Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

S&amp;P Dow Jones Indices will announce changes to the S&amp;P/ASX 100 and <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> as part of the December index review on 3 December and the changes will be effective after the close of trading on 17 December.The review period for the rebalance ends on 19 November, so we are exactly two-thirds of the way through the review period.As of the close on 20 September, we see <a href="https://www.smartkarma.com/entities/pilbara-minerals-ltd" target="_blank" data-smartkarma-citation="entities:7460:1" rel="noopener">Pilbara Minerals (PLS AU)</a> as a potential inclusion to the S&amp;P/ASX100 and <a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration Holdings (LNK AU)</a> as a potential deletion.For the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a>, potential inclusions are <a href="https://www.smartkarma.com/entities/imugene-ltd" target="_blank" data-smartkarma-citation="entities:20276:1" rel="noopener">Imugene Ltd (IMU AU)</a>, <a href="https://www.smartkarma.com/entities/paladin-energy-ltd" target="_blank" data-smartkarma-citation="entities:10117:1" rel="noopener">Paladin Energy (PDN AU)</a>, <a href="https://www.smartkarma.com/entities/amalgamated-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20978:1" rel="noopener">Event Hospitality and Entertainment (EVT AU)</a>, <a href="https://www.smartkarma.com/entities/liontown-resources-ltd" target="_blank" data-smartkarma-citation="entities:20488:1" rel="noopener">Liontown Resources (LTR AU)</a> and <a href="https://www.smartkarma.com/entities/arena-reit" target="_blank" data-smartkarma-citation="entities:12209:1" rel="noopener">Arena Reit (ARF AU)</a>, while potential deletions are <a href="https://www.smartkarma.com/entities/kogan-com-ltd" target="_blank" data-smartkarma-citation="entities:23575:1" rel="noopener">Kogan.com (KGN AU)</a>, <a href="https://www.smartkarma.com/entities/redbubble-ltd" target="_blank" data-smartkarma-citation="entities:24321:1" rel="noopener">Redbubble Ltd (RBL AU)</a>, <a href="https://www.smartkarma.com/entities/monadelphous-group-ltd" target="_blank" data-smartkarma-citation="entities:553:1" rel="noopener">Monadelphous (MND AU)</a>, <a href="https://www.smartkarma.com/entities/omni-bridgeway-ltd" target="_blank" data-smartkarma-citation="entities:8840:1" rel="noopener">Imf Bentham Ltd (OBL AU)</a> and <a href="https://www.smartkarma.com/entities/spark-new-zealand-ltd-3dcc706a-f086-4dd4-882b-2a42a36ccf8d" target="_blank" data-smartkarma-citation="entities:26915:1" rel="noopener">Spark New Zealand (SPK AU)</a>.With multiple M&amp;A deal pending, including <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a>, <a href="https://www.smartkarma.com/entities/ausnet-services" target="_blank" data-smartkarma-citation="entities:10293:1" rel="noopener">Ausnet Services (AST AU)</a>, <a href="https://www.smartkarma.com/entities/oil-search-ltd" target="_blank" data-smartkarma-citation="entities:773:1" rel="noopener">Oil Search Ltd (OSH AU)</a> and <a href="https://www.smartkarma.com/entities/spark-infrastructure-group" target="_blank" data-smartkarma-citation="entities:595:1" rel="noopener">Spark Infrastructure (SKI AU)</a>, there could be more additions to the index if deals are completed or highly likely to be completed by end November.Short interest on most potential inclusions is quite low, while the short interest on many potential exclusions is quite high.

