Australia

• In this insight, we take a look at the potential index changes for ASX 200, 100, 50, and 20 in the run up to the December 2023 Rebalance.
• There could be up to four ASX 200 changes including the intra-review changes that could potentially be triggered by M&A events.  
• The Origin Energy (ORG AU), Newcrest Mining (NCM AU), and Allkem Ltd (AKE AU) deals also could have interesting index change and/or flow implications over the next few weeks/months.

• The S&P/ASX 200 INDEX last week closed down (CC=-1, breached the Q2 support at 6918, entering OVERSOLD territory). 
• The index has been directionless since early August 2021, it is going down but it’s OVERSOLD MONTHLY (3 months down), so it could bounce in November.
• The current MRM pattern is quite bullish from a CC perspective: here we analyze WEEKLY supports to see how far down the index can go, it could bounce soon.

• ASX Ltd (ASX AU) is seeing weakness across key revenue items with best delta in what is non- core, net interest income. Suddenly, its operating cash flow is negative.
• New listings are down from 217 companies to 57 companies YoY to FY23 and their market capitalization is down from AUD59bn to AUD3bn YoY to FY23.
• SG&A costs seem to be rising structurally now at 28% of gross profit in FY23 compared with 23% in FY22 and compared with 17-19% in preceding years.

• Liontown Resources (LTR AU) is looking to raise A$365m (US$230m) for capital expenditure and to plug its funding gap for the Kathleen Valley Lithium (KVL) project. 
• Together, the combined A$1.14bn equity/debt raising comes after Albemarle abandoned its A$6.6bn (US$4.2bn) acquisition bid for Liontown Resources earlier in the week.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Liontown Resources (LTR AU) resumes trading today after announcing a raise of up to A$1.18bn to fully fund the Kathleen Valley Lithium Project to first production and beyond.
• The equity component is up to A$421m and the placement price of A$1.8/share is a 35.5% discount to the last close.
• The placement price is higher than the stock price prior to the Albemarle Corp (ALB US) offer and during a period when its peers have performed poorly.

• On 20th October, the ACCC cleared Brookfield to take over Origin Energy (ORG AU). 
• The transaction still needs shareholder approval and AustralianSuper with its too-big-to-ignore 13.68% stake reckons terms are below long-term value.
• The Scheme Booklet is out with a 23 November Scheme Meeting. The IE backs out a fair value range of $8.45-$9.48/share, but as at June 30. A bump is imminent.

• Telix Pharmaceuticals (TLX AU) reported net operating cash inflow for 3Q23 of A$21.4M, a A$10.6M improvement on the prior quarter and fourth consecutive quarter of positive operating cash flow.
• In 3Q23, revenue from U.S. sales of Illuccix improved 13% QoQ to A$130.6M. Telix is progressing new marketing authorizations for Illuccix in several jurisdictions, including the U.K., EU, and Brazil.
• Telix announced preliminary results of its phase I ProstACT SELECT study. Although the study achieved primary endpoints, the findings noted grade 3 and 4 hematologic events.

• We listened to the conference call held by Whitehaven Coal (WHC AU) to update investors on its acquisition of BHP’s coking coal mines and  Q2 2024 production. 
• Based on spot prices of coking coal over 350 USD/ton and cash costs of 20% lower than the average of 2 years, the EV-EBITDA of acquisition is 1.8x
• The acquisition could be massively accretive if coking coal prices remain stronger for longer as the company pivots its strategy to becoming a large met coal producer. 

• US Masters Residential Property Fund (URF AU), an ASX-listed real estate trust investing in single-family homes in gentrifying New York metropolitan neighbourhoods  – what could go wrong? 
• Quite a lot, apparently. Shares are down bigly from the 2011 listing; the responsible entity faced ASIC-backed court proceedings for misleading clients; plus dissent emerged over appointing a new RE. 
• URF is gradually offloading its entire portfolio, and buying back shares, which are trading at 0.49x price-to-book.  So, where’s the rub?

