Australia

• Qantas Airways (QAN AU) (QAN) is enjoying the best time of its life on industry consolidation benefits, demand exceeding supply to many sectors, and flourishing air cargo  
• Domestic Australia is an ironclad goldmine, with a benign competitive environment as the archrival is busy restructuring. International sector capacity deployment is picking up, but still deep in underserved territory     
• Target price AUD6.58 (+23% UPSIDE), based on 7x CY2024 PE – long-term historical mean. AUD500 million share buyback should provide downside support 

• On the 24 November, Silvercorp Metals (SVM CN) bumped its Scheme Offer for Orecorp Ltd (ORR AU) to A$0.19 in cash and 0.0967 new Silvercorp shares.
• At a 40.1% premium to undisturbed and key shareholder Tim Goyder (5.14%) supportive, this looked done. Then Perseus (PRU AU) built a 19.9% stake and said it would vote no.
• After postponing the Scheme meeting, Silvercorp and Orecorp have now agreed to an off-market takeover, on the same terms. The tendering threshold is 50.1%. 

• On the 1st November, cloud communication software outfit Symbio Holdings (SYM AU) backed Aussie Broadband Pty Ltd (ABB AU)‘s reduced cash/scrip Offer of A$2.99-$3.04/share, and entered into a Scheme agreement.
• Superloop Ltd (SLC AU), which had previously made two cash/scrip Offers for Symbio, promptly walked.
• Symbio’s Scheme Meeting has now been tabled for the 7 Feb, with implementation expected on the 28 February. The IE is supportive. This is done – and trading tight.

• Taxi-Related services operator A2B Australia (A2B AU) has completed a large property sale and subsequently entered into a Scheme with Singapore’s ComfortDelGro Corp (CD SP).
• The property sale enabled a $0.60/share fully franked dividend. Separately, and in addition, ComfortDelGro is offering A$1.45/share. Or A$2.05/share all-in. Before franking credits, for those who can take advantage. 
• The special divi ex-date is the 12 January. It is not conditional on the Scheme. Implementation for the Scheme, assuming all approvals are met, is expected mid-April.

• Drugs maker/packager group Probiotec Ltd (PBP AU) has entered into a Scheme with Indonesia’s Pyridam Farma (PYFA IJ).
• Pyridam is offering Probiotec shareholders A$3.00/share (in cash, or a 19% premium to the undisturbed price). Interim and final  dividends up to A$0.035/share and A$0.04/share, respectively, may be added.
• It has not been declared final. The Offer has the board’s backing. A Scheme Meeting is expected to be held in May with possible completion in early June 2024.

• A2B Australia (A2B AU) has entered a scheme implementation deed with Comfortdelgro Corp (CD SP) at A$1.45 per share. Including the special dividend of A$0.60, the total offer is A$2.05.
• ACCC approval should be forthcoming as ComfortDelGro is not a significant player in Australia. A2B has several substantial shareholders and a high retail shareholder base, posing a risk.
• The shares are trading through terms. However, a bump is unlikely as the offer is attractive, and several substantial shareholders have sold down recently.  

• Probiotec Ltd (PBP AU) has entered a scheme implementation deed with Pyridam Farma (PYFA IJ) at A$3.00 per share, a 19.0% premium to the undisturbed price (21 December).
• Including potential dividends, the total potential offer price is A$3.075 per share. The scheme requires Probiotec shareholders, Pyridam shareholders, FIRB and Indonesia OJK approvals.
• The offer is attractive and represents an all-time high. At the last close, the gross spread of the base offer and total potential offer is 3.1% and 5.7%, respectively.  

Actinogen Medical has opened the first investigational study site for its Phase IIb XanaMIA trial of lead candidate Xanamem in patients with cognitive impairment (CI) associated with mild-to-moderate Alzheimer’s disease (AD). The study plans to enrol c 220 patients, who will be randomised to take Xanamem 10mg or placebo once daily for 36 weeks. The trial will concentrate on Australian test sites for the first 100 enrolled patients, and initial efficacy and safety results will be analysed when these patients reach 24 weeks of treatment. The results, expected in H1 CY25, could serve as a significant catalyst if data are positive. Nearer term, the next material milestone will be results, expected in Q2 CY24, from Actinogen’s Phase IIa XanaCIDD study in patients with CI and major depressive disorder (MDD). A positive XanaCIDD readout may lead to a share price re rating, and thereby may potentially accelerate the expansion of XanaMIA to US and global clinical study sites.

• On the 6 November, cloud communication outfit Whispir (WSP AU)  announced a A$0.46/share unconditional Offer, in cash, from mobile messaging software play Soprano Design.
• The Offer price was a 92% premium to Whispir’s recent private placement, and a 60% premium to the undisturbed price. Whispir rejected the Offer.
• Pendula subsequently emerged with a A$0.57/share NBIO. Soprano “countered” with A$0.52/share. Pendula upped its indicative Offer to A$0.60/share. An independent expert’s fair value is between A$0.486/share-A$0.565/share.

