Wall St fall ends ASX run
Australia’s sharemarket ended a 7-day winning streak after the US suffered its biggest falls in several weeks. Moody’s follows S&P puttin Victoria’s AAA rating under review.
Welcome to the Trading Day blog for Thursday, December 10. Australia’s sharemarket snapped a seven-day winning streak after US stocks turned down amid disagreements over a stimulus package and sharp falls in tech giants including Tesla, Facebook and Apple. The Dow fell 0.4 per cent, the S&P 500 slipped 0.8 per cent and the Nasdaq tumbled 1.9 per cent.
7.51pm: Europe opens with gains
European stock markets opened Thursday with tentative gains as investors fretted over politicians’ inability to reach agreements on both a new US stimulus and a post-Brexit trade deal.
London’s benchmark FTSE 100 index of top blue-chip companies rose 0.4 percent to 6,592.90 points, as traders also tracked official data showing that British economic growth slowed sharply in October from September.
In the eurozone, the Paris CAC 40 index gained 0.2 percent to 5,560.30 points and Frankfurt’s DAX 30 increased by almost 0.1 percent to 13,350.03.
Jared Lynch 7.48pm: China hit kills $46m wine deal
The future of 141-year-old winemaker, McWilliam’s, has once again plunged into uncertainty after its prospective buyer failed to come up with the $46m needed to take over the group.
Global private equity and venture capital firm Prcstnt – pronounced “persistent” – twice asked for an extension to settle the deal following its initial November 27 deadline, shocking McWilliam’s administrators who said Prcstnt had provided “unequivocal evidence” that it had enough cash to close the deal.
Regardless, administrator Gayle Dickerson of KPMG granted the extensions - the second time on the condition it provide a non-refundable amount of $500,000.
The second deadline passed on Wednesday and with it no more cash. Now Ms Dickerson is dusting off the group - known for its $13 flagons of sherry and which collapsed in January - to find another buyer.
It comes on the same day that China’s Commerce Ministry imposed additional tariffs on Australia-imported wines, adding more levies after hefty anti-dumping duties applied two weeks ago.
“We regret to advise that the DOCA (Deed of Company Arrangement) has not been able to be completed as per the terms of the DOCA,” Ms Dickerson wrote in a letter to creditors and suppliers seen by The Australian.
“The deed administrators are currently assessing the options available including sale of the business while continuing to trade the business.”
Prcstnt, chaired by Melbourne businessman Charles Hunting, was planning to buy McWilliam’s using the investment vehicle MCW BidCo.
“MCW provided the deed administrators with unequivocal evidence in writing from its investors that funds were immediately available to make payment of the amounts payable by MCW to the deed administrators‘ account in accordance with the terms DOCA by close of business, Wednesday 9 December 2020,” Ms Dickerson wrote in her letter.
“(But) MCW failed to adhere to the conditions.”
Creditors overwhelmingly backed Prcstnt’s proposal, under which they would have receive 94c-100c in the dollar, in late July.
Read more: McWilliam’s Wines back on the market after buyer’s funds dry up
5.13pm: Moody’s may cut Victoria’s AAA rating
On the heels of this week’s credit rating downgrade from S&P, ratings agency Moody’s has placed Victoria’s Aaa credit rating on review for a downgrade citing an “erosion” in financial strength.
“The review for downgrade indicates the material risks that Victoria’s credit profile is no longer consistent with a Aaa rating,” Moody’s said in a statement.
“The sharp change in the outlook for Victoria’s debt follows an economic recession which will undermine revenue and raise expenses for several years,” Moody’s said.
Moody’s expects Victoria’s net direct and indirect debt will exceed 200 per cent of revenue in the fiscal year ending June 2024 compared to 79 per cent in fiscal
2020.
“Combined with the state’s very large capital spending projects, in the absence of new measures to significantly narrow the deficits once the economic environment improves, the debt burden will rise significantly for the foreseeable future”.
The review for a possible downgrade follows S&P this week cutting its rating Victoria to AA from AAA. At the same time it lowered NSW’s ratings to AA+ from AAA.
4.27pm: Wall St fall ends ASX run
Australia’s sharemarket ended a 7-day winning streak after the US sharemarket suffered its biggest falls in several weeks.
The S&P/ASX 200 closed down 0.6pc at 6683.1 after hitting a 2-day low of 6678.3.
That pushed it narrowly back into the year for the year to date after two days in the green.
The index rose 0.6pc to a 9-month high close of 5728.5 on Wednesday after rising as high as 6745.3 intraday.
Tech was weakest on Thursday as it was overnight and a profit warning from Appen was a little unnerving, the share price falling 12pc.
But the fall in local stocks was much broader with all 12 sectors in the red.
Appen was weakest, followed by gold miners, with Evolution down 4.5pc after spot gold fell 1.7pc to $US1841.2, and Magellan fell 4.5pc after Credit Suisse downgraded.
On the positive side, Perpetual soared 5.8pc after Credit Suisse upgraded and Fortescue Metals rose 3.3pc after spot iron ore 0.5pc to a fresh 7.5-year high of $US150.75 a tonne.
Banks were mixed with NAB up 0.4pc and Westpac down 0.4pc.
Asaleo Care jumped 22pc after disclosing a proposal which turned out to be an offer from majority shareholder Essity.
Bridget Carter 4.01pm: MediaWorks exploring IPO: sources
The private equity owners of the New Zealand broadcaster MediaWorks are believed to be exploring plans for an initial public offering, according to sources.
David Ross 3.45pm: Keybridge flags 10% buyback
The latest installment in the ongoing battle over Keybridge Capital has seen the Nicholas Bolton and Antony Catalano fund announce a 10 per cent buyback.
The fund said the buy back would take place over the next 12 months, however its updated noted “whether Keybridge ultimately transacts in its securities will depend on the prevailing circumstances at the time, including the price of the securities”.
