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

<h2><strong>Eight new names, SoftBank remains for the 3rd quarter running</strong></h2>
<ul>
<li>
<strong>Our</strong><strong>Q2-2021 All Cap High-Risk screen of stocks produced a market cap-weighted average price decline of 2%</strong>. In comparison, the MSCI Asia Pacific Index posted a decline of 1.7% over the same period. The stock quality of our Q2 2021 decreased 2.4 points or 3.8% over the period. Within the mix of 34 stocks in our Q2 2021 (May) list 19 posted negative performance, with an average decline of 14.1%.</li>
<li>
<strong>At a static number of 34</strong><strong> stocks our Q3 2021 screen, delivers an interesting composition this quarter, </strong>with eight (8) new names and strong representation from Hong Kong in terms of geography and Industrials and Basic Materials from a sector perspective. This suggests that the “reopening of the economy” trade may have run its course for now.</li>
<li><strong>Our Q3 2021 screen shows a further reduction in average stock rank (a reading on relative quality amongst the broad market peers with 100 being the highest) to 61 from 65.18 in Q2 2021.</strong></li>
<li>
<strong>Stock specific focus:</strong> We discuss why SoftBank stands out as a stock that presents with additional risk. We also discuss the fact that whilst there is a high representation of Industrials in the list, within this list, there are several names that may warrant not being too bearish towards.</li>
</ul>

Eight new names, SoftBank remains for the 3rd quarter running


OurQ2-2021 All Cap High-Risk screen of stocks produced a market cap-weighted average price decline of 2%. In comparison, the MSCI Asia Pacific Index posted a decline of 1.7% over the same period. The stock quality of our Q2 2021 decreased 2.4 points or 3.8% over the period. Within the mix of 34 stocks in our Q2 2021 (May) list 19 posted negative performance, with an average decline of 14.1%.

At a static number of 34 stocks our Q3 2021 screen, delivers an interesting composition this quarter, with eight (8) new names and strong representation from Hong Kong in terms of geography and Industrials and Basic Materials from a sector perspective. This suggests that the “reopening of the economy” trade may have run its course for now.
Our Q3 2021 screen shows a further reduction in average stock rank (a reading on relative quality amongst the broad market peers with 100 being the highest) to 61 from 65.18 in Q2 2021.

Stock specific focus: We discuss why SoftBank stands out as a stock that presents with additional risk. We also discuss the fact that whilst there is a high representation of Industrials in the list, within this list, there are several names that may warrant not being too bearish towards.


Screening the Silk Road: Q3 2021 High-Risk Names to Avoid

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> has been reasonably widely thought to be interested in selling its global oil &amp; gas assets business as CEO Mike Henry looks to "future-facing" commodities businesses. Over the weekend, it came out that BHP global O&amp;G head Geraldine Slattery <a href="https://www.theaustralian.com.au/business/mining-energy/bhps-geraldine-slattery-arrival-sparks-woodside-deal-talk/news-story/d654f29deab29380c23abb6ca2ce261a" target="_blank" rel="noopener">had flown to Perth</a>, where <a href="https://www.smartkarma.com/entities/woodside-petroleum-ltd" target="_blank" data-smartkarma-citation="entities:177:1" rel="noopener">Woodside Petroleum (WPL AU)</a> is headquartered. </p><p>Australian Financial Review's Street Talk column on Sunday confirmed that <a href="https://www.smartkarma.com/entities/woodside-petroleum-ltd" target="_blank" data-smartkarma-citation="entities:177:1" rel="noopener">Woodside Petroleum (WPL AU)</a> and <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> were in talks to do a deal on BHP's oil and gas assets whereby Woodside would issue BHP $20bn of shares in return for the assets, and then BHP would distribute most of the shares to shareholders so as to make sure it did not turn into a change-of-control transaction. There simply is no way this would be done as a cash transaction.</p><p>I note that Woodside itself is looking for a permanent CEO after longtime CEO Peter Coleman exited in June. Meg O’Neill in charge of Woodside’s development and marketing arm, is acting CEO. Getting a new CEO in the process of buying assets to make it bigger - especially increasing its presence in the Scarborough project and in the Gulf of Mexico, might be just the ticket. </p><p>The discussion being mooted suggests a change of control situation might be or have been in the offing. Based on revenues and operating profits that may be reasonable. Based on total assets, it would suggest a strong premium for BHP's producing and development assets. </p><p>BHP reports earnings on Tuesday after market close, and Woodside reports pre-open on Wednesday.</p><p>BHP has been distributing proceeds of its shrinkage to its investors for the last while. One should not expect that to change. What "price" BHP "gets" in such a deal is almost irrelevant - A$18bn? A$20bn? A$18bn? If they get an extra A$1bn it will be a nice cherry on top for the owners of A$250bn market cap company but there are questions about upfront vs ongoing liability and one does not know if they would retain a 15-20% stake, as is apparently being <a href="https://www.theaustralian.com.au/business/mining-energy/bhps-geraldine-slattery-arrival-sparks-woodside-deal-talk/news-story/d654f29deab29380c23abb6ca2ce261a" target="_blank" rel="noopener">mooted</a>.</p><p>However, the deal structure itself creates some interesting issues which will mean some very big changes.</p><p>More below.</p>