• In this insight, we take a look at the potential index changes for ASX 300, 200, 100, 50, and 20 in the run-up to the March 2024 index review.
• I expect one change for ASX 20, one change for ASX 100, and four changes for ASX 200 during the March 2024 index rebal event.
• Separately, there could also be one intra-review change for ASX 200 in February 2024.

• Amaero International Ltd (ASX:3DA) is a global specialist in advanced materials manufacturing for the defence, aerospace, and other industrial sectors.
• The company is developing a 1,000+-tonne-a-year critical metals alloy powder manufacturing facility in Tennessee, USA with its initial focus on producing refractory alloy powder, C103, a critical metal powder used in hypersonics weaponry.
• On December 19, the company provided an update to investors on its progress to date this month with several milestones tracking ahead of schedule. 

Recce recently reported that the Australian government has committed to providing up to A$55m in future cash rebates to reimburse upcoming R&D expenditure directed towards the company’s proprietary synthetic anti-infective programmes to June 2025. Notably, this binding agreement with the Australian government’s Department of Industry, Science and Resources (AusIndustry) extends the rebate programme that customarily reimburses 43.5% of eligible R&D expenditures incurred within Australia, to cover the anti-infective R&D activities Recce undertakes anywhere in the world. We view this as key given our expectation that US and global clinical trials will be needed to maximise the commercial potential of Recce’s products, notably lead candidate RECCE® 327 (R327). While our model already assumed the Australian government would reimburse 43.5% of Recce’s overseas R&D costs, there was a minor degree of uncertainty on whether this would be the case. Hence, the signing of this binding commitment with AusIndustry helps de-risk future funding needs for Recce as it advances its anti-infective programmes, notably R327 in sepsis/urosepsis and in complicated urinary tract infection (UTIs).

• This makes life a lot simpler. Gina Rinehart’s Hancock Prospecting will now team up with Chile’s SQM to take control of lithium play Azure Minerals (AZS AU).
• In a binding Offer, by way of a Scheme, the joint bidders (collectively holding ~37.79%) are offering A$3.70/share, a 5.1% bump in terms to SQM’s prior Scheme Offer. 
• An off-market takeover at A$3.65/share unfolds IF this Scheme were to fail. If both fail/lapse,  SQM will, “in certain circumstances”, be required to proceed with its off-market transaction of A$3.50/share.

• Azure Minerals (AZS AU) has entered a new transaction implementation deed with Sociedad Quimica y Minera de Chile (SQM US) and Hancock at A$3.70, a 51.6% premium to the undisturbed price.
• The emergence of Hancock and Mineral Resources (MIN AU) as substantial shareholders necessitated the new offer. The off-market takeover offer is A$3.65 per share if the scheme fails. 
• The scheme’s completion hinges on MinRes’ acceptance. MinRes could potentially block the scheme but has a history of selling into Hancock offers.

• The Lithium Power International (LPI AU) IE considers Codelco’s A$0.57 offer fair and reasonable as it is above the midpoint of its A$0.30-0.68 per share valuation range. 
• The scheme is conditional on FIRB approval, which should be forthcoming as LPI’s assets are outside Australia in Chile.
• Irrevocables represent 32.05% of outstanding shares. At the last close and for the 16 February payment, the gross/annualised spread was 3.6%/26.3%.

• Back on the 18th October, Lithium Power International (LPI AU) announced it had entered into a Scheme Implementation Deed with Chilean state miner Codelco, the world’s largest copper producer.
• Codelco offered LPI shareholders A$0.57/share, a heft 119% premium to last close. LPI’s major shareholder, Minera Salar Blanco SpA with 27.88%, is supportive of the Scheme.. 
• LPI’s Scheme Meeting has now been tabled for the 23 Jan, with implementation expected on the 16 February. The IE is supportive and LPIs board unanimously recommends the transaction.

• Ricegrowers Limited, trading as SunRice (ASX:SGLLV), has released its H1 FY24 results, delivering RaaS adjusted EBITDA of $69m (+68%) and adjusted NPAT of $33.3m (+107%), both well above RaaS estimates of $57.6m and $25m respectively.
• Divisionally the key surprise was International, delivering adjusted EBITDA of $33m, 125% above the PCP and 57% above RaaS estimates on the back of increases scale and reach, price increases and lower freight costs.
• Operating cash flow was the strongest since H2 FY18 despite a high tax payment as working capital improved from lower receivables and inventory reductions. 

• Neuren Pharmaceuticals (NEU AU) has announced positive top-line result from its phase 2 clinical trial of its second drug candidate NNZ-2591 in children with Phelan-McDermid syndrome (PMS), a genetic disorder.
• PMS has an overwhelming unmet medical need. This is an attractive commercial opportunity with an estimated addressable patient population of 24,000 in the U.S. alone.
• NNZ-2591 has the potential to become the first FDA-approved drug for PMS. Neuren is also conducting phase 2 clinical trials of NNZ-2591 in children with three other neurodevelopmental disorders.

