Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Commonwealth Bank of Australia / Equity Bottom-Up

<ul>
<li>CBA reported modestly weaker FY 1H22 cash results from continuing operations of AUD 30.5 bn, which attributed primarily to a 77.1% decline in loss provision reversals; </li>
<li>Despite the poor result, CBA has chosen to pull on numerous earnings levers to make even these numbers; and </li>
<li>While credit has improved, reserves will need to be buttressed as we head into a period of higher interest rates.   </li>
</ul>


CBA reported modestly weaker FY 1H22 cash results from continuing operations of AUD 30.5 bn, which attributed primarily to a 77.1% decline in loss provision reversals; 
Despite the poor result, CBA has chosen to pull on numerous earnings levers to make even these numbers; and 
While credit has improved, reserves will need to be buttressed as we head into a period of higher interest rates.   


Commonwealth Bank of Australia – Pulling On All Earnings Levers

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>Dye &amp; Durham/DND’s base (A$5.50 cash per share) + A$0.03 per share interim dividend offer of A$5.53 per share, a 27.7% premium to the unaffected price of A$4.33 (4 November). </li>
<li>At <a href="https://www.smartkarma.com/entities/pexa-group-ltd" target="_blank" data-smartkarma-citation="entities:34716:1" rel="noopener">PEXA Group (PXA AU)</a> last close, <a href="https://www.smartkarma.com/entities/carlyle-group-inc" target="_blank" data-smartkarma-citation="entities:33402:1" rel="noopener">Carlyle Group Inc (CG US)</a>’s offer is worth A$5.51 per share. Carlyle’s long interest in Link suggests that it could improve its offer. </li>
<li>We think that the DND offer is reasonable in the context of historical multiples. Nevertheless, there is a good probability that Carlyle tries to regain the upper hand.</li>
</ul>


Dye &amp; Durham/DND’s base (A$5.50 cash per share) + A$0.03 per share interim dividend offer of A$5.53 per share, a 27.7% premium to the unaffected price of A$4.33 (4 November). 
At PEXA Group (PXA AU) last close, Carlyle Group Inc (CG US)’s offer is worth A$5.51 per share. Carlyle’s long interest in Link suggests that it could improve its offer. 
We think that the DND offer is reasonable in the context of historical multiples. Nevertheless, there is a good probability that Carlyle tries to regain the upper hand.


<a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration Holdings (LNK AU)</a> announced that it received a non-binding indicative proposal from <a href="https://www.smartkarma.com/entities/carlyle-group-inc" target="_blank" data-smartkarma-citation="entities:33402:1" rel="noopener">Carlyle Group Inc (CG US)</a>. Carlyle will offer A$3.00 cash per share plus a pro-rata distribution of Link’s 42.8% shareholding in <a href="https://www.smartkarma.com/entities/pexa-group-ltd" target="_blank" data-smartkarma-citation="entities:34716:1" rel="noopener">PEXA Group (PXA AU)</a> (worth A$2.38 per Link share at PEXA’s share price of A$16.23 on 4 November). The total consideration of A$5.38 per share is a 24.2% premium to the unaffected price of A$4.33 (on 4 November). Carlyle’s core Link (excluding PEXA stake) value of A$3.00 per share is a 53.8% premium to the implied core Link share price of A$1.95 per share (on 4 November). Link is no stranger to bids and received several bids in the recent past, including from Carlyle. Carlyle and Pacific Equity Partners made an indicative A$5.20 per share offer on 12 October 2020, which was later raised to A$5.40 on 26 October but withdrawn on 28 April 2021. <a href="https://www.smartkarma.com/entities/ss-c-technologies-holdings" target="_blank" data-smartkarma-citation="entities:3464:1" rel="noopener">SS&amp;C Technologies (SSNC US)</a> lobbed an A$5.65 per share offer on 7 December 2020 but withdrew the offer on 3 January 2021. Also, <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/domain-holdings-australia-ltd" target="_blank" data-smartkarma-citation="entities:26033:1" rel="noopener">Domain Holdings Australia (DHG AU)</a> proposed to acquire PEXA for A$3.1 billion on 27 May 2021 which was declined in favour of a separate listing for PEXA.  Link’s Board has argued that the previous bids did not represent compelling value and sought to generate shareholder returns through the PEXA IPO and outlining ambitious FY26 targets in a November investor day. However, PEXA’s market cap of A$2.8 billion at last close is below KKR’s bid of A$3.1 billion. The lukewarm share price response (shares down -2% on the following day) to the investor day points to low confidence that the targets can be reached. Carlyle’s latest offer is subject to due diligence, execution of transaction documents and securing debt financing. Due diligence should be short due to Carlyle’s access to the due diligence materials through its previous bid.  <div class="content-highlight">The Board’s previous track record of knocking back bids has resulted in Link’s last close price of A$4.70 trading at a wide 14.5% gross spread to the indicative offer of A$5.38 per share. However, due to the Board’s failure to generate shareholder value and there no longer being a debate on PEXA valuation (as PEXA is now listed), the Board will face pressure to engage with Carlyle. We also think that Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00 per share, which is 21% below its previous offer which valued core Link at A$3.80 per share. </div>

