In this briefing:
- National Storage: A Public/Gaw Tussle
- The US and Developed Countries: Bump in the Road or Cliff Edge?
- Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level
- Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
- Market Monitor: A Corona Hangover
National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.
Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.
Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.
Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.
Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.
As always, more below the fold.
We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.
Bendigo And Adelaide Bank (BEN AU) is looking to raise about US$168m in its placement to support growth and increase buffer for CET1 capital ratio requirements.
Overall, the deal scored poorly on our framework owing to the weak earnings momentum, poor track record but cushioned by its undemanding valuation and decent price momentum of late. Recent results demonstrated some improvement but the cut in dividend weighs on near-term sentiment.
On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020. However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province.
The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.
COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.
We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).
We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.
Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.