BHP Group (BHP AU) has been reasonably widely thought to be interested in selling its global oil &amp; gas assets business as CEO Mike Henry looks to "future-facing" commodities businesses. Over the weekend, it came out that BHP global O&amp;G head Geraldine Slattery had flown to Perth, where Woodside Petroleum (WPL AU) is headquartered. Australian Financial Review's Street Talk column on Sunday confirmed that Woodside Petroleum (WPL AU) and BHP Group (BHP AU) were in talks to do a deal on BHP's oil and gas assets whereby Woodside would issue BHP $20bn of shares in return for the assets, and then BHP would distribute most of the shares to shareholders so as to make sure it did not turn into a change-of-control transaction. There simply is no way this would be done as a cash transaction.I note that Woodside itself is looking for a permanent CEO after longtime CEO Peter Coleman exited in June. Meg O’Neill in charge of Woodside’s development and marketing arm, is acting CEO. Getting a new CEO in the process of buying assets to make it bigger - especially increasing its presence in the Scarborough project and in the Gulf of Mexico, might be just the ticket. The discussion being mooted suggests a change of control situation might be or have been in the offing. Based on revenues and operating profits that may be reasonable. Based on total assets, it would suggest a strong premium for BHP's producing and development assets. BHP reports earnings on Tuesday after market close, and Woodside reports pre-open on Wednesday.BHP has been distributing proceeds of its shrinkage to its investors for the last while. One should not expect that to change. What "price" BHP "gets" in such a deal is almost irrelevant - A$18bn? A$20bn? A$18bn? If they get an extra A$1bn it will be a nice cherry on top for the owners of A$250bn market cap company but there are questions about upfront vs ongoing liability and one does not know if they would retain a 15-20% stake, as is apparently being mooted.However, the deal structure itself creates some interesting issues which will mean some very big changes.More below.

If Woodside Buys BHP Petroleum for Scrip, There Will Be Flowback

David Blennerhassett

Last Week in Event SPACE:  Afterpay, SPH, ESR Cayman, Prosus/Naspers, Kingsoft, Milton, SOHO China