“Keybridge also notes that, in light of its securities having been suspended, it may only buyback securities subject to sufficient market liquidity and the price of securities,” it said.
Wilson Asset Management Group has been gunning for Keybridge, launching a takeover bid earlier in the year. Keybridge Capital has already spent a reported $1.7m fighting the takeover bids from the firm founded by veteran investment manager Geoff Wilson.
Bridget Carter 3.25pm: Essity drafts MS for Asaleo bid
Global health and hygiene company Essity has drafted in investment bank Morgan Stanley for a $684 million proposal to buy Asaleo Care. Asaleo is working with Luminis Partners.
The company remains in a trading halt after receiving a $1.26 per share bid from its 36 per cent share holder, Essity. Another major shareholder, Allan Gray, has a 18.23 per cent stake.
Asaleo, a personal care and hygiene company that manufactures toilet paper, tampons, pads and paper towels, has brands such as Libra, Sorbent, Handee, Libra, Tork and Purex.
Demand surged for its products at the start of the year during the onset of the Covid-19 pandemic. For the six months to June, the company’s earnings before interest, tax, depreciation and amortisation increased 24 per cent to $49.4m, while net profit was up 158 per cent to $18.8m.
The business is on track to deliver EBITDA at the upper end of its guidance of between $84m to $87m. Shares last traded at $1.23, with its market value at $668m.
Essity has been tipped to take Asaleo private since about two years ago when the company was conducting a strategic review.
In about two years, the IP licence of the business will return to Essity, its former owner.
Asaleo was previously known as SCA Hygiene and owned by Essity before Pacific Equity Partners acquired a stake in the company in 2011.
The pair floated the business in 2014 with a $996 million market value.
However, while shares at that time were around $1.65, they were trading around 71c two years ago, with its market value at about $385.2m.
PEP bought into the company because the Swedish parent was capital constrained and could not invest in the local facilities.
In 2018, it sold its consumer tissue business to Solaris Paper for $180m.
Morgan Stanley has recently been working on the sales process for Asaleo’s rival, ABC Tissue behind the Quilton toilet paper brand.
3.15pm: ASX remains heavy on broad falls
Australia’s share market has remained heavy after the US share market suffered its biggest falls in several weeks. The S&P/ASX 200 was down 0.6pc at 6688 after falling as much as 0.8pc to a two-day two of 6678.3.
Barring a late surge the index will end a 7-day winning streak.
As was the case on the US market, the tech sector is weakest, with Afterpay down 2.1pc, Wisetech down 3.8pc and Appen down 11pc on a profit warning.
However, the fall in local stocks is somewhat broader. Whereas the S&P 500 Energy, Industrials and Materials sectors rose, all 12 sectors of the S&P/ASX 200 are in the red.
The S&P/ASX 200 added 3.2pc in the past 7 days and reached a 9-month high of 6745.3.
Lisa Allen 2.10pm: Schwartz to offload Four Points by Sheraton
Hotel investor Jerry Schwartz has decided to offload part of his vast accommodation portfolio placing the Marriott-branded Four Points by Sheraton Sydney Hotel on the market.
The 297-room hotel, worth around $180m, forms part of the Central Park mixed-use development opposite the University of Technology, Sydney campus.
The hotel opened in late 2018 and achieved an occupancy rate of 85 per cent during 2019.
Dr Schwartz, who also owns the Sofitel Darling Harbour and Crowne Plaza Hunter Valley, said forecasts suggest Sydney’s hotel market will rebound strongly in 2021 and he wanted to take advantage of the market uplift.
JLL Hotels managing director Mark Durran is handling the marketing of the hotel saying that “historically, opportunities to acquire quality hotel assets in Sydney are rare.”
Dr Schwartz has obtained development approvals to add an extra 11 guest rooms taking the inventory to 308 keys. More approvals have been obtained to add a distillery on the ground level adjoining the restaurant and bar.
Bridget Carter 2.05pm: Best & Less sounding for IPO
Best & Less is believed to be holding investor education meetings next week for a potential initial public offering of the business.
It comes after the owner of the general merchandise retailer, Allegro Funds Management, recently hired Macquarie Capital to work on a potential initial public offering.
The understanding is that the aspirations are to list Best and Less for a price that values the business at about $400m. Annual earnings before interest, tax, depreciation and amortisation for Best and Less are understood to be about $55m.
Best & Less is understood to have been a strong performer in spite of Covid-19 and is expected to achieve similar or better results in the aftermath of the pandemic.
The discount clothing and household linens chain was purchased by Allegro Funds Management in 2019 from the local arm of Steinhoff International, Greenlit Brands.
The acquisition was part of a wider deal by Allegro, where it also purchased Harris Scarfe, which was later placed into receivership and sold off to the Spotlight Group.
Greenlit Brands recently made efforts to list its Fantastic Furniture business, but opted to retain the operation when investors were only prepared to pay between 8 and 8.5 times annual earnings before interest and tax rather than the 9 times that the company was after.
Steinhoff came to collapse in recent years following the discovery of accounting irregularities, sending a sudden fall in its share price in Germany and South Africa.
The Best & Less Group is made up of brands that include Best & Less and Postie in New Zealand. Collectively, the brands operate more than 250 stores across Australia and New Zealand and employ over 4000 people.
Allegro has a track record of turning around unloved businesses in the retail space, with it counting New Zealand’s Hannahs shoes and Pizza Hut as among its acquisitions.
This week, Best & Less chief executive Rodney Orrock told The Australian that the company started a click-and-collect service last week.
The company has reported total sales of $629m as of November 30, with like-for-like sales growth of 8 per cent and total sales growth of 2.9 per cent.
Online sales grew 80 per cent over 12 months to $57m, representing 9.1 per cent of total sales. Between 2017 and 2020, online sales for Best & Less grew 50 per cent in terms of compound annual growth rate, as the business invested in digital initiatives including click-and-collect. https://bit.ly/341oLnc
1.46pm: China imposes antisubsidy tariffs on Australian wine
China’s Commerce Ministry said it would impose temporary antisubsidy tariffs on Australia-imported wines, adding more levies after hefty antidumping duties applied two weeks ago.
