The Match Out: ASX ends higher, Energy back in the winners circle, Bidders revise deal for Smart Group

James Gerrish

Market Matters

It was a choppy but positive session overall to kick off the trading week, the Energy sector returning to the winners' circle and rallying 2.6%, while the IT sector was the biggest detractor.

  • The ASX 200 finished up +25pts/0.34% today at 7441.
  • Energy +2.64% and we continue to like the sector, IT dragged -0.68% and we remain cautious overall.
  • The bidders for Smart Group (ASX: SIQ) -10.6% reduced their bid price over the weekend, SIQ has walked and the stock fell. More on that below.
  • Telstra (ASX: TLS) +2.14% & the Australian Government to buy Digicel Pacific, we like the earnings accretive deal.
  • Origin Energy (ASX: ORG) +3.86% is selling 10% of the APLNG project for $2.12 billion – this is a good move giving ORG further flexibility to invest for the next leg in the energy transition.
  • Gold stocks are starting to look better for various reasons – we think the next few months for the sector will be strong with Newcrest (ASX: NCM) and Regis Resources (ASX: RRL) key picks.
  • We flagged Iron Ore stocks this morning saying we now believe the next 20% move is likely to be a countertrend bounce which should help the likes of BHP Group (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) – and, of course, the ASX more generally. Today that started to play out, BHP +0.74%, RIO +1.48% and FMG +1.40%.
  • Paladin (ASX: PDN) +4.32% had its quarterly out today – Uranium markets remain firm however we’re more inclined to be sellers rather than buyers around current levels.
  • News around whether or not Crown (ASX: CWN) will retain its Victoria casino licence is due to be released tomorrow, CWN edged higher today by +0.31% while the Crown Hybrids (CWNHB) interestingly enough added +2.89%.
  • Gold was higher during Asian trade ~$US1800 at our close.
  • Iron Ore Futures were up around 2%.
  • In Asia, Hong Kong was flat, China added +0.30%.
  • US Futures are flat.

ASX 200 

Smart Group

SIQ -10.6%: The bid for the leasing and salary packaging business was essentially pulled today, with the private equity consortium reducing the bid price from $10.35 to $9.25 forcing SIQ’s board to walk away. The original bid was a 38.6% premium to the pre-bid price while the revised offer represents a 17.7% premium, which is completely inadequate for a change of control transaction. As part of the update, the consortium also re-confirmed that financial performance was in line with current consensus expectations. The market sold SIQ off fairly hard this morning, hitting $7.70 which was actually below the price it was trading at pre-bid. Sanity prevailed and the stock rallied around 5% from there to close down 99 cents a share, still a decent clip below the revised bod price. We own SIQ in the income portfolio, were happy sellers above $10 however now we think the board has done the right thing and walked.

MM is bullish SIQ below $8.50

.

Smart Group

Telstra (ASX: TLS) $3.81

TLS +2.14%: Announced today they have partnered with the Australian Government to acquire the Digicel business in the South Pacific region for US$1.6 billion-plus up to $250 million earn-outs. In the scheme of TLS, this is a small deal but a positive one nonetheless, and use of capital than doing share buy-backs. We like the direction TLS is taking in terms of growth and continue to remain comfortable holders in the Income Portfolio, albeit now with a reduced weighting of 5% having reduced down from 8% nearer $4.

MM remains bullish TLS.

Telstra

Paladin Energy (ASX: PDN) 96.5c

PDN +4.32%: the uranium company was out with a first-quarter update as they work towards a restart of mining activities at its Langer Heinrich mine in Namibia. The mine has been on care and maintenance since 2018 with a subdued uranium price making it uneconomic. As MM subscribers would know, Uranium has swung back into favour recently with some recovery in spot markets and Paladin is preparing for the restart of the mine provided they land some supply contracts which is becoming increasingly likely in a tightening market. 

The company raised $218 million during the quarter and sold down an $18 million stake in ASX listed peer Lotus Resources (ASX: LOT) which has seen them fully repay debt and finish the quarter with $US40 million in cash. This provides them with plenty of flexibility in the mine restart as well as the ability to fund continued exploration activities. While PDN remains our preferred pick in the uranium space, the current price is already factoring in a lot of upside.

MM is now more neutral on PDN at around $1, but remain long in our Emerging Companies Portfolio.

Paladin Energy

Aurizon (ASX: AZJ) $3.52

AZJ -3.56%: The rail freight operator has had a tough few sessions after announcing that it will buy One Rail Australia from Macquarie for $2.35 billion. This is a pretty typical reaction to a transaction where Macquarie is the seller – that is, the market assumes that MQG is getting the better side of the transaction given that’s their bread and butter. AZJ is funding the transaction via existing debt facilities and the move does diversify AZJ’s freight volumes away from Coal.

MM views AZJ as cheap at around $3.50

.

Aurizon

Broker moves

  • Transurban Raised to Add at Morgans Financial Limited

  • Macquarie Group Raised to Neutral at Citi; PT A$200

  • Perseus Cut to Market Perform at Cormark Securities; PT A$1.89

Major movers today

Make informed investment decisions

At Market Matters, we write a straight-talking, concise, twice daily note about our experiences, the stocks we like, the stocks we don’t, the themes that you should be across and the risks as we see them. Click here for your free trial.

The Match Out will be available each day after the market close. Follow my profile to be notified when the latest report is live.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.