AGL pulls Vocus bid

A fairly lacklustre Monday across the board with the banks/utilities offsetting some weakness amongst the material stocks + the telcos were weak as a sector thanks to the pulled VOC bid from AGL. Seems something smells with VOC that each potential acquirer works out pretty quickly when they enter the data room - however it doesn’t seem to be earnings related given they’ve reconfirmed EBITDA guidance again – something else, but it’s there and it’s not buried that deep. More on that below.

Elsewhere, AfterPay (APT) -6.11% continued its sell-off and it will be interesting to see how much momentum money comes out of this momentum stock. Seems uncanny that they raise funds + owners sell $100m of stock just ahead of AUSTRAC findings. The fact that an external auditor is to be appointed to review compliance is clearly a concern for the market. When things turn on hot stocks, they turn pretty quickly with the stock now off ~30% from the recent highs. It’s clear this is an incredible business and growth in the US has been exceptional, however all good runs do end and at MM we’ve always held the concern about regulatory risk. That’s meant we’ve missed this run, so we’re certainly not gloating, however it’s a fast growing consumer finance business that will/has attracted regulatory scrutiny at the same time founders are selling down stock - just doesn’t sit right.

Asian market were okay today – mostly higher while US Futures ticked around par.

Overall, the ASX 200 fell -23 points or -0.35% to 6530. Dow Futures are trading up +35 points/+0.13%.

ASX 200 Chart

ASX 200 Chart – portfolio sell down on the close by the look.

CATCHING OUR EYE;

Around the grounds: Some interesting price action on stocks we own/follow today, Bingo (BIN) doing well today adding another ~2% to close at $2.15 – we remain bullish BIN. Telstra (TLS) fell 1.8% today and this is now looking (sort of) interesting. We wrote on the weekend that the next 2% correction could be a trigger and that more or less played out today – the stock now back on the radar. Shares in Emeco rallied +10% today as Paradice increased their holding – Harry covers that below, along with the failed VOC bid + Pilbara (PLS) which was hit today + NiB (NHF) also caught my eye today, adding +3.9% to $7.46 - trading to new all-time highs.

In terms of BIN, we cover it this morning, however the short interest here is worth revisiting. The chart below shows that shares held short peaked at 75.6m as at end of May, and now sit at 64m, implying that 12m shares have been bought back to cover shorts in the last few weeks. To put this into context, average daily volume over the last month is 4.4m shares. While not a massive amount of shorts, I’m heartened by how negative the market is towards the stock – not surprising given how poorly a lot of companies go integrating large acquisitions, however the difference with BIN is that they had major issues before the acquisition completed – the stock dropped from ~$3.20 to ~$1.20, hence a lot of that negativity in our view was priced in already. Also worth remembering, they have a $75m share buy-back in place and have only spent around $7m. They also have a site visit on the 26^th July which can also be another positive catalyst.

Bingo (BIN) Short Interest

We remain bullish BIN targeting another ~10% upside

Bingo (BIN) Chart

Emeco (EHL) +12.46%; best on ground today was Emeco which has seen some big swings in the share price over the past few days after reiterating guidance mid-last week. A substantial shareholder notice was filed late on Friday which saw fundie Paradice add another 5m shares to their holding. There was clearly a buyer out in the market today with the stock being well bid throughout the session, a sign a big buyer is struggling to get their hands on stock. We like Emeco for a number of reasons – mining investment is set to receive a boost on a number of fronts with the Adani mine kicking off, as well as a high iron ore price encouraging investment. We like Emeco as a result, and a meet at their next result should be enough to see the share price higher after missing six out of their last seven results.

Emeco (EHL) Chart

Vocus (VOC) –24.54%; shares were hit today after AGL walked from the table – the second bidder within a fortnight to walk from talks just days into the due diligence process after EQT pull their bid 12 days ago. The announcement from AGL said they were “no longer confident that an acquisition of Vocus at the proposed terms would represent sufficient certainty of creating value for AGL shareholders.”

Management reiterated FY19 EBITDA guidance of $350m-$370m which is in line with analyst estimates at the $358m mark. Vocus also maintained the three-year turnaround rhetoric to shareholders. However, for two deals to fall over in this manner points to some serious concerns with how the underlying business is operating – not to mention the distraction which comes with takeover bids. A tough one to digest – we are not buyers of today’s weakness but would consider a play if Vocus was to downgrade – sell the rumour, buy the fact!

Vocus (VOC) Chart

Pilbara (PLS) -9.93%; shares in lithium miner Pilbara were lower today with the company flagging soft sales into China despite hitting record production levels out of their WA facility. The problem lies downstream with Chinese customers struggling to meet construction timelines for lithium processing facilities. Pilbara has responded by reaching out to other potential buyers to fill the excess supply, however it appears to be having a tough time saying that “production … will be moderated during June and July” and instead the Pilgangoora mine will see maintenance and improvement works brought forward. It wasn’t a great announcement for the battery material space in general with Orocobre (ORE) and Galaxy Resources (GXY) both falling more than 3% as a result.

Pilbara Minerals (PLS) Chart

Broker moves:

· Healius Downgraded to Hold at Deutsche Bank; PT set to A$3.01

· Brambles Downgraded to Sell at Morningstar

· AusNet Downgraded to Sell at Morningstar

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