The ministry said the temporary duties of 6.3pc to 6.4pc will take effect Friday.
The action came after Beijing imposed antidumping duties of 107.1pc to 212.1pc on Australian wine in late November, as an investigation found exporters dumped cheap wine into the Chinese market.
The latest measure is expected to add more tension to bilateral relations, which went sour after Canberra called for a probe into the origins of the coronavirus, angering Beijing.
Earlier this year, China imposed tariffs of more than 80pc on Australian barley products and suspended beef imports from some Australian slaughterhouses.
Dow Jones Newswires
1.40pm: Essity increasing stake in Asaleo
Asaleo Care surged 22pc to a 29-month high of $1.245 before entering a trading halt as the market got wind of a deal.
Shares in the personal care and hygiene company then entered the halt ahead of a statement on an “unsolicited proposal”.
The company later announced that its biggest shareholder, Essity Group Holdings, made a non-binding indicative proposal to Asaelo’s board.
The proposal is to buy additional shares for $1.26 a share.
That’s a 25pc premium to Wednesday’s closing price of $1.01, a 26pc premium to one month volume weighted average price and a 27pc premium to two month vwap.
Essity plans to use its own funds to finance its acquisition of an undisclosed amount of shares.
Essity is currently the biggest shareholder of Asaleo with a 36.2pc stake.
AHY remain in a trading halt. Last at $1.23.
12.48pm: Uranium fever just the start: Collins St
“Uranium fever” is set to grip the Australian share market, according to Collins St Asset Management.
ASX-listed uranium miners including Paladin, Peninsula Energy and Vimy Resources are up 62pc, 52pc and 40pc respectively this quarter.
The sector has outperformed the broader market by over 30 per cent and has also beaten the materials sector by 20pc.
“We have been bullish on uranium for over 12 months now and have expressed that view with a 20 per cent allocation to uranium miners in the Collins St Value Fund,” says Michael Goldberg, portfolio manager at Australia’s top ranked “value” fund.
“I firmly believe that there are a number of compelling catalysts that could drive selected stocks in this space even higher – potentially two to three times their current value based on historical multiples.”
He argues that uranium is a misunderstood commodity in the Australian market, with much of the price action resulting from private investors and a selection of international fund managers.
And despite what he sees as profound environmental benefits and cost efficiencies on offer from one of the most technologically advanced sectors of the energy market, many local investors have outdated views on the sector.
“With several compelling short term catalysts set to drive a potential 200-300 per cent uplift in ASX-listed uranium stocks over the next 12–18 months the opportunity is clear,” he says.
He sees an uplift from key American and European utilities coming back to the market to re-contract supply after a two to three year hiatus, positive announcements from the US indicating that the country will continue its path towards nuclear self-sufficiency under a new administration.
Moreover the chronic under production of uranium and lead times associated with bringing mines out of mothballs is set to boost uranium prices and the share price multiples of companies with premium assets in premium jurisdictions and the capability to bring meaningful levels of supply back online quickly.
“Longer term, the uranium sector continues to be supported by an 11 per cent increase in the number of nuclear reactors globally based on the current number of reactors already in construction, alongside a pipeline of a further 426 reactors that have either been planned or proposed - almost equal to the number of reactors in operation today,” Mr Goldberg says. Collins St Asset Management is Australia’s number 1 ranked large cap ‘Value’ Manager over the last one and three years.
Its flagship Collins St Value Fund, outperformed the broader market by more than 5pc per annum net of fees since inception nearly five years ago.
12.24pm: Musk’s SpaceX prototype crashes in fireball
A prototype of the future giant SpaceX rocket Starship -- which the company hopes will become its go-to for Mars missions -- crashed in a fiery explosion during a test launch along the Texas coast.
But the company line was upbeat as a livestream of the launch displayed the on-screen message “AWESOME TEST. CONGRATS STARSHIP TEAM!” “Mars, here we come!!” SpaceX founder Tesla’s Elon Musk tweeted just minutes after the flight, explaining that a too-fast landing speed was to blame for the crash.
He recounted the successful parts of the rocket’s short late afternoon trip: the take-off, the change of position in flight and its (pre-explosion) precise landing trajectory.
“We got all the data we needed! Congrats SpaceX team,” he tweeted.
Mars, here we come!!
— Elon Musk (@elonmusk) December 9, 2020
The test test launch took off and ascended properly in a seemingly straight line, before one and then another of its engines went out. After 4 minutes and 45 seconds of flight, its third engine extinguished and the rocket began its descent in its expected position.
The engines were restarted just seconds before landing in an effort to slow the ship, but it crashed hard into the Earth.
Smaller prototypes have already blasted off several hundred metres into the air for less than a minute as part of a series of tests aimed at developing the next generation of rockets from the company at lightening speed.
AFP
12.05pm: ASX down 0.4pc at noon
Australia’s share market stumbled after falls on Wall Street.
By midday, the S&P/ASX 200 index was down 0.4pc at 6702 after hitting a two-day low of 6684.5 points.
The index remins set to end a seven-day winning streak in which it rose 3.2pc, and also looks set to close back below its November peak near 6713 after hitting a nine-month high of 6745.3 on Wednesday.
Tech was weakest, as was the case overnight, with Appen down 13pc on a profit warning and Afterpay down 2.2pc after US tech giants like Tesla and Facebook tumbled.
Gold miners were also among the weakest stocks, with Evolution down 4.5pc and Newcrest down 1.7pc after the spot gold price fell 1.7pc to $US1839.55 an ounce.
But iron ore miners were better supported with Fortescue Metals up 3.4pc - the strongest in the ASX200 - after the spot iron ore price rose 0.5pc to a fresh 7.5-year high of $US150.75 a tonne.
