The Match Out: Buyers of dip re-emerge, ASX finishes higher, APA joins the AusNet party

James Gerrish

Market Matters

While the market was sharply lower overnight there was no sign of panic in the selling, volatility stayed low, credit spreads hardly moved and equities saw a large reversal in the last 30mins of the session. That positive undertone became obvious in Oz today with the market seeing the worst of it early on, the ASX200 hit key support ~7200 before bouncing +80pts to finish up on the day – a very good effort really and a sign that underlying strength remains alive and well in this market.

  • The ASX 200 finished up +25pts / +0.35% to 7,273

  • Energy and IT were the main sectors offering support while Financials lagged and eventually closed down on the day

  • 70% of the top 200 stocks finished up on the day and Financials was the only sector to finish down, showing broad-based buying.

  • US Futures rallied throughout our session. Providing a positive backdrop, they were up around 0.7% around our close and made steady gains all day.

  • M&A activity continues, with a new player in the game to buy AusNet Services (ASX: AST), APA Group (ASX: APA) lobbing a $2.60 bid - topping Brookfield’s $2.50 bid from yesterday. See below for more on this.
  • There’s also continued talk of Independence Group (ASX: IGO) buying Western Areas (ASX: WSA) however given WSA -1.36% today it’s not gaining much traction

  • Shaw joined the masses today downgrading Iron Ore price assumptions cutting RIO and FMG to Holds – retained BHP as a buy but lowered PT from $56 to $48.

  • Key upgrades of note for (i) Energy tailwinds– Coal back to cycle high after an around two-year downdraft, ongoing supply constraints expected (ii) Alumina – recent supply issues have rebased the price around 30% higher, (iii) Aluminium – China power rationalisation potentially a multiyear supply headwind, (iv) Gold – equity and commodity prices increasingly decoupled from underlying drivers (real rates) – Source: Shaw

  • Gold was higher during Asian trade today, at around $US1761 at our close; Gold equities rallied – most up nearly 1% picking themselves up from the 52-week lows

  • Iron Ore Futures were up slightly in Singapore
  • In Asia, Hong Kong was flat while the Nikkei was down 2%
  • US Futures are now up around 0.6%.

ASX 200 chart

Western Areas (ASX: WSA) $2.91

WSA -1.36%: Rumours continue to swirl around a takeover transaction coming from Independence Group (IGO). Reports coming from the media today suggested a mostly scrip bid that would value WSA around $3.10-$3.20/sh was in the works with nth company’s confirming that talks were in progress and due diligence had been granted, though Western Areas had reservations around an all-scrip offer. It makes sense for a number of reasons, Western Areas is cheap and has lagged the nickel price for a while now. Independence Group needs to add to its nickel given the current life on the Nova project has just 5-6 years left to run, whereas Western Areas is likely to be producing for 20+ years. The rhetoric today downplayed the likelihood of a deal and was likely the reason WSA shares were lower today.

APA Group (ASX: APA) $8.46

APA -4.73%: Hit today after they lobbed a superior $2.60 bid for AusNet Services (AST) trumping yesterdays $2.50 tilt from Brookfield. It’s all a bit complicated given APA first made a tilt at $2.32 ahead of the Brookfield offer however BF secured exclusivity with its higher price before APA had a chance to come back to the table. APA also went further saying they would need to raise $1.5bn in equity if they were successful however that relies on AST opening the books before 28th September. Not sure what to make of it really given APA was a stock we’re keen on to buy in our income portfolio as we flagged this AM. We’ll sit tight for now and see how it plays out.

Broker moves

  • Transurban Raised to Outperform at Credit Suisse; PT A$15.10

  • AusNet Services Ltd Raised to Equal-Weight at Morgan Stanley

  • ALE Property Raised to Neutral at JPMorgan; PT A$5.82

  • Domino's Pizza Enterprises Cut to Hold at Bell Potter; PT A$155

Major movers today

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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...

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