Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<p>Australian small-cap Telco company <a href="https://www.smartkarma.com/entities/5g-networks-ltd-australia" target="_blank" data-smartkarma-citation="entities:30406:1" rel="noopener">5G Networks Ltd/Australia (5GN AU)</a> and related company <a href="https://www.smartkarma.com/entities/webcentral-grp-ltd" target="_blank" data-smartkarma-citation="entities:15203:1" rel="noopener">Webcentral (WCG AU)</a> announced on Friday that they have agreed to merge in a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02396172-2A1310324?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">Scrip Transaction</a> that will see 5GN shareholders receive 2 WCG shares per 5GN share. </p><p>The companies claim that the Merger will "<em>create a larger entity with a single shareholder base propelling the company towards ASX300 status</em>".   </p><p>The Deal is conditional on shareholder approvals from both companies and is expected to be completed in late-October 2021. </p><div><p><em>More below the fold. </em></p></div><hr><div><div><div class="content-remarks"><p>For more information about M&amp;A rules, regulations, and practices in Australia, please refer to <a href="https://www.smartkarma.com/insights/quiddity-australia-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:30118" rel="noopener">Quiddity Australia M&amp;A Guide 2019</a> and <a href="https://www.smartkarma.com/insights/quiddity-m-a-australia-foreign-investment-reforms" target="_blank" data-smartkarma-citation="insights:40210" rel="noopener">Quiddity M&amp;A: Australia Foreign Investment Reforms</a> </p></div></div></div>

Australian small-cap Telco company 5G Networks Ltd/Australia (5GN AU) and related company Webcentral (WCG AU) announced on Friday that they have agreed to merge in a Scrip Transaction that will see 5GN shareholders receive 2 WCG shares per 5GN share. The companies claim that the Merger will "create a larger entity with a single shareholder base propelling the company towards ASX300 status".   The Deal is conditional on shareholder approvals from both companies and is expected to be completed in late-October 2021. More below the fold. For more information about M&amp;A rules, regulations, and practices in Australia, please refer to Quiddity Australia M&amp;A Guide 2019 and Quiddity M&amp;A: Australia Foreign Investment Reforms 

Webcentral - 5GN Merger: A Small-Cap Merger Aimed at ASX300 Status

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

<p>Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian dollar was trading below fair value. &nbsp;After what had been a strong period of out-performance from US dollar earners, I concluded that without the tailwind of A$ over-valuation - which prevailed through most of 2014 - their returns in the near term would be capped. In this post, I show that recent currency appreciation has eliminated the modest under-valuation and been associated with under-performance from US$ earners. The basket is trading on a median 12 mth forward PE of 20x, which represents a 25% premium to the median estimate for the ASX100, slightly higher than historical norms. The premium reflects the fact that offshore earners have strong growth expectations and low betas, thanks to their defensive business models. I highlight that the stocks suffering from the highest level of analyst bearishness remain Cochlear, Treasury Wine Estates and Westfield, which each attract less than 20% of buy recommendations from analysts.</p><p>&nbsp;</p>

Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian dollar was trading below fair value. &nbsp;After what had been a strong period of out-performance from US dollar earners, I concluded that without the tailwind of A$ over-valuation - which prevailed through most of 2014 - their returns in the near term would be capped. In this post, I show that recent currency appreciation has eliminated the modest under-valuation and been associated with under-performance from US$ earners. The basket is trading on a median 12 mth forward PE of 20x, which represents a 25% premium to the median estimate for the ASX100, slightly higher than historical norms. The premium reflects the fact that offshore earners have strong growth expectations and low betas, thanks to their defensive business models. I highlight that the stocks suffering from the highest level of analyst bearishness remain Cochlear, Treasury Wine Estates and Westfield, which each attract less than 20% of buy recommendations from analysts.&nbsp;

A new narrative for the Australian dollar (update)

<p>The Reserve Bank Board meets today, a month after cutting the official cash rate (OCR) by 25 basis points&nbsp;to a multi-decade low of 2.25%.&nbsp; This followed an 18 month period of interest rate stability.&nbsp;&nbsp;&nbsp; There is a compelling case for the RBA to ease policy now to restore the psychology of risk taking in the economy and combat the new capital and cost discipline.&nbsp; But Mr Stevens has previously said that it is important that further cuts do not send a signal to the market that the economy is weak, at a time when consumer and business sentiment remain fragile.&nbsp; Thus, I believe that the May meeting presents the best opportunity to ease policy with the positive narrative of a lower inflation outlook following the release of the first quarter CPI in late April.</p>

The Reserve Bank Board meets today, a month after cutting the official cash rate (OCR) by 25 basis points&nbsp;to a multi-decade low of 2.25%.&nbsp; This followed an 18 month period of interest rate stability.&nbsp;&nbsp;&nbsp; There is a compelling case for the RBA to ease policy now to restore the psychology of risk taking in the economy and combat the new capital and cost discipline.&nbsp; But Mr Stevens has previously said that it is important that further cuts do not send a signal to the market that the economy is weak, at a time when consumer and business sentiment remain fragile.&nbsp; Thus, I believe that the May meeting presents the best opportunity to ease policy with the positive narrative of a lower inflation outlook following the release of the first quarter CPI in late April.

The New Capital Discipline and the RBA's Line Ball Decision

Australia

Webcentral Group Limited provides information technology services. The Company offers cloud and mobile application development, data and analytics, domain name registration and renewals, website hosting, and search engine optimization for businesses, enterprises, and government organizations. Webcentral Group serves customers in Australia and New Zealand.

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Melbourne IT (WCG AU)

Webcentral - 5GN Merger: A Small-Cap Merger Aimed at ASX300 Status

Australian small-cap Telco company 5GN Ltd and related company Webcentral are merging in an all-scrip Deal. After Deal Completion in Oct 2021. the...

Janaghan Jeyakumar, CFA

A new narrative for the Australian dollar (update)

Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian...

Sam Ferraro

The New Capital Discipline and the RBA's Line Ball Decision

The Reserve Bank Board meets today, a month after cutting the official cash rate (OCR) by 25 basis points to a multi-decade low of 2.25%. This...

Sam Ferraro

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