The Financials sector was flat after CBA shares gave up most of an early 1.3pc gain and ANZ fell 0.4pc.
Magellan lost 2pc after Credit Suisse downgraded, while Perpetual soared 5.6pc after the broker upgraded its shares.
11.38am: Aussie’s rise: the winners and losers
UBS analyst Pieter Stoltz has reviewed his lists of offshore income earners and retailers in the ASX200 according to the sensitivity of their earnings and share prices to the Australian dollar.
For earnings sensitivity, the worst 10 are offshore income earners including Cochlear, Ramsay, Sonic, Macquarie, Orora, Clover Corp, Domino’s, Ansell, Brambles and Treasury Wine.
Cochlear and CSL are two stocks that have significant negative share price sensitivity to an appreciation in the dollar.
In contrast, retailers could benefit, but with a lag due to foreign exchange hedges.
“From a fundamental perspective, the retailers that stand to benefit the most from AUD appreciation are those that sell private label products such as Premier Investments, Adairs, Wesfarmers and Supercheap,” Mr Stoltz says.
“As importers of auto parts, GUD and Bapcor also stand to benefit.”
He notes that the positive sensitivities aren’t so clear for retailers but Harvey Norman stands out as having positive share price sensitivity to an appreciation in the exchange rate.
AUD/USD has risen 6pc year to date, with a 4pc gain since September 30th and an almost 8pc rise since Jun 30th to US74.50c.
“Offshore earners could experience earnings headwinds due to recent Australian dollar strength,” Mr Stoltz says.
11.14am: ASX falls 0.7pc to 2-day low
Australia’s share market looks set to end a seven-day winning streak after falling 0.7pc to a two-day low of 6684.5, in late morning trade.
The index has been unable to form support at the former resistance level of 6713, leaving open the possibility of dips to the recent low near 6500.
It comes after the US market backed away from record highs amid relatively sharp falls in tech stocks.
The S&P/ASX 200 was last down 0.6pc at 6692.
Ben Wilmot 11.09am: Mirvac taps veteran for CFO
Listed property developer Mirvac Group has appointed veteran Lendlease executive Courtenay Smith as its next chief financial officer as personnel moves gather pace in the property sector.
Lendlease’s CFO Tarun Gupta this month was also announced as the next chief executive of Stockland, replacing the departing Mark Steinert.
At Mirvac, Ms Smith will replace Shane Gannon, and her start date will be announced at the group’s half year results on February 12.
Mirvac chief executive Susan Lloyd-Hurwitz said Ms Smith was joining Mirvac after an extensive internal and external search.
During her extensive 21-year career at Lendlease, Ms Smith has held various roles, most recently as chief financial officer, property Australia.
11.05am: Appen downgrade “unusual”: RBC
RBC analyst Garry Sherriff says the lack of Q4 ramp-up in Appen’s customer demand is unusual given that its big customers had very strong quarterly results recently.
He notes that Facebook, Microsoft, Google, Amazon all beat consensus advertising revenue estimates in their latest results.
Core customers are US technology players who represent 80 per cent of Appen’s revenues and have seen a re-acceleration in their search and advertising revenues in recent quarterly results,” he says.
“It begs the question: is customer behavior changing or also competitive pressures?”
Shares in the the machine learning and artificial intelligence firm says are down 10c after slashing its 2020 earnings guidance by 16pc at the midpoint.
It said COVID has “reshaped the priorities and activities of our customers” and that the usual Q4 ramp-up is not occurring.
While expecting strong growth rates to resume in 2021 amid encouraging new product development trends among major customers, Appen said big tech customers are “reprioritising resources towards new product areas…which is currently impacting work volumes on some large mature projects.”
Ben Wilmot 11.02am: HomeCo REIT in $57m deal
The newly-listed HomeCo Daily Needs REIT has snapped up a Gold Coast shopping centre for $57m as it continues to expand its Australian portfolio.
Having made its ASX debut last month, the $800m REIT is seeking to further expand its portfolio of 18 assets, anchored by food, health and medical and large format retailers.
The latest purchase is the Coomera City Centre in the Gold Coast suburb of Upper Coomera that was offloaded by a private vendor.
CBRE’s Queensland Retail Investment’s team of Joe Tynan and Michael Hedger negotiated the off-market sale.
“The deal highlights the strong investor demand for neighbourhood shopping centre investments, particularly those that offer a secure income profile with good rental growth and a tenancy mix skewed towards non-discretionary retail,” Mr Hedger said.
Sitting at 1 Commercial Street, the Coles-anchored centre comprises 29 specialty tenants, including pad sites. It offers a long, 7.5-year lease term, underpinned by a 4,000sq m Coles on an initial lease term until 2033, with two further ten-year option periods.
Perry Williams 10.56am: Australia may lose LNG exporter crown
Australian energy producers are tipped to sign off on $US11bn ($14.8bn) of gas projects in 2021 but the long-term prospects for the country to remain the world’s top LNG exporter look shaky as renewables and energy shortage erode demand for the fossil fuel.
Three major gas developments - Woodside Petroleum’s Scarborough field offshore Western Australia, Santos’ Barossa field in northern Australia and the Beach-Mitsui Waitsia prospect in WA are all expected to be signed off next year, consultancy Wood Mackenzie said.
“After doing everything possible to tighten belts this year, Australian operators will open their wallets and start spending. The backlog of final investment decisions will begin to clear as a fresh round of projects are sanctioned. But for this to occur, there has to be continuing improvement in the macro-environment and prices trending up,” WoodMac senior analyst Daniel Toleman said.
Billionaire Andrew Forrest is also expected to sanction Australia’s first LNG import terminal at Port Kembla in NSW in 2021.
A raft of assets are up for sale including Chevron’s stake in the North West Shelf LNG plant and BHP’s share of the Bass Strait fields. However, the appetite is less clear.
