What’s MM’s updated thoughts towards ASM?

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Question asked 15/07/2022

What’s MM’s updated thoughts towards ASM?

It is quite some time since you commented on ASM and it is not a stock you follow, but I was wondering what the technical perspective looks like now that it has dropped to pre-capital raise values. I appreciate your insightful analyses. I should have given more weight to your "neutral" stance back in 2021. On a different tack, I have become more interested in Hybrids now that the market has got more volatile. You have covered a few points but I was wondering if there is any correlation between the underlying share price and a hybrid or is it just time to maturity and interest rate expectations? Maybe a short course on Hybrids in an education page or are there good references to follow up the technicalities? I hope I have not gone outside the scope of your service. Kind regards Peter

Answer

Hi Peter,

Unfortunately our technical opinion towards Australian Strategic Materials Ltd (ASM) hasn’t waivered even with the stock trading now under $3.50 i.e. we still see no catalysts to start buying.

Hybrids certainly have a place in an Income Portfolio – not just through volatile times.

1 – There is no direct correlation between a companies share price and the hybrid price, however obviously share price weakness can be an indicator of weakness in the business which can filter into the perception of risk. When a company is perceived to be higher risk, the market demands a higher interest rate to lend them money, which all things being equal would lead to a lower price for the hybrid.

2 – The time to maturity is important, a general rule being the longer the time period the more that can go wrong so the higher the rate we should be paid, while interest rates are less important for hybrids relative to bonds. Hybrids are floating rate notes while bonds are generally fixed rate and thus feel more impact from changes to rates.

A short course on Hybrids as we start to structure an education offering sounds a great idea!

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Australian Strategic Materials (ASM)

LAST UPDATED 15/07/2022 11:10

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