Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Prosus/Naspers, Wilmar, Invesco Office, Boral, Honshu Chem, Crown Resorts

After completing the $1.3bn sale of its 50% stake in USG Boral to Knauf Gips KG, international building and construction materials play <a href="https://www.smartkarma.com/entities/boral-ltd" target="_blank" data-smartkarma-citation="entities:1487:1" rel="noopener">Boral Ltd (BLD AU)</a> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02359742-2A1290439?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> on April 1 it would use the proceeds to reduce net debt to A$1.5bn from A$1.9bn, and apply the remaining proceeds to commence a buyback.
Boral aims to buy up to 10% of shares out, or ~122mn shares, at a cost of A$670mn based on the then-prevalent share price. CEO Zlato Todorcevski said: “we believe that an on-market buy-back is the most effective method of returning this surplus capital to our shareholders.”
As of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02372944-2A1297240?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">this morning</a>, Boral had bought back ~10.15mn shares.
<h3>The New News</h3>
After the close of trading today, <a href="https://www.smartkarma.com/entities/seven-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:803:1" rel="noopener">Seven Group Holdings (SVW AU)</a> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02373310-2A1297476?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> an off-market takeover at $6.50, a nil premium to last close.
There are essentially no conditions to this Offer. There is no minimum acceptance condition. 
Seven currently holds ~23.18% and would be "satisfied" for the Offer to result in a holding of around 30%. 
The Offer is expected to open on May 25 and close on June 25, unless extended.
It's a strange Offer, one that Boral's board will likely reject.
More below the fold.

After completing the $1.3bn sale of its 50% stake in USG Boral to Knauf Gips KG, international building and construction materials play Boral Ltd (BLD AU) announced on April 1 it would use the proceeds to reduce net debt to A$1.5bn from A$1.9bn, and apply the remaining proceeds to commence a buyback.
Boral aims to buy up to 10% of shares out, or ~122mn shares, at a cost of A$670mn based on the then-prevalent share price. CEO Zlato Todorcevski said: “we believe that an on-market buy-back is the most effective method of returning this surplus capital to our shareholders.”
As of this morning, Boral had bought back ~10.15mn shares.
The New News
After the close of trading today, Seven Group Holdings (SVW AU) announced an off-market takeover at $6.50, a nil premium to last close.
There are essentially no conditions to this Offer. There is no minimum acceptance condition. 
Seven currently holds ~23.18% and would be "satisfied" for the Offer to result in a holding of around 30%. 
The Offer is expected to open on May 25 and close on June 25, unless extended.
It's a strange Offer, one that Boral's board will likely reject.
More below the fold.

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Seven Group Holdings / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/seven-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:803:1" rel="noopener">Seven Group Holdings (SVW AU)</a> aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide more financing flexibility. The stock has done well over the past few years but is now trading close to its all time highs.

Seven Group Holdings (SVW AU) aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide more financing flexibility. The stock has done well over the past few years but is now trading close to its all time highs. 

Seven Group Holdings Placement - Good Track Record but Still a Large Deal to Digest

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Time to remove the upper market cap limit as risk increases.<ul>
<li>
Our screen from this quarter onwards is for all stocks<a href="applewebdata://17FB2464-550F-48C5-BBBA-E248B1412D29#_ftn1" target="_blank" rel="noopener">[1]</a> above a market capitalisation of US$500m as we now encounter possibly one of the riskier periods in our market history. With this in mind, we have removed our Small-Mid Cap focus (US$500m-US$10bn market capitalisation) from our screens. </li>
<li>
21 stocks appear in our Q3 2020 screen. The average stock rank in our list has maintained a ranking of 63.5 points compared to 68 in Q2 2020 placing the stocks lower in the second quartile of the market, suggesting deteriorating fundamentals and a strong possibility of lagging performance.</li>
<li>
As we highlighted in Q1, watch for the risk of deteriorating credit metrics over 2020: In Q3, the Altman Z score is at a market-cap-weighted 1.44 times, versus 1.31 in Q2. Whilst marginally improved, since earnings continue to be adjusted by analysts and there is limited visibility of their bottoming, the potential for a lower Z score in Q4 2020 and H1 2021is increased.</li>
</ul>

Time to remove the upper market cap limit as risk increases.