“Wood Mackenzie expects at least one significant LNG or infrastructure asset to change hands. However, many assets will remain on the market as the bid-ask spread cannot be closed and buyers struggle to move past the abandonment liabilities and complicated joint ventures,” Mr Toleman said.
Santos’s Moomba carbon capture and storage project will also fail to be sanctioned next year due to regulatory hurdles.
More broadly, Australia may fall down the list of major LNG exporters with WoodMac predicting 77 per cent of global new LNG supply is at risk under a two-degree climate change scenario.
Renewables, energy storage and hydrogen will all take a slice of the gas market in the next few decades.
Ben Wilmot 10.54am: APN Industria in $92m asset play
The APN Industria REIT has bought three warehouses at Adelaide Airport for $29.6m and a property in Stapylton, Queensland, for $62.5m, in a final burst of expansion in the listed property sector this year.
The trust has also joined the ranks of equity raisings in the area, following Abacus Property Group and an APN-run sister trust that invests in convenience retail, which each tapped the market.
Industria undertook a fully underwritten $35m institutional placement at an issue price of $2.86 per new security and will also launch a non-underwritten $5m security purchase plan.
Industria bought the flexible warehouses on a blended initial yield of 7.2 per cent and they benefit from average annual rent reviews of 2.9 per cent.
They are underpinned by a 3.1 year weighted average lease term, giving the fund opportunities to add value over the medium term.
Industria said that positive momentum continued across Industria’s existing portfolio, with 24,900sq m leased in fiscal 2021 to date driving independent valuation uplifts of $19.6m.
The uplifts represent a 4.3 per cent increase on prior book values for the 55 per cent of the portfolio that was revalued as at the end of December.
10.45am: IGO’s lithium buy a game-changer: CS
Credit Suisse has upgraded IGO to Outperform and raised its target price 22pc to $6.00, saying its acquisition of an effective 25pc stake in the Greenbushes lithium mine - the world’s biggest - and a 49pc stake in downstream Kwinana Lithium Hydroxide processing plant for $US1.4bn ($1.9bn), is a “game changer.”
Analyst Nick Herbert sees many reasons to like the deal, not least of which is the fact that IGO is transacting at the bottom of the cycle from a forced seller, and buying into a sector with a strong structural growth thematic.
It removes the uncertainty around M&A which has been a major risk up to this point, since IGO could have deployed capital into an unknown and unquantifiable venture and also addresses its portfolio mine life deficiency, avoiding the increased risk profile and likely multiple de‐rate in becoming a single asset miner with limited life, a scenario he argues IGO would have faced on selling Tropicana. IGO also gets a stake in the leading global hardrock lithium deposit in all respects ‐ scale, grade, cost, growth potential.
And it’s buying into established intellectual property and proven operating capability in its effective operating partners with the lithium heavyweights ‐ Tianqi and Albemarle.
Mr Herbert also likes the fact that it’s a fully integrated lithium hydroxide production, maximizing margin potential across the supply chain.
Plus the deal is attractively priced, in his view. Under a scenario of ramped‐up 2025 production, “normalised” lithium pricing, and IGO’s value attribution among the assets, the acquisition prices Greenbushes at 8.0 times EV/EBITDA and Kwinana at 3.3 times.
“These multiples are below global peers around 7-8 times, while also inherently conservative in that they are based on committed near term expansions, not long term expansion aspirations supported by resource, offering further earnings and value accretion,” Mr Herbert says.
10.27am: ASX lower after US falls, tech selloff
Australia’s sharemarket slipped after Wall Street lost ground amid gridlock on US fiscal stimulus talks and a selloff in tech stocks.
The S&P/ASX 200 was down 0.3pc at 6712 after falling 0.4pc to 6703.5 in early trading.
The index was on track to end a seven-day winning streak, during which it rose 3.2pc.
Appen dived as much as 12pc after slashing its guidance for FY20 underlying earnings by 16pc at the midpoints.
The fall in Appen combined with broad weakness in the Tech sector made it the worst performer in line with a selloff in US tech stocks overnight.
Gold miners suffered from a weaker spot price with Saracen and Northern Star both down almost 5pc and Evolution down 3.5pc.
The selloff in gold miners saw the Materials sector underperform, but iron ore miners were mixed, with Fortescue Metals up 1.1pc and BHP down 0.3pc.
Energy stocks also underperformed with Woodsdie down 1.3pc and Santos down 1.6pc.
Scentre fell 1.4pc after Macquarie downgraded and Magellen lost 2.4pc after Credit Suisse downgraded, but Perpetual rose 3.8pc as Credit Suisse upgraded.
Banks outperformed with CBA up 1pc and NAB up 0.9pc.
9.58am: Appen slashes earnings guidance
Appen has cut its guidance for FY20 underlying EBITA - including the impact of the stronger Australian dollar - to a range of $106m-$109m, versus $125m-$130m forecast in August.
That’s a massive 16pc downgrade at the midpoint and should hit the share price today.
“November results, just finalised, show that while Q4 has improved on Q3 the usual ramp up we traditionally see at this time of year is not occurring,” the machine learning and artificial intelligence firm says.
“COVID has clearly disrupted and reshaped the priorities and activities of our customers, especially in California, the home of our biggest customers, where pandemic lockdowns have recently intensified. It has also impacted our face-to-face sales and customer engagement practice.”
9.40am: ASX set to open lower, winning run at risk
Australia’s sharemarket may end a seven-day winning streak after Wall Street suffered from US fiscal stimulus gridlock.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 0.5pc at 6695.
But chart support may be close at the November peak at 6713.
The S&P 500 fell 0.8pc after US Senate Majority Leader Mitch McConnell said Democrats “poured cold water” on his offer to set aside some issues in an aid bill and rebuffed US Treasury Secretary Steven Mnuchin’s US$916bn proposal.
