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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Sandfire Resources Limited / Event-Driven

On 23 September pre-market open, <a href="https://www.smartkarma.com/entities/sandfire-resources-limited" target="_blank" data-smartkarma-citation="entities:1259:1" rel="noopener">Sandfire Resources Limited (SFR AU)</a> requested for a trading halt. A short time later, the company announced the acquisition of the MATSA mining complex from Mubadala and Trafigura for US$1.865bn (A$2.572bn).The acquisition is expected to be completed in the March 2022 quarter and is subject to Spanish Foreign Direct Investment Approval and anti-trust merger control approval.The acquisition will be funded by an A$120m strategic placement to AustralianSuper, a A$165m institutional placement, a A$963m fully underwritten 1 for 1 accelerated non-renounceable entitlement offer (ANREO), debt and cash on hand.Just over 231m shares will be issued at A$5.40/share, a 13.2% discount to the last close of A$6.22/share, and a 6.2% discount to TERP.The increase in market cap as a result of the placement and entitlement offer will result in <a href="https://www.smartkarma.com/entities/sandfire-resources-limited" target="_blank" data-smartkarma-citation="entities:1259:1" rel="noopener">Sandfire Resources Limited (SFR AU)</a> becoming a high probability inclusion to 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> at the December rebalance.With a number of M&amp;A deals targeting <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> constituents, there will be more changes to the index over the next couple of regular rebalances (and in the interim as well).

On 23 September pre-market open, Sandfire Resources Limited (SFR AU) requested for a trading halt. A short time later, the company announced the acquisition of the MATSA mining complex from Mubadala and Trafigura for US$1.865bn (A$2.572bn).The acquisition is expected to be completed in the March 2022 quarter and is subject to Spanish Foreign Direct Investment Approval and anti-trust merger control approval.The acquisition will be funded by an A$120m strategic placement to AustralianSuper, a A$165m institutional placement, a A$963m fully underwritten 1 for 1 accelerated non-renounceable entitlement offer (ANREO), debt and cash on hand.Just over 231m shares will be issued at A$5.40/share, a 13.2% discount to the last close of A$6.22/share, and a 6.2% discount to TERP.The increase in market cap as a result of the placement and entitlement offer will result in Sandfire Resources Limited (SFR AU) becoming a high probability inclusion to the S&amp;P/ASX 200 (AS51 INDEX) at the December rebalance.With a number of M&amp;A deals targeting S&amp;P/ASX 200 (AS51 INDEX) constituents, there will be more changes to the index over the next couple of regular rebalances (and in the interim as well).

Sandfire Resources (SFR AU): Acquisition, ANREO and ASX200 Inclusion

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

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/vocus-communications-ltd" target="_blank" data-smartkarma-citation="entities:71:1">Vocus Communications (VOC AU)</a> is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus announced a non-binding proposal from <a href="https://www.smartkarma.com/entities/agl-energy-ltd" target="_blank" data-smartkarma-citation="entities:554:1">AGL Energy Ltd (AGL AU)</a> for A$4.85 cash per share. AGL’s proposal values Vocus at a market cap of A$3.0 billion and FY19 EV/EBITDA of 11.4x (CY2019 EV/EBITDA of 10.9x).<div class="content-highlight">The takeover bid sent Vocus shares up 7.7% to A$4.12, which is still 15% below AGL’s bid. The shares closed materially below AGL’s offer as the market is understandably cautious on the prospect of a binding offer after <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1">KKR &amp; Co Inc (KKR US)</a>, Affinity Equity Partners and most recently, EQT, dropped their bids during the due diligence process. Overall, we believe that AGL’s bid is attractive with a limited chance of a superior proposal.</div>

Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus announced a non-binding proposal from AGL Energy Ltd (AGL AU) for A$4.85 cash per share. AGL’s proposal values Vocus at a market cap of A$3.0 billion and FY19 EV/EBITDA of 11.4x (CY2019 EV/EBITDA of 10.9x).The takeover bid sent Vocus shares up 7.7% to A$4.12, which is still 15% below AGL’s bid. The shares closed materially below AGL’s offer as the market is understandably cautious on the prospect of a binding offer after KKR &amp; Co Inc (KKR US), Affinity Equity Partners and most recently, EQT, dropped their bids during the due diligence process. Overall, we believe that AGL’s bid is attractive with a limited chance of a superior proposal.

Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

Vocus Group <a href="https://www.smartkarma.com/entities/71" target="_blank" data-smartkarma-citation="entities:71:1">Vocus Communications (VOC AU)</a> is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. On 27 May, Vocus announced a non-binding proposal from EQT Infrastructure for A$5.25 cash per share. <div class="content-highlight">The shares closed 13% below EQT’s offer as the market is understandably cautious on the prospect of a binding offer after <a href="https://www.smartkarma.com/entities/27333" target="_blank" data-smartkarma-citation="entities:27333:1">KKR &amp; Co Inc (KKR US)</a> and Affinity Equity Partners dropped their A$2.2 billion bids in August 2017 after completing due diligence. Overall, we believe that EQT’s bid is generous with a limited chance of a superior proposal. </div>

Vocus Group Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. On 27 May, Vocus announced a non-binding proposal from EQT Infrastructure for A$5.25 cash per share. The shares closed 13% below EQT’s offer as the market is understandably cautious on the prospect of a binding offer after KKR &amp; Co Inc (KKR US) and Affinity Equity Partners dropped their A$2.2 billion bids in August 2017 after completing due diligence. Overall, we believe that EQT’s bid is generous with a limited chance of a superior proposal. 

Vocus Group’s Generous Bid from EQT Tempered by History

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Equity Bottom-Up

Recently, <a href="https://www.smartkarma.com/entities/690" target="_blank" data-smartkarma-citation="entities:690:1">Telstra (TLS AU)</a> reported 1H19 numbers which showed declines in revenue, EBITDA and net profit.  That seems to have put the brakes on a decent share price recovery (Telstra shares had risen 14% to their recent peak YTD). And with the weak numbers, Telstra cut its interim dividend to 8cps. The result was well telegraphed to the market so did not come as a huge surprise, although <a href="https://www.smartkarma.com/profiles/1935" target="_blank" data-smartkarma-citation="accounts:1935">Ian Martin</a> had hoped the dividend would not be cut. Our view remains that Telstra is working to get through two years of change, with 2019 seen as the bottom for earnings. There are plenty of risks ahead and, with dividend support reduced, we have put Telstra back on a Hold recommendation with a target price of $A$3.30. The three year outlook is promising as Telstra switches the focus to mobile, delivers on its T22 strategy and works through several NBN related issues. Telstra summary P&amp;L  - a three year view<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/160/original/tls%203%20yr%20view.jpg?1551153862" class="editor-image img-responsive" data-smartkarma-image-id="80160"></figure>

Recently, Telstra (TLS AU) reported 1H19 numbers which showed declines in revenue, EBITDA and net profit.  That seems to have put the brakes on a decent share price recovery (Telstra shares had risen 14% to their recent peak YTD). And with the weak numbers, Telstra cut its interim dividend to 8cps. The result was well telegraphed to the market so did not come as a huge surprise, although Ian Martin had hoped the dividend would not be cut. Our view remains that Telstra is working to get through two years of change, with 2019 seen as the bottom for earnings. There are plenty of risks ahead and, with dividend support reduced, we have put Telstra back on a Hold recommendation with a target price of $A$3.30. The three year outlook is promising as Telstra switches the focus to mobile, delivers on its T22 strategy and works through several NBN related issues. Telstra summary P&amp;L  - a three year view

Telstra: Earnings Under Pressure in FY19 but Move to Mobile Should Lead to Gains from FY20.

New Zealand

Spark New Zealand Limited (formerly Telecom Corporation of New Zealand Limited) provides digital communications, entertainment and IT services over its networks and the Cloud to New Zealanders and businesses. The Company's strategy is focused on mobility, data and effortless service, and cost.

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Spark New Zealand (SPK NZ)

Sandfire Resources (SFR AU): Acquisition, ANREO and ASX200 Inclusion

Sandfire Resources is buying the MATSA mine in Spain and conducting a placement and entitlement offer to raise funds. This will lead to a big jump...

Brian Freitas

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

Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus...

Arun George

Vocus Group’s Generous Bid from EQT Tempered by History

Vocus Group Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. On...

Arun George

Telstra: Earnings Under Pressure in FY19 but Move to Mobile Should Lead to Gains from FY20.

Recently, Telstra (TLS AU) reported 1H19 numbers which showed declines in revenue, EBITDA and net profit. That seems to have put the brakes on a...

New Street Research

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52-week Range

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Sandfire Resources (SFR AU): Acquisition, ANREO and ASX200 Inclusion

Sandfire Resources is buying the MATSA mine in Spain and conducting a placement and entitlement offer to raise funds. This will lead to a big jump...

Brian Freitas

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

Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus...

Arun George

Vocus Group’s Generous Bid from EQT Tempered by History

Vocus Group Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. On...

Arun George

Telstra: Earnings Under Pressure in FY19 but Move to Mobile Should Lead to Gains from FY20.

Recently, Telstra (TLS AU) reported 1H19 numbers which showed declines in revenue, EBITDA and net profit. That seems to have put the brakes on a...

New Street Research

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