Link Administration Holdings (LNK AU) announced that it received a non-binding indicative proposal from Carlyle Group Inc (CG US). Carlyle will offer A$3.00 cash per share plus a pro-rata distribution of Link’s 42.8% shareholding in PEXA Group (PXA AU) (worth A$2.38 per Link share at PEXA’s share price of A$16.23 on 4 November). The total consideration of A$5.38 per share is a 24.2% premium to the unaffected price of A$4.33 (on 4 November). Carlyle’s core Link (excluding PEXA stake) value of A$3.00 per share is a 53.8% premium to the implied core Link share price of A$1.95 per share (on 4 November). Link is no stranger to bids and received several bids in the recent past, including from Carlyle. Carlyle and Pacific Equity Partners made an indicative A$5.20 per share offer on 12 October 2020, which was later raised to A$5.40 on 26 October but withdrawn on 28 April 2021. SS&amp;C Technologies (SSNC US) lobbed an A$5.65 per share offer on 7 December 2020 but withdrew the offer on 3 January 2021. Also, KKR &amp; Co Inc (KKR US) and Domain Holdings Australia (DHG AU) proposed to acquire PEXA for A$3.1 billion on 27 May 2021 which was declined in favour of a separate listing for PEXA.  Link’s Board has argued that the previous bids did not represent compelling value and sought to generate shareholder returns through the PEXA IPO and outlining ambitious FY26 targets in a November investor day. However, PEXA’s market cap of A$2.8 billion at last close is below KKR’s bid of A$3.1 billion. The lukewarm share price response (shares down -2% on the following day) to the investor day points to low confidence that the targets can be reached. Carlyle’s latest offer is subject to due diligence, execution of transaction documents and securing debt financing. Due diligence should be short due to Carlyle’s access to the due diligence materials through its previous bid.  The Board’s previous track record of knocking back bids has resulted in Link’s last close price of A$4.70 trading at a wide 14.5% gross spread to the indicative offer of A$5.38 per share. However, due to the Board’s failure to generate shareholder value and there no longer being a debate on PEXA valuation (as PEXA is now listed), the Board will face pressure to engage with Carlyle. We also think that Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00 per share, which is 21% below its previous offer which valued core Link at A$3.80 per share. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Coca Cola Amatil, Shimachu, AMP, Hitachi, Jardines, Evergrande

Aussie wealth manager <a href="https://www.smartkarma.com/entities/amp-ltd" target="_blank" data-smartkarma-citation="entities:678:1" rel="noopener">AMP Ltd (AMP AU)</a> has <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02301765-2A1260088?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> it has received an indicative, non-binding, conditional proposal from US-based <a href="https://www.smartkarma.com/entities/ares-management-corp" target="_blank" data-smartkarma-citation="entities:28771:1" rel="noopener">Ares Management Corp (ARES US)</a>, by way of a Scheme. No price was mentioned.
The take-private proposal follows a tortuous period for what was once an Australian icon.  The final report of a royal commission last year exposed damaging internal practices - such as billing deceased customers and lying to regulators - culminating in net cash outflow and the exit of Catherine Brenner (chairman) and Brian Salter (group counsel).
Amidst the ongoing net outflow - which has continued into the 3Q20 - chairman David Murray resigned in August over his handling of a sexual harassment issue. Director John Fraser also resigned.
After completing the sale of its life insurance business to Resolution Life on the 1 July this year, AMP's chairman Debra Hazelton announced on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02276147-2A1247501?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">2 September</a> that the company was undertaking a review of its assets and businesses after receiving unsolicited interest in both. It is not clear whether Ares is interested in selected parts or the whole package.
Shares are up 20% as I type.
More below the fold.

Aussie wealth manager AMP Ltd (AMP AU) has announced it has received an indicative, non-binding, conditional proposal from US-based Ares Management Corp (ARES US), by way of a Scheme. No price was mentioned.
The take-private proposal follows a tortuous period for what was once an Australian icon.  The final report of a royal commission last year exposed damaging internal practices - such as billing deceased customers and lying to regulators - culminating in net cash outflow and the exit of Catherine Brenner (chairman) and Brian Salter (group counsel).
Amidst the ongoing net outflow - which has continued into the 3Q20 - chairman David Murray resigned in August over his handling of a sexual harassment issue. Director John Fraser also resigned.
After completing the sale of its life insurance business to Resolution Life on the 1 July this year, AMP's chairman Debra Hazelton announced on the 2 September that the company was undertaking a review of its assets and businesses after receiving unsolicited interest in both. It is not clear whether Ares is interested in selected parts or the whole package.
Shares are up 20% as I type.
More below the fold. 

Australia

AMP Limited provides life insurance, superannuation, asset management products, pensions, retirement planning and other diversified financial services throughout Australia and New Zealand.  The Company services individual customers, small businesses, corporations and associated superannuation funds.

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AMP Ltd (AMP AU)

Commonwealth Bank of Australia – Pulling On All Earnings Levers

CBA: CBA reported modestly weaker FY 1H22 cash result, attributed primarily to a 77.1% decline in provision reversals. Despite the result, CBA did...

Thomas J. Monaco

Link Enters a SID with Dye & Durham

DND’s base + interim dividend offer of A$5.53 per share is a 27.7% premium to the unaffected price of A$4.33. There is a good chance that Carlyle...

Arun George

Link Gets Another Offer from Carlyle

Link received another offer from Carlyle worth A$5.38 per share. Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00...

Arun George

Last Week in Event SPACE: Coca Cola Amatil, Shimachu, AMP, Hitachi, Jardines, Evergrande

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

AMP: Ares' Proposal For The Once Mighty

Private equity firm Ares Management is in talks to buy embattled wealth manager AMP, via a break-up of the 171-year-old company, or full control.

David Blennerhassett

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