine and is confident the share price lost ground simply on fear.
Atlas Arteria is a toll road operator that was formerly Macquarie Atlas and is managed by the Macquarie Bank’s infrastructure division. Its biggest asset is toll roads in France. Howitt says the company is reducing debt and expecting a step-up in cash flow in the next few years. She describes Atlas as a “bond proxy” for its steady income.
TPG has proposed a merger with Vodafone to form a $15 billion giant to take on Telstra and Optus.
It is expected that the merger will improve the industry structure and create better returns for TPG. However, executing the merger has some risks to be aware of.