S&amp;P Dow Jones Indices will announce changes to the S&amp;P/ASX 100 and S&amp;P/ASX 200 (AS51 INDEX) as part of the December index review on 3 December and the changes will be effective after the close of trading on 17 December.The review period for the rebalance ends on 19 November, so we are exactly two-thirds of the way through the review period.As of the close on 20 September, we see Pilbara Minerals (PLS AU) as a potential inclusion to the S&amp;P/ASX100 and Link Administration Holdings (LNK AU) as a potential deletion.For the S&amp;P/ASX 200 (AS51 INDEX), potential inclusions are Imugene Ltd (IMU AU), Paladin Energy (PDN AU), Event Hospitality and Entertainment (EVT AU), Liontown Resources (LTR AU) and Arena Reit (ARF AU), while potential deletions are Kogan.com (KGN AU), Redbubble Ltd (RBL AU), Monadelphous (MND AU), Imf Bentham Ltd (OBL AU) and Spark New Zealand (SPK AU).With multiple M&amp;A deal pending, including Afterpay Touch (APT AU), Sydney Airport (SYD AU), Ausnet Services (AST AU), Oil Search Ltd (OSH AU) and Spark Infrastructure (SKI AU), there could be more additions to the index if deals are completed or highly likely to be completed by end November.Short interest on most potential inclusions is quite low, while the short interest on many potential exclusions is quite high.

ASX100/​200 Index Rebalance Preview: Potential December Changes With Large Impact

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Victorian electricity operator <a href="https://www.smartkarma.com/entities/ausnet-services" target="_blank" data-smartkarma-citation="entities:10293:1" rel="noopener">AusNet Services (AST AU)</a> has <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02423286-3A576179?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> it will open its books to Brookfield after receiving a revised non-binding Offer of A$2.50/share, up from A$2.35 initially. The cash consideration will be reduced to the extent of any dividends paid. 
The due diligence is on an exclusive basis. If a firm Offer is tabled, AusNet's board will unanimously recommend the proposal to its shareholders.
A firm bid will be subject to FIRB and shareholder approval. Neither Singapore Power nor China's State Grid  - AusNet's two largest shareholders - have made their intentions known as to the proposal.
<blockquote>
Following careful consideration, and consultation with its advisers, the board of AusNet considers that it is in the best interests of AusNet’s shareholders to engage further with Brookfield on the indicative proposal.
</blockquote>
The Offer price is full. Assuming Singapore Power and the State Grid are supportive, this is a done deal.
More below the fold.

Victorian electricity operator AusNet Services (AST AU) has announced it will open its books to Brookfield after receiving a revised non-binding Offer of A$2.50/share, up from A$2.35 initially. The cash consideration will be reduced to the extent of any dividends paid. 
The due diligence is on an exclusive basis. If a firm Offer is tabled, AusNet's board will unanimously recommend the proposal to its shareholders.
A firm bid will be subject to FIRB and shareholder approval. Neither Singapore Power nor China's State Grid  - AusNet's two largest shareholders - have made their intentions known as to the proposal.

Following careful consideration, and consultation with its advisers, the board of AusNet considers that it is in the best interests of AusNet’s shareholders to engage further with Brookfield on the indicative proposal.

The Offer price is full. Assuming Singapore Power and the State Grid are supportive, this is a done deal.
More below the fold.

AusNet Services (AST AU) Opens Its Books to Brookfield

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/ausnet-services" target="_blank" data-smartkarma-citation="entities:10293:1" rel="noopener">Ausnet Services (AST AU)</a> is a diversified Australian energy infrastructure business with over $11 billion of electricity and gas network and connection assets. AusNet revealed a conditional, non-binding indicative offer from Brookfield Asset Management. The indicative offer of A$2.50 per share is a 26% premium to the unaffected price of A$1.98 (17 September). The offer price will be reduced by any dividends declared or paid prior to the scheme taking effect.The Board noted the offer comes after Brookfield first bid $2.35 per share on 30 August and later bumped it to $2.45 per share. Consequently, Brookfield’s latest offer represents a 6.4% bump to its first offer.  The Board has decided to provide Brookfield exclusive due diligence access. If Brookfield puts forward a binding offer, the Board will unanimously recommend the offer in the absence of a superior proposal.  <div class="content-highlight">We think that the indicative offer is attractive both in terms of historical multiples and share prices. We think that Brookfield would not make the offer without some indication that the two major shareholders (Singapore Power and State Grid of China) were open to the offer. The indicative offer is subject to FIRB approval which should not be a hurdle as Brookfield is an established long-term infrastructure investor in Australia. At the last close price of A$2.36, the shares are trading at a 5.9% gross spread to the indicative offer.</div>

