What Mattered Today: Why we own FMG

James Gerrish

Market Matters

The local market opened with strength this morning with buying in all key sectors,  obviously spurred on by the takeover of Westfield,  however we also saw good leads from overseas markets with the financials leading the charge overnight.  All going well until US Futures took a hit mid-afternoon following news of a Democratic win in the Alabama Senate election, which is seen as a setback for Trump and the tax reform process. If the mkt has rallied on the Tax agenda, any hit to that will clearly prompt some selling. In reality it was only slight dip today and the fact the ASX remained resilient & closed over 6000 with a strong close for a second straight day warms the heart. We continue to target 6125 on the ASX 200 this year.

Obviously Westfield was strong today up +13.65% and contributing +8 index points to the ASX 200, while banks were up early as were the resource stocks, only to succumb to the trends in US Futures.  The property sector was obviously best on ground today courtesy of Westfield while the interest rates sensitive Utilities were he weakest link (again).  An overall range today of +/-  24 points, a high of 6027, a low of 6003 and a close of 6021,  up +8pts or +0.14%

ASX 200 Intra-Day Chart – good move higher into the close after US Futures induced weakness mid afternoon

ASX 200 Daily Chart


1.Westfield (WFD) $9.66 / 13.65% - Clearly the talk of the town today and we covered in the AM report this morning (CLICK HERE) however a few additional points worth mentioning around 1. The implication for shareholders and 2. Around the implication for the index more broadly.  

WFD shareholders will get 0.01844 shares in Unibail for each WFD share they own, PLUS US$2.67 per WFD share in cash. In terms of WFD shareholders now holding Unibail shares, WFD shareholders will own approximately 28% of the combined group. This then gets more complicated. WFD shareholders will be able to elect to hold shares in the new Group in Paris or in Sydney (via CDI’s). Although the Australian CDI’s would qualify for indexation, it’s too early to tell what indices it will be included in (or not). I’d assume that it would be in the ASX 200 which means it would also be in the REIT Index.

So, the key takeout is that there will be cash looking for a home in other REITs given the cash component being paid, and we saw that being pre-empted in the mkt yesterday with some strong moves in the likes of Scentre (SCG) and others. This ‘forced buying’ in our view should be used as an opportunity to sell into – we certainly will be with our position in Vicinity (VCX) in the MM Income Portfolio where we are long from $2.74

Westfield Monthly  Chart

2 .Fortescue Metals (FMG)  $4.84 / 2.98% Finally some buying in the Iron Ore miner today stemming from an upgrade by UBS. They upgraded to BUY `with a $5.30 price target and reckon that high commodity prices and strong free cash flow generation is a great benefit to Fortescue. Not a huge amount of insight in that rationale however in our view the BIG discount being applied to FMG Ore is more a cyclical phenomenon rather than a structural one – and the gap will close rendering FMG extremely cheap at current levels. We own from $4.60 in the Platinum Portfolio.   

Fortescue Daily Chart

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Have a great night

James & the Market Matters Team

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Prices as at 13/12/17


1 stock mentioned

James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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