The Nasdaq fell 1.9pc , with Tesla down 7pc after JPMorgan said the electric-car maker is “dramatically” overvalued, while Facebook was down 1.9pc after the US Federal Trade Commission and states filed an antitrust lawsuit, accusing it of destroying its competitors through monopolistic practices.
Zoom Video shares dived 6.5pc after JPM cut its rating to Neutral. And food delivery tech service, DoorDash shares surged as much as 92pc on its trading debut.
There’s also still hope of a breakthrough on US fiscal stimulus. After the US close, Mr Mnuchin said fiscal talks with Democrats “are quite constructive.”
The S&P/ASX 200 hit a 9-month high of 6745.3 on Wednesday and closed up 0.6pc at 6728.5, which was a nine-month high on a daily closing basis.
It rose each of the past seven days, adding 3.2pc, in its first seven-day winning streak since the 7 days ending October 13.
9.02am: Immutep ADRs surge on trial results
Immutep ADRs more than doubled to $US5.10 a share in after-hours trading after reporting “encouraging” survival data from its lead cancer treatment eftiligimod alpha in combination with paclitaxel chemotherapy.
The biotech company reported a statistically significant survival benefit for a key patients group in its ongoing Phase 11b AIPAC study in metatastic breast cancer.
It’s the first time an antigen presenting cell (APC) activator has shown an overall survival (OS) benefit in a randomised setting in metastatic breast cancer patients known to be insensitive to immune checkpoint inhibitor therapy, the company says.
It notes a “promising and improving overall trend in OS in total population - based on approximately 60 per cent of events - with a median survival benefit of 2.7 months from efti plus chemotherapy, compared to chemotherapy plus placebo.
The data were selected to be presented in a spotlight presentation at the San Antonio Breast Cancer Symposium 2020, which is being held virtually this week from Texas, USA.
8.40am: What’s impressing analysts?
BHP PLC Cut to Speculative Buy: SBG Securities
Beach Energy started at Buy; $2.29 price target: Bell Potter
Corporate Travel cut to Neutral: JPM
Healius resumed at Equal-Weight: JPM
IGO raised to Outperform: Credit Suisse
JB Hi-Fi raised to Hold: Bell Potter
Magellan Financial cut to Neutral: Credit Suisse
Perpetual raised to Outperform: Credit Suisse
Stockland raised to Hold: Morningstar
Webjet cut to Underweight: JPM
Infratil cut to neutral: price target raised 18pc to $6.83: Macquarie
BWX started at Outperform; $4.65 price target: Macquarie
Incitec Pivot raised to Outperform: Macquarie
GUD Holdings raised to Outperform: Macquarie
Scentre Group cut to Underperform: Macquarie
PSC Insurance started at Outperform; $3.60 price target: Macquarie
8.30am: Link allows SS&C due diligence
Link Administration says the conditional and non-binding $5.65 a share takeover proposal from SS&C Technology Holdings proposal doesn’t represent compelling value.
However the board has given SS&C data room access on a non-exclusive basis so that it can “develop a proposal that may be capable of being recommended to shareholders.”
But there’s no certainty that such a proposal will eventuate, Link says in an ASX statement.
At $5.56 a share, the market may not be pricing in enough risk surrounding this bid.
Link last month granted virtual dataroom access to a private equity consortium interested in acquiring the firm after it raised its offer following Link’s rejection of its initial approach.
8.30am: ASX set to snap winning streak
Australian stocks are set to open lower, after seven days of rises, as US stocks turned down amid disagreements over a stimulus package.
Shortly after 8am (AEDT) the SPI futures index was down 25 points, or 0.4 per cent.
Yesterday the ASX rose 0.6 per cent to a nine-month high close of 6728.5 points, capping a seven-day winning streak amid a crescendo of takeover activity and sharemarket floats.
The Australian dollar was higher at US74.38c.
Iron ore has continued its rise, up 0.5 per cent to $US150.75 a tonne.
8.25am: JPM sees ‘nirvana’ for shares
US equities will have one of the best backdrops for sustained gains next year, according to JP Morgan.
“We expect a ‘market nirvana’ scenario for equities with the melt-up continuing into 1H21, driven by earnings recovery and multiple expansion,” says the US investment bank’s chief US equity strategist, Dubravko Lakos-Bujas.
After a prolonged period of elevated risks from a global trade war, the COVID-19 pandemic and US election uncertainty, the outlook is clearing with the business cycle expanding and risks diminishing.
JPM sees the S&P 500 hitting 4,400 in 2021 - 20 per cent above Thursday’s closing price – with most of that rise expected to be “front-loaded” into the first six months of the year.
8.15am: Wall Street down amid stimulus talks
US stocks dropped as investors watched the Congressional back-and-forth on fresh fiscal stimulus spending.
The Dow Jones Industrial Average fell 127 points, or 0.4 per cent. The S&P 500 slipped 0.8 per cent a day after the benchmark notched its 30th record close for this year. The technology-heavy Nasdaq Composite lost 1.9 per cent.
All three indexes have traded at record levels in recent sessions as investors bet on an economic recovery in 2021. Some said a pause in the rally wasn’t a surprise.
Investors are optimistic Congress will pass another coronavirus relief package to bolster the economic recovery as rising infections prompt restrictions on social and business activity. The size of the package, though, is a critical point. The Trump administration proposed a $US916 billion package on Tuesday after Democrats rejected an effort by Senate Majority Leader Mitch McConnell to narrow the scope of the bill.
A group of lawmakers was working on a compromise that addressed issues including distribution of aid to state and local governments and legal protections for companies operating during the pandemic.
Congressional action is a key part of the larger bid to support the economy, said Stifel strategist Barry Bannister.
Ultimately, what the Fed and Congress want and the market needs is a self-sustaining recovery, he said. But that could take longer than expected. “The sky’s not falling, but there are definitely some dark clouds,” he said.