Ausnet Services (AST AU) is a diversified Australian energy infrastructure business with over $11 billion of electricity and gas network and connection assets. AusNet revealed a conditional, non-binding indicative offer from Brookfield Asset Management. The indicative offer of A$2.50 per share is a 26% premium to the unaffected price of A$1.98 (17 September). The offer price will be reduced by any dividends declared or paid prior to the scheme taking effect.The Board noted the offer comes after Brookfield first bid $2.35 per share on 30 August and later bumped it to $2.45 per share. Consequently, Brookfield’s latest offer represents a 6.4% bump to its first offer.  The Board has decided to provide Brookfield exclusive due diligence access. If Brookfield puts forward a binding offer, the Board will unanimously recommend the offer in the absence of a superior proposal.  We think that the indicative offer is attractive both in terms of historical multiples and share prices. We think that Brookfield would not make the offer without some indication that the two major shareholders (Singapore Power and State Grid of China) were open to the offer. The indicative offer is subject to FIRB approval which should not be a hurdle as Brookfield is an established long-term infrastructure investor in Australia. At the last close price of A$2.36, the shares are trading at a 5.9% gross spread to the indicative offer.

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

The outlook for <a href="https://www.smartkarma.com/entities/595" target="_blank" data-smartkarma-citation="entities:595:1">Spark Infrastructure (SKI AU)</a> and peers is depressed by unrelenting regulatory attacks as the government tries to improve utility bill affordability. Utility bills have risen strongly in the past 15 years and while Spark wasn't a major beneficiary, it is certainly in the cross hairs now. We expect the Australian Energy Regulator, or AER, to pour over every myriad detail of the regulatory process to ensure the networks are paid no more than necessary. And the networks are more vulnerable than ever as they can no longer appeal AER decisions to an independent tribunal. At the same time, the Australian Taxation Office is closing in on the elusive Spark and will send the group its inaugural tax bill in 2019. With all this going on, Spark was forced to cut distributions by 8% in 2019 and we expect further downside in 2021 after core assets undergo their next regulatory resets. But it's not all bad. Spark is a solid business with reasonable financial leverage and a growing asset base. At the current price of AUD 2.20, distribution yield is high at 6.8% and while distributions will probably fall 10% or more over the medium term, this will be partly offset by an increase in franking credits. Despite being in the 3-star zone, the stock could appeal to those seeking yield.<hr><h2>Key Takeaways</h2><ul>
<li>Spark's distributions to investors are likely to be trimmed again in a few years because of pressure on earnings and ongoing capital expenditure requirements. We forecast DPS falls to around AUD 0.135 in 2021, representing a still respectable yield of 6.1% based on the current security price.</li>
<li>We remain comfortable with Spark's financial health, though we don't think it will be able to rely more heavily on debt to support distributions, particularly as credit metrics are likely to weaken.</li>
<li>High and rising electricity bills will keep the regulator keenly focused on minimising network profits. At present, it is attacking allowed returns and allowances to cover operating costs and tax.</li>
<li>Value has improved in the past couple of years. We now consider Spark fairly valued, offering a good yield balanced by a tough regulatory outlook. It trades at an 8% discount to our fair value estimate, and income-oriented investors could consider buying now.</li>
</ul>

