Off the Charts! A mystery 20% price drop, Buffett breaks the NASDAQ and a $3.5 bn offer

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Livewire Markets

Well, well, well. What a week it's been. Serenity fled the markets and panic seemed to be the biggest driver this week. Concerns about earnings reports (or lack thereof), a celebrity appearance on an American TV program and, to cap it all off, the threat of war in the Asia-Pacific are showing that all issues big and small are enough to make investors skittish. Perhaps that post-COVID exuberance has run its course? Or maybe we're just a restless bunch. 

We've collected the big stories, the small ones, and the weird ones we thought you simply couldn't do without. 

Let's jump in.

Stories that were Off the Charts!

#1 Appen falls 20% for saying ... nothing?

Wow. What a shocker yesterday was for Appen (ASX: APX)

A daisy chain of disappointment and ASX inquiries lead the data giant to fall a whopping 20% in one day. The chronology of events is as follows.

  • Appen, like many other ASX-listed companies, was set to speak at the Macquarie Australia Conference yesterday. 
  • The speaking notes of CEO, Mark Brayan, were made available prior to his talk. 
  • The stock quickly began to plummet at the market's open. 
  • APX requested a trading halt pending the talk. 
  • The ASX puts an official inquiry to the board as to whether it could explain the cratering. APX have no idea.

The AFR and leading analysts have suggested that the steep sell-off was due to what was not said in Brayan's presentation. Unlike many other companies, the CEO did not take the opportunity to update the market on FY21 earnings guidance. Makes sense, I guess. But a 20% sell-off? Shareholders must be expecting really bad news. All eyes will be on the once-market darling and Livewire reader favourite when their earnings figures are released next month.

For anyone whose interest is piqued by legal letters, the exchange between the ASX and Appen has been reproduced below.

Source: FactSet StreetAccount/Company filings

#2 Can you hear the "drums of war"? 

An announcement from Beijing has tanked the AUD/USD and put markets in a tailspin on Thursday mid-afternoon. At the same time, CIO Con Michalakis gave a prescient warning that China is going to be a big problem for markets in the future while top contributor Chris Joye wrote the probability of war is rising. 

Source: Investing.com

Although the AUD recovered, our diplomatic relationship with China is at an all-time low. International headlines are calling an actual war "ridiculous" but it's definitely an already-strained relationship that's worsening. Beijing announced it would be indefinitely suspending its side of the China-Australia Strategic Economic Dialogue. This follows Australia's refusal to uphold Victoria's Belt and Road Initiative. And these are just two examples of the slow unravelling of the relationship between Australia and our major trading partner. 

#3 PE firm doubles down on TAB Corp

Last month, Off the Charts! covered the bid by NY-PE firm Apollo Global Management to takeover TAB Corp's (ASX: TAH) troubled wagering and media division. This week Apollo is doubling down.

The gaming group had already received bids from Apollo and the London-based Entain, but Chairman, Steven Gregg was unconvinced by either proposition. 

Apollo's new bid adds half a billion to their previous offer, now at $3.5 billion to match the offer of Entain.

The Tabcorp board announced that it would consider the offer and continue with a strategic review of how to handle wagering & media arm.

“The Tabcorp Board has not yet formed a view on the merits of the revised proposal and will assess it in the context of the previously announced strategic review,” the board said.

Many institutional shareholders and Livewire contributors have campaigned for some action in this area. Whether they accept the offer or spin off the business to existing shareholders is yet to be seen.

#4 Buffet breaks NASDAQ, Charlie calls crypto disgusting

It’s been quite the week for Warren Buffett. First, he announced Greg Abel as his successor. Then he broke the NASDAQ. Well – not yet, but maybe soon.

As the Wall Street Journal reported earlier this week, Berkshire Hathaway's famously un-split Class A shares, currently priced at $US424,840, are nearing the maximum share price allowed by the NASDAQ, to wit $US429,496.73. So close, in fact, that on Tuesday, the Nasdaq temporarily suspended broadcasting the share's prices.

But wait. Why does the Nasdaq have a limit in the first place?

As WSJ's Alexander Osipovich explained:

“Nasdaq’s computers can only count so high because of the compact digital format they use for communicating prices. The biggest number possible is two to the 32nd power minus one, or 4,294,967,295. Stock prices are frequently stored using four decimal places, so the highest possible price is $US429,496.7295.
"Nasdaq is rushing to finish an upgrade later this month that would fix the problem.”

As the Journal further noted: “The root of the problem is Mr. Buffett’s decades-long refusal to execute a stock split of Berkshire’s Class A shares." Why the refusal to split? Simple: Buffett wishes to encourage knowledgeable investors, believing "a lower price would bring unsophisticated short-term investors into the stock.”

The other side of Buffett's respect for sound investment principles is his withering view on the bubble-icious world of cryptocurrencies, a view given fresh voice by his partner, the 97-year-old Charlie Munger at the BH AGM earlier in the week:

"I hate the Bitcoin success," Munger said. "I don't welcome a currency that's so useful to kidnappers and extortionists and so forth. Nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I should say modestly that I think the whole development is disgusting and contrary to the interest of civilization.”

Tell us what you really think, Mr Munger.

#5 Musk matters: SNL SECURED 

The 'technoking of Tesla', the liege lord of 420, Elon Musk is set to appear on US TV programme Saturday Night Live this week. And what does this have to do with markets? 

Source: @tracyalloway/ Twitter. 

It might sound funny, but Musk's market moves aren't to be totally ignored. He has a captivated audience of cashed-up, Reddit-investors who are waiting in the wings to throw their hard-earned Dogecoin at whatever he tweets next. 

Top articles from the Livewire contributors this week

  1. What to watch for the remainder of 2021: AMP's Shane Oliver shares what impact geopolitical tensions mean for investors.
  2. Prepare for war, as probabilities rise about 50%: Coolabah Capital's Christopher Joye highlights the ever-increasing threat of international conflict and causes us to ask, how our portfolios are prepared for the threat of war?
  3. LIC dividend coverage: Claire Aitchison from Independent Investment Research takes a look at the state of LIC balance sheets as it pertains to dividend coverage.
  4. Two ways to better diversify your portfolio: Jerome Lander from WealthLander highlights two ways investors can better diversify their portfolio.
  5. 7 unexpected outcomes from COVID-19: Auscaps" Tim Carleton outlines seven unexpected outcomes from COVID-19 and why furniture retailer Nick Scali, is this quarter’s “company in focus”.

And coming up week beginning 10 May...

  • On Buy Hold Sell, we have a banking bonanza! With Wilson Asset Management's Matthew Haupt and Firetrail's Scott Olsson sharing their thoughts on the best and worst of the sector. 
  • Bella Kidman does a deep dive into the world of hybrids while Angus Kennedy gives us the latest investment case for biotechs. 
  • Fidelity's multi-award winning small-cap portfolio manager James Abela will be sharing 10 quality picks that have his tick of approval.
  • Mia Kwok sits down with First Sentier's Dawn Kanelleas this week to find out how to uncover the next small-cap winners.

What did we miss?

Did you catch a story this week that you thought was Off the Charts!? Let us know in the comment section below! Or email content@livewiremarkets.com.

Also, if you're enjoying Off the Charts or have any suggestions for the series let us know!

- Nicholas Plessas and Mia Kwok


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