The Match Out: Stocks hit again, ASX down a further 1%, Smart Group gets takeover approach and rallies almost 18%

James Gerrish

Market Matters

Another weak session today saw the ASX end down more than 1% - the same culprits dragging the ASX lower, IT and Healthcare. But Energy was also on the wrong side of the ledger today after a very strong run lately. Bond yields trading at three-month highs is starting to unnerve investors – and US Fed Chairman Jerome Powell’s commentary around higher inflation further fuelled that view.

  • The ASX 200 lost -78pts /-1.08% to 7,196 today
  • It was a “risk-off” type of session more than anything, utilities and staples the “best on ground” and the only sectors to finish higher.
  • Resources continue to be a mixed bag, the Iron Ore exposed stocks still under pressure – though BHP (ASX: BHP) and Fortescue (ASX: FMG) both rallied from early morning lows. I chatted to a client today about the composition of BHP’s earnings; he was surprised to hear that 70% of the mining major’s EBITDA comes from Iron Ore in FY21, 23% from copper and only 6% from Petroleum. Understandably, he thought it was more diversified than this. Keep an eye out for a Commodities Webinar we’re running next week, with two very good analysts on board.
  • Coal, Uranium and wait for it….Gold (!!) were the commodity sectors up today, the precious metal the standout with gold equities bouncing from 52-week lows. We trimmed a large (painful) overweight in Newcrest (ASX: NCM) as we added to one of our more favoured holdings today…the timing is questionable and although we retain a decent holding never nice to sell a low!
  • It now looks like Gold and Iron Ore names are oversold and due to bounce – ditto for the ASX 200
  • Tyro Payments (ASX: TYR) -5.83% hit today on a Director selling 2m shares. The stock is trading at the top of the range, at around $4, so makes sense – a long way up from the March 2020 lows of around $1. We own TYR in our Emerging Companies Portfolio – Click Here To View
  • We saw a bid today for a holding in our Income Portfolio – TPG (ASX: TPM) lobbing an all-cash offer for Smart Group (ASX: SIQ). The stock rallied +18.07% to finish at $9.28. The bid is at $10.35 although its conditional upon DD. We’re holding our position.
  • There is growing talk of dividends returning for Virgin Money (ASX: VUK), which is a stock we like. We bought it well around $2.60 and sold it too early around $3.50 however their capital position is improving and that opens the door for dividends again. This is one of the cheapest banks globally trading on just 0.6x price to book. Australian banks trade around 1.3x while European banks are generally sub 1x P/BV. CBA is generally sighted as the world’s most expensive bank trading on 2.0x P/BV.
  • Gold was flat in Asia today at around $US1,740 an ounce.
  • Iron Ore Futures were up 2% which helped drag the Iron Ore names up from early lows
  • In Asia, Japan was down about 2%, China was off -0.75% while Hong Kong rallied 0.60% - with the exception of Japan, we underperformed again.
  • US Futures are trading up, all around +0.50%  

ASX 200 chart

SmartGroup (ASX: SIQ) $9.28

SIQ +18.07%: the salary packaging and fleet services business copped a takeover bid from private equity group TPG today. The bid values Smartgroup at $1.38 billion, with the all-cash offer at $10.35/sh, a 32% premium to yesterday’s close. TPG will now get four weeks for an exclusive look at the books for the business and if the numbers match, the Smartgroup board is ready to unanimously recommend the takeover offer. Shares struggled to trade anywhere near the bid today, closing around 10% below what TPG are currently prepared to pay. We own SIQ in the income portfolio and are happy to hang on, for now, hoping for a tighter discount to the bid.

MM remains bullish (and long) SIQ

Broker moves

  • Beach Energy Raised to Outperform at RBC; PT A$1.50
  • Iluka Cut to Neutral at Citi; PT A$10
  • Beach Energy Raised to Speculative Buy at Canaccord; PT A$1.60
  • Bluescope Cut to Hold at Jefferies; PT A$22.90

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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