Lawmakers appear to be facing pressure to offer aid to those who have been hardest hit by the pandemic as infection levels and hospitalizations rise across the country. The US reported more than 215,000 new cases for Tuesday. Some states have introduced fresh restrictions, triggering concern that the economic recovery could falter in the winter months.
“That deterioration in the medical situation is putting more pressure to get something done,” Hugh Gimber, a strategist at J.P. Morgan Asset Management. “The market is more hopeful, with the election out of the way, that compromise will be easier to find.”
Overseas, the pan-continental Stoxx Europe 600 rose 0.3 per cent. The British pound lost its early gains, and was down less than 0.1 per cent against the dollar.
Dow Jones Newswires
7.55am: Michael Hill upbeat after Covid
Jeweller Michael Hill International says it expects to post a rise in first half earnings, despite the impact of the coronavirus on trade.
In a trading update, Michael Hill said it continued to deliver growth in both same store sales and gross margin for the October and November period.
Same store sales for the 22-week period to November were up 7.9pc against last year, and up 8.5pc in October and November, compared to the same period last year.
Michael Hill also said margins had improved and digital sales had lifted significantly. Online sales rose 110pc in the 22-week period.
Concerns remained about further COVID-19 outbreaks, it said.
But it added: “Despite temporary store closures and ongoing foot traffic impacts on the key Christmas trading period, it is currently anticipated the company is likely to deliver an EBIT result for FY21H1 materially exceeding the prior year half one result.”
6.46am: US government, states file antitrust suits against Facebook
US federal and state antitrust enforcers filed suit against Facebook claiming the social media giant abused its dominant position with its acquisitions of messaging services Instagram and WhatsApp.
Separate suits filed by the Federal Trade Commission and a coalition of state officials called for the divestment of Instagram and WhatsApp, services which have billions of users and are part of the Facebook “family” of applications.
“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,” said Ian Conner, director of the FTC’s Bureau of Competition.
“Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”
AFP
6.00am: Gold in first fall in three sessions
Gold futures settled lower, with a rise in Treasury yields and the likelihood that the US will soon be able to roll out a COVID-19 vaccine prompting the haven metal to post its first loss in three sessions.
February gold fell $US36.40, or 1.9pc, to settle at $US1838.50 an ounce.
Dow Jones
5.25am: Wall St turns lower as investors eye stimulus talks
US stocks dropped as investors watched the Congressional back-and-forth on fresh fiscal stimulus spending.
In early afternoon trade the Dow Jones Industrial Average fell 85 points, or 0.3 per cent. The S&P 500 slipped 0.5 per cent a day after the benchmark notched its 30th record close for this year. The technology-heavy Nasdaq Composite lost 1.1 per cent.
All three indexes have traded at record levels in recent sessions as investors bet on an economic recovery in 2021. Some said a pause in the rally wasn’t a surprise.
Investors are optimistic Congress will pass another coronavirus relief package to bolster the economic recovery as rising infections prompt restrictions on social and business activity. The size of the package, though, is a critical point. The Trump administration proposed a $US916 billion package on Tuesday after Democrats rejected an effort by Senate Majority Leader Mitch McConnell to narrow the scope of the bill.
A group of lawmakers was working on a compromise Wednesday that addressed issues including distribution of aid to state and local governments and legal protections for companies operating during the pandemic.
Congressional action is a key part of the larger bid to support the economy, said Stifel strategist Barry Bannister.
Ultimately, what the Fed and Congress want and the market needs is a self-sustaining recovery, he said. But that could take longer than expected. “The sky’s not falling, but there are definitely some dark clouds,” he said.
Politicians appear to be facing pressure to offer aid to those who have been hardest hit by the pandemic as infection levels and hospitalisation rise across the country. The U.S. reported more than 215,000 new cases for Tuesday. Some states have introduced fresh restrictions, triggering concern that the economic recovery could falter in the winter months.
Tesla shares slipped 3.7 per cent, a day after the company announced plans to sell up to $US5 billion in stock and founder Elon Musk said he had moved to Texas from California for what he feels is a more supportive environment for entrepreneurs.
Overseas, the pan-continental Stoxx Europe 600 rose 0.3 per cent. The British pound lost its early gains, and was down less than 0.1 per cent against the dollar.
Investors are cautiously optimistic that the U.K. and European Union may strike a trade deal soon. British Prime Minister Boris Johnson is scheduled to talk face-to-face with European Commission President Ursula von der Leyen over dinner in Brussels.
Trading in Asia was mixed. China’s Shanghai Composite Index fell 1.1 per cent, while South Korea’s Kospi advanced 2 per cent and Japan’s Nikkei 225 rose 1.3 per cent.
Dow Jones Newswires
5.15am: Unibail-Rodamco-Westfield names new CFO
Unibail-Rodamco-Westfield SE said its supervisory board has named Fabrice Mouchel as chief financial officer and management-board member, effective January 5.
The ASX-listed commercial-property company said Mr. Mouchel will replace Jaap L. Tonckens, who will leave the company and retire.
Mr. Mouchel is currently group finance director and chief financial officer Europe, as well as a member of the company’s senior management team.
Unibail-Rodamco-Westfield plans to announce further changes related to its management board “at a later date.”
Dow Jones Newswires
5.10am: European stocks mostly higher
US stocks came off record highs following new disagreements on an economic stimulus package, but Europe mostly rose as a high-level meeting on a post-Brexit deal was set to take place.
Late Tuesday, the White House had put forward a fresh stimulus proposal of $US916 billion, lifting hopes US lawmakers could pass a deal before Christmas.
That helped the S&P 500 push higher off a record close as trading got underway and the Dow hit a new intraday record, but the rally quickly ran out of steam and all three major indices were down in late morning trade.
“Some of yesterday’s optimism about a Washington stimulus package has abated, and of course the ongoing rise in virus cases is also crimping sentiment, but there is a feel of ‘consolidation’ rather than ‘sell-off’ about the early trading on Wall Street,” said Chris Beauchamp, chief market analyst at online trading firm IG.