Our screen from this quarter onwards is for all stocks[1] above a market capitalisation of US$500m as we now encounter possibly one of the riskier periods in our market history. With this in mind, we have removed our Small-Mid Cap focus (US$500m-US$10bn market capitalisation) from our screens. 

21 stocks appear in our Q3 2020 screen. The average stock rank in our list has maintained a ranking of 63.5 points compared to 68 in Q2 2020 placing the stocks lower in the second quartile of the market, suggesting deteriorating fundamentals and a strong possibility of lagging performance.

As we highlighted in Q1, watch for the risk of deteriorating credit metrics over 2020: In Q3, the Altman Z score is at a market-cap-weighted 1.44 times, versus 1.31 in Q2. Whilst marginally improved, since earnings continue to be adjusted by analysts and there is limited visibility of their bottoming, the potential for a lower Z score in Q4 2020 and H1 2021is increased.


Screening the Silk Road: Q3 2020 High Risk Names to Avoid

<ul>
<li>
Deteriorating credit metrics continue to support our view that the level of risk is increasing within the small-mid cap universe. </li>
<li>
Our screen looks for high valuation multiples presented by candidates with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. Therefore, with the credit markets pointing towards high yield stress, this screen becomes highly relevant.</li>
<li>
15 stocks appear in our Q2 2020 screen. The average stock rank in our list has decreased to 67.5 from 72.1 points since early March 2019. The reduction reflects some of the continued bearish moves in recent weeks within the Asian Universe. We, therefore, feel, as highlighted in other recent commentary, that the market is currently undergoing a defined separation of Quality, Value and relative Momentum.</li>
</ul>



Deteriorating credit metrics continue to support our view that the level of risk is increasing within the small-mid cap universe. 

Our screen looks for high valuation multiples presented by candidates with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. Therefore, with the credit markets pointing towards high yield stress, this screen becomes highly relevant.

15 stocks appear in our Q2 2020 screen. The average stock rank in our list has decreased to 67.5 from 72.1 points since early March 2019. The reduction reflects some of the continued bearish moves in recent weeks within the Asian Universe. We, therefore, feel, as highlighted in other recent commentary, that the market is currently undergoing a defined separation of Quality, Value and relative Momentum.


Screening the Silk Road: Q2 2020 Small-Mid Cap High Risk Names to Avoid

Australia

Seven Group Holdings Ltd. is a diversified operating and investment group. The Groups interests include media holdings that include Seven Network, a commercial television network and publishing company, a telecommunications company, and a heavy equipment dealer that operates  Caterpillar dealerships in Australia and North Eastern China.

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Seven Group Holdings (SVW AU)

Last Week in Event SPACE: Prosus/Naspers, Wilmar, Invesco Office, Boral, Honshu Chem, Crown Resorts

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Boral Ltd (BLD AU): Seven's Nil Premium

An interested large investor looking to raise its stake, coupled with a solid buyback - if you can buy shares at or near the Offer price, do so....

David Blennerhassett

Seven Group Holdings Placement - Good Track Record but Still a Large Deal to Digest

Seven Group Holdings (SVW AU) aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide...

Sumeet Singh

Screening the Silk Road: Q3 2020 High Risk Names to Avoid

Time to remove the upper market cap limit as risk increases. Our screen from this quarter onwards is for all stocks[1] above a market...

David Lepper

Screening the Silk Road: Q2 2020 Small-Mid Cap High Risk Names to Avoid

Deteriorating credit metrics continue to support our view that the level of risk is increasing within the small-mid cap universe. Our screen...

David Lepper

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