The outlook for Spark Infrastructure (SKI AU) and peers is depressed by unrelenting regulatory attacks as the government tries to improve utility bill affordability. Utility bills have risen strongly in the past 15 years and while Spark wasn't a major beneficiary, it is certainly in the cross hairs now. We expect the Australian Energy Regulator, or AER, to pour over every myriad detail of the regulatory process to ensure the networks are paid no more than necessary. And the networks are more vulnerable than ever as they can no longer appeal AER decisions to an independent tribunal. At the same time, the Australian Taxation Office is closing in on the elusive Spark and will send the group its inaugural tax bill in 2019. With all this going on, Spark was forced to cut distributions by 8% in 2019 and we expect further downside in 2021 after core assets undergo their next regulatory resets. But it's not all bad. Spark is a solid business with reasonable financial leverage and a growing asset base. At the current price of AUD 2.20, distribution yield is high at 6.8% and while distributions will probably fall 10% or more over the medium term, this will be partly offset by an increase in franking credits. Despite being in the 3-star zone, the stock could appeal to those seeking yield.Key Takeaways
Spark's distributions to investors are likely to be trimmed again in a few years because of pressure on earnings and ongoing capital expenditure requirements. We forecast DPS falls to around AUD 0.135 in 2021, representing a still respectable yield of 6.1% based on the current security price.
We remain comfortable with Spark's financial health, though we don't think it will be able to rely more heavily on debt to support distributions, particularly as credit metrics are likely to weaken.
High and rising electricity bills will keep the regulator keenly focused on minimising network profits. At present, it is attacking allowed returns and allowances to cover operating costs and tax.
Value has improved in the past couple of years. We now consider Spark fairly valued, offering a good yield balanced by a tough regulatory outlook. It trades at an 8% discount to our fair value estimate, and income-oriented investors could consider buying now.


Spark's Distributions Aren't Immune to Regulatory Attacks

The ACCC will <a href="http://registers.accc.gov.au/content/index.phtml/itemId/1205399/fromItemId/750991" target="_blank">release its decision</a> on the <a href="https://www.smartkarma.com/entities/18658" target="_blank" data-smartkarma-citation="entities:18658:1">APA Group (APA AU)</a>/CKI Consortium proposal today. This may be a final decision or the release of a Statement of Issues. 
ACCC's mandate is captured under Section 50 of the <a href="https://www.legislation.gov.au/Details/C2017C00369" target="_blank">Competition and Consumer Act 2010</a>, and prohibits acquisitions that are likely to have the effect of substantially lessening competition in a market. Such pushback from the ACCC may be allayed if by making the argument a portion of APA's assets are regulated, CKI is open to greater regulation on APA's network, therefore the Australian Energy Regulator simply oversees a larger entity; in essence, propositioning the concept it is irrelevant who actually owns the assets, provided they are regulated.
FIRB assesses the potential implications of proposed acquisitions for national security/public interests. Should CKI be successful, the majority of Australia's gas transmission assets - which are considered critical infrastructure-  will be controlled by Chinese companies (CKI + State Grid, a Chinese SOE). Although ACCC's approval could potentially get up on this "regulated" technicality, FIRB is probably less inclined to support the acquisition.

The ACCC will release its decision on the APA Group (APA AU)/CKI Consortium proposal today. This may be a final decision or the release of a Statement of Issues. 
ACCC's mandate is captured under Section 50 of the Competition and Consumer Act 2010, and prohibits acquisitions that are likely to have the effect of substantially lessening competition in a market. Such pushback from the ACCC may be allayed if by making the argument a portion of APA's assets are regulated, CKI is open to greater regulation on APA's network, therefore the Australian Energy Regulator simply oversees a larger entity; in essence, propositioning the concept it is irrelevant who actually owns the assets, provided they are regulated.
FIRB assesses the potential implications of proposed acquisitions for national security/public interests. Should CKI be successful, the majority of Australia's gas transmission assets - which are considered critical infrastructure-  will be controlled by Chinese companies (CKI + State Grid, a Chinese SOE). Although ACCC's approval could potentially get up on this "regulated" technicality, FIRB is probably less inclined to support the acquisition.

Australia

AusNet Services is an energy delivery service provider. The Company engages in electricity distribution and transmission, and owns gas distribution assets in Victoria, Australia.

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Ausnet Services (AST AU)

ASX100/200 Index Rebalance Preview: Potential December Changes With Large Impact

There could be 1 change to the ASX100 and 5 changes to the ASX200 at the December rebalance. With a long M&A pipeline, there could be additional...

Brian Freitas