• The vote is tomorrow. It is slightly contested. Shareholder proxies have recommended approving. Some others say Allkem is going too cheap. 
• It probably should get done because of scale benefits, and if it breaks, it might be good for Allkem, which is “good risk arb risk”
• But the trade here is some combination of lithium rebound and index event, with index impact details here.

• Link Administration (LNK AU), the largest provider of services in Australia’s superannuation administration industry, has entered into a Scheme with Mitsubishi UFJ Financial Group.
• MUFJ is offering long-suffering Link shareholders A$2.10/share (in cash) plus a A$0.16/share dividend (25% franked), or a 32.9% premium, all-in, to the undisturbed price. It has not been declared final. 
• The Offer has the board’s backing. A Scheme Meeting is expected to be held in May with possible completion in June 2024. 

• Link Administration (LNK AU) has entered a SID with Mitsubishi UFJ Financial (MUFG) (8306 JP) at A$2.26 (A$2.10 scheme consideration + A$0.16 dividend), a 32.9% premium to the undisturbed price.
• The presence of several substantial shareholders, lack of irrevocables, a light offer, recent derisking of the business and a long-dated offer pose a challenge for the scheme to get up. 
• MUFG’s offer could spark a rival offer, but Link’s long-suffering shareholders have endured a history of failed bids. At the last close, the risk/reward is unfavourable.

• Adbri (ABC AU) has disclosed a non-binding proposal from CRH (CRH LN) and Barro at A$3.20 per share, a 41.0% premium to the undisturbed price of A$2.27 (13 December).
• The offer is the best and final offer. The Board has granted an exclusive due diligence period, which ends on 28 February 2024. 
• The Board intends to recommend a binding proposal. The offer requires FIRB approval (ACCC approval is not mentioned). The offer is attractive vs. peer multiples and historical ranges.  

• Pacific Smiles (PSQ AU), an operator of dental centers, has announced – and immediately rejected – a non-binding proposal from Genesis Capital Manager.
• Genesis, holder of 18.75% of shares out, has offered A$1.40/share, by way of a Scheme. That’s a less-than-inspiring 17.1% premium to last close. 
• PSQ calls the Offer “opportunistically timed”. That has merit, after the share price recently touched a multi-year low.  Separately, PSQ is seeking a new CEO after Mckenzie resigned in August.

• Construction play Adbri (ABC AU) has entered into a process and exclusivity deed with CRH (CRH US) and 42.7%-shareholder Raymond Barro (Chairman) in order to progress to a firm transaction.
• CRH/Barro’s non-binding indicative proposal of $3.20/share (in cash), by way of a Scheme, is a 41% premium to last close. The proposal is best & final. 
• Subject to DD being carried out by CRH, this looks done. 

• The S&P/ASX 200 INDEX is currently up 3 weeks and OVERBOUGHT, a correction is expected very soon, probably this week.
• The pullback is an opportunity to add LONG positions, the area to enter LONG is 7400-7300.
• If the rally continues after the pullback, it can continue into the end of January.

• Volpara Health  (VHT AU), which makes software enabling the early detection of breast cancer, has announced it has entered into a Scheme Implementation Deed with South Korea’s Lunit (328130 KS).
• Lunit is offering Volpara shareholders A$1.15/share, in cash, a 47.4% premium to last close. Cornerstone investors with 25.92% of shares out are supportive. As is Volpara’s board.
• The Scheme Meeting is expected to be held in 2Q24. The transaction requires NZ’s OIO approval.

• Volpara Health Technologies (VHT AU) has entered a scheme implementation deed with Lunit (328130 KS) at A$1.15 per share, a 48.4% premium to the undisturbed price of A$0.775 (13 December).
• The offer is subject to several conditions, such as shareholder and OIO approval. Irrevocables and directors represent 33.30% of outstanding shares. 
• Barring a competing offer, this is a done deal, as the offer is attractive. At the last close and for the end of May payment, the gross/annualised spread is 5.0%/11.6%.

Recce Pharmaceuticals raised A$11.0m (gross) in September and October. Most of the proceeds (A$6m) will be directed towards the company’s clinical programmes for lead anti-infective candidate RECCE® 327 (R327), including the ongoing Phase I/II study of the IV formulation in healthy volunteers and in patients with uncomplicated or recurrent urinary tract infections (UTIs). This study continues to advance, with the company recently dosing healthy subjects with the 3,000mg dose over a 15-minute infusion period, following a favourable safety review of this dose over a 30-minute infusion. We model that Recce is currently funded into CY24 and expect the company to seek additional funding, which may come from partnerships or non-dilutive arrangements. Following minor adjustments to our forecasts, we now obtain an rNPV valuation of A$551.1m (or A$2.71 per share), versus A$562.4m previously.

Vection Technologies’ Q124 and AGM update shows continued top-line momentum driven by an established partner strategy. Now embedded with leading players across diverse verticals, management sees an opportunity to convert low-margin, one-off transactions into large, multi-year contracts in FY24. Expanding use cases and commercialisation is driving rapid market growth, underpinning secular tailwinds. To bolster its outlook, the company introduced several efficiency measures in the period, which it expects to enhance margins and cash flows more visibly in H2.