The details in the White House offer quickly drew opposition from leading Democrats. While the White House package includes new stimulus cheques, they are half the amount of checks sent out to Americans earlier this year and it has little money for additional unemployment benefits.
Analyst David Madden said “an agreement doesn’t seem likely in the near-term,” after the head of Republicans in the Senate accused Democrats of shifting positions.
Focus in Europe was also heavily on Brexit.
British Prime Minister Boris Johnson has flown to Brussels for talks with EU chief Ursula von der Leyen, just weeks ahead of the December 31 deadline for a post-Brexit trade deal.
“The future trading relationship between the UK and the EU remains in focus and even though the situation is not looking overly optimistic at the moment, stock markets in Europe are a little higher,” said Madden.
London and Frankfurt ended the day with gains, while Paris slipped. Britain made a gesture of good faith by withdrawing controversial elements of a legislative package concerning the future border in Ireland.
AFP
5.00am: White House relief plan includes $US600 cheques
A White House-backed proposal to provide more aid to the ailing US economy includes $US600 in direct payments to Americans but has little support among Democrats, a prominent senator said Wednesday.
Treasury Secretary Steven Mnuchin has unveiled the $US916 billion proposal that represents the latest attempt to break a long-running deadlock between Republicans and Democrats in Washington on a new spending package to revive the coronavirus-wracked US economy.
Senator Bernie Sanders, an independent who votes with Democrats and is influential among the party’s left wing, on Wednesday rejected the stimulus cheque proposal was too small and called the plan “unacceptable.” “What the Republicans are proposing is grossly unsatisfactory,” he said in an interview with MSNBC.
“That is unacceptable, and we cannot leave here unless we get $US1,200 for every worker, and we get extended unemployment and we get adequate aid to states and cities. This country is facing a crisis, we have got to respond accordingly.”
Mnuchin said his plan includes “money for state and local governments and robust liability protections for businesses, schools and universities” and the Treasury Department has not provided any additional details.
Democratic House Speaker Nancy Pelosi and top Senate Democrat Chuck Schumer seemed little moved by the idea, indicating they wanted to focus on a $US908 billion bipartisan compromise put forward last week that is making its way through the legislature.
They released a statement saying it was “unacceptable” that the White House offer only includes $US40 billion for unemployment insurance.
AFP
4.50am: UK says to drop retaliatory EU tariffs on US goods
Britain said it will drop EU tariffs on US goods adopted as part of a long-running dispute over subsidies for aircraft manufacturers Airbus and Boeing, just as London hopes to secure a post-Brexit trade agreement with Washington.
US President Donald Trump had last year imposed 25 per cent tariffs on wine, cheese, olives and other European delicacies in a battle over subsidies to plane maker Airbus.
The EU responded recently with its own round of tariffs on imports of US some farm produce, including wheat and tobacco plus strong alcohol and chocolate, after the World Trade Organisation faulted Washington over state aid for Boeing.
But Prime Minister Boris Johnson’s government has now decided to suspend the measures from January 1, when Britain leaves the European customs union and single market.
AFP
4.40am: Boeing 737 MAX returns to sky
More than 20 months after it was grounded following two deadly crashes, Boeing’s 737 MAX returned to the skies with a commercial flight in Brazil, said AFP journalists on board.
Low-cost airline Gol’s Flight 4104 from Sao Paulo to the southern city of Porto Alegre took off using the revamped jet in a first that Boeing hopes will turn the page on a badly damaging crisis in the wake of the 2018 and 2019 crashes, which killed a total of 346 people.
It later landed safely.
Most passengers aboard the 88-per cent booked flight took little notice of the model number printed on the plane’s nose, and Gol made no fanfare for the occasion.
“Good to know,” a passenger said when told by an AFP journalist that the flight would be the first to use the 737 MAX since its worldwide grounding in March 2019.
“If it’s here, that must mean it’s safe, right?” said the man, who asked that his name not be used.
The pilot -- one of 140 at Gol who received special updated training in the United States on the overhauled jet -- flashed a thumbs-up from the cockpit window as passengers boarded the plane.
Crew told AFP they were moved to be involved in such a key moment for the airline industry, which has been battered not only by a crisis in confidence in Boeing but by the upheaval of the coronavirus pandemic.
AFP
4.35am: Rio inquiry urges restitution
Rio Tinto PLC should compensate an Australian indigenous group over the destruction of two ancient rock shelters, an inquiry has found, while calling for an end to the secrecy over how miners secure land access.
Australian lawmakers have been investigating the destruction of the caves at Juukan Gorge in the north west of the country on May 24, which cost Rio Tinto’s chief executive his job and damaged the mining industry’s reputation more broadly.
On Wednesday, lawmakers recommended Rio Tinto negotiate a restitution package with the traditional owners of the site, the Puutu Kunti Kurrama and Pinikura people, or PKKP. They also urged Rio Tinto and its western Australian peers to end the use of gag clauses in land-use agreements that have stopped Aboriginal groups from speaking out against mining operations.
The inquiry has the potential to reboot the relationship between indigenous communities and miners, which rank among Australia’s biggest companies.
More Coverage
ASX 200 ends up 1.4pc on US rebound; CBA still tips Feb rate cut; Zip rises
Economists divided over Feb rate cut forecast after 56,000 jobs boost. Rio rises after 'good finish' to 2024. Zip jumps after Sezzle earnings upgrade. Star edges up. Softer US core inflation boosts equity sentiment.
ASX 200 ends down 0.2pc; WiseTech sold off; Premier, Myer build on losses; Arafura soars
WiseTech shares dive on heavy volume amid suspected institutional selling.Independent expert backs Premier, Myer deal after recalculations. Billionaire Rinehart-backed Arafura gets fresh Labor buy-in. Macquarie to invest in US data centres. Cash-strapped Star ticks up amid Macau intrigue. Billionaire's takeover interest fires up AVJennings.