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<p>Despite a momentary memory lapse from <a href="https://www.smartkarma.com/entities/oil-search-ltd" target="_blank" data-smartkarma-citation="entities:773:1" rel="noopener">Oil Search Ltd (OSH AU)</a>, <a href="https://www.smartkarma.com/entities/santos-ltd" target="_blank" data-smartkarma-citation="entities:711:1" rel="noopener">Santos Ltd (STO AU)</a> <a target="_blank">confirmed</a> on the 20 July it had submitted a confidential, non-binding, indicative all-scrip merger proposal to Oil Search's board on the 25 June.</p>
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<p>Santos proposed Oil Search shareholders receive 0.589 new Santos shares for each Oil Search share held, resulting in Oil Search shareholders holding 37% of the merged group and Santos shareholders 63%. The implied transaction price, to be implemented via a Scheme, was A$4.25 per Oil Search share - based on Santos’ closing price on 24 June 2021 - or a 12.3% premium to Oil Search's closing price on the same day.</p>
</div>
<div>
<p>Oil Search considered the terms were not fair but <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02397158-2A1310798?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">agreed</a> there was strategic logic combining with Santos. </p>
<p>In <em><a href="https://skr.ma/epYxh" target="_blank" rel="noopener">Santos/Oil Search: Getting Facts Straight</a></em>, I recommended buying Oil Search, with a view towards an improved ratio upwards of ~0.66x, or ~25% premium to last close using both share prices as 24 June. </p>
<p>This morning Santos <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402372-2A1313090?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">bumped</a> the consideration by 6.5% to 0.6275 new Santos shares for every Oil Search share.  This would give Oil Search's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price. </p>
<p>The Oil Search board recommends the Offer in the absence of superior proposal. Due diligence has been afforded.</p>
<p>More below the fold.</p>
</div>
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<p></p>
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Despite a momentary memory lapse from Oil Search Ltd (OSH AU), Santos Ltd (STO AU) confirmed on the 20 July it had submitted a confidential, non-binding, indicative all-scrip merger proposal to Oil Search's board on the 25 June.


Santos proposed Oil Search shareholders receive 0.589 new Santos shares for each Oil Search share held, resulting in Oil Search shareholders holding 37% of the merged group and Santos shareholders 63%. The implied transaction price, to be implemented via a Scheme, was A$4.25 per Oil Search share - based on Santos’ closing price on 24 June 2021 - or a 12.3% premium to Oil Search's closing price on the same day.


Oil Search considered the terms were not fair but agreed there was strategic logic combining with Santos. 
In Santos/Oil Search: Getting Facts Straight, I recommended buying Oil Search, with a view towards an improved ratio upwards of ~0.66x, or ~25% premium to last close using both share prices as 24 June. 
This morning Santos bumped the consideration by 6.5% to 0.6275 new Santos shares for every Oil Search share.  This would give Oil Search's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price. 
The Oil Search board recommends the Offer in the absence of superior proposal. Due diligence has been afforded.
More below the fold.





Last Week in Event SPACE: Capitaland, Boral, Milton/WHSP, Santos/Oil Search, Education Profit Ban

Australia

Santos Limited explores for and produces natural gas, crude oil, condensate, naphtha and liquid petroleum gas.  The Company conducts major onshore and offshore petroleum exploration activities at oil and gas fields in Australia (Cooper/Eromanga Basins), the United States (Gulf of Mexico), Indonesia and Papua New Guinea. The Company also transports crude oil by pipeline.

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Santos Ltd (STO AU)

Screening the Silk Road: Q3 2021 High-Risk Names to Avoid

Screening the Silk Road Q3 2021: Asia Pac High-risk names to avoid screening is out now. Eight new names, despite being down 23%, SoftBank remains...

David Lepper

If Woodside Buys BHP Petroleum for Scrip, There Will Be Flowback

Woodside and BHP may announce WPL will buy BHP's oil & gas business for scrip. An announcement could come in the next 36 hrs. It would mean a huge...

Travis Lundy

Last Week in Event SPACE: Afterpay, SPH, ESR Cayman, Prosus/Naspers, Kingsoft, Milton, SOHO China

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

Santos and Oil Search Agree on Terms

This remains a non-binding offer but ostensibly is done. Yet Wulff's resignation, Mubadala's sell-down, and chairman Rick Lee's odd short-term...

David Blennerhassett

Last Week in Event SPACE: Capitaland, Boral, Milton/WHSP, Santos/Oil Search, Education Profit Ban

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

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