• Lithium Power International (LPI AU) has entered a scheme implementation deed with Corporacion Nacional del Cobre de Chile (Codelco) at A$0.57 per share, a 119.2% premium to the undisturbed price.  
• Shareholders representing 32.47% of outstanding shares will vote in favour of the scheme. Forums suggest that retail shareholders are broadly resigned to accepting the offer.
• The offer is conditional on FIRB approval. The scheme meeting will be held on 23 January 2024. At the last close, the gross spread was 7.5%. 

• Cuscal Limited (1229Z AU) is looking to raise US$234m in its upcoming Australia IPO.
• Cuscal is an authorized deposit-taking institution (ADI) in Australia that primarily provides financial infrastructure and payment services in Australia.
• In our previous note we looked at the company’s past performance, in this note we will undertake a peer comparison and share our thoughts on valuation.

• Paradigm Biopharmaceuticals (PAR AU) announced phase 2 trial result, demonstrating that lead drug candidate, iPPS treats the symptoms of osteoarthritis as well as preserves and/or regenerates joint tissues.
• This is significant from a commercial perspective because the disease modifying effects of iPPS observed in the phase 2 clinical trial are expected to support a greater reimbursement.
• Paradigm’s cash position was bolstered by A$66M capital raise in Aug’22. As of June 30, 2023, the company has a cash balance of A$56.3M, which should provide runway through Q1FY25.

• Newcrest Mining (NCM AU) shares stop trading after the close on 26 October and Newmont Mining (NEM US) CDIs will start trading from the open on 27 October.
• Newmont Mining (NEM US) CDIs should replace Newcrest Mining (NCM AU) in the S&P/ASX indices from 27 October. But there could be index changes at the subsequent rebalances.
• Based on the case of Block (SQ2 AU), we could see Newmont Mining (NEM US) CDIs deleted from the ASX20 Index in December and from the ASX50 Index in March/June.

• FY23 performance positions VA at the top table relative to global LCC financial performance
• Global analysis of #2 positions behind a strong market leaders suggests an efficient VA should be well positioned to sustainably outperform the global airline industry’s average financial performance
• Forecasting mean reversion for operating performance but aircraft financing savings should sustain superior profitability and cash flow generation than pre-COVID.

• Liontown Resources‘ Suspension from Quotation “pending the release of an announcement regarding the finalisation of funding arrangements associated with the Kathleen Valley Project” could last till the open 20 October.
• Short interest continued to increase prior to the trading halt and passive selling will be higher following Hancock increasing its stake to 19.9%.
• The immediate funding for Liontown Resources (LTR AU) could come from debt sources with an equity raise coming later this year or early next year.

• Lithium Power International (LPI AU) has announced it has entered into a Scheme Implementation Deed with Chilean state miner Codelco, the world’s largest copper producer. 
• Codelco is offering LPI shareholders A$0.57/share, a whopping 119% premium to last close. LPI’s major shareholder, Minera Salar Blanco SpA with 28.25%, is supportive. As is LPI’s board. 
• The Scheme Meeting is expected to be held on the 23 January with implementation on the 8 February. Clean deal. 

Paradigm has announced positive day-365 data from its Phase II trial (PARA_OA_008) assessing injectable pentosan polysulfate (iPPS) as a potentially disease-modifying treatment for knee osteoarthritis (kOA). The latest data show durable responses based on measures of pain and function, while confirming the company will be pursuing an iPPS (2mg/kg) twice-weekly regimen for six weeks across all of its clinical programmes for kOA. Based on this update, Paradigm now plans to proceed with a Provisional Approval application to the Therapeutic Goods Administration (TGA, the Australian regulatory authority). The day-365 data are encouraging for iPPS as a potential treatment for kOA, in our view, adding to the company’s data package to support discussions with regulatory authorities and potential partners. We note that Paradigm is awaiting full analysis of MRI data from this trial, and plans to share it in the near term.

• Cuscal Limited (1229Z AU) is looking to raise US$234m in its upcoming Australia IPO. 
• Cuscal is an authorized deposit-taking institution (ADI) in Australia that primarily provides financial infrastructure and payment services in Australia. 
• In this note, we will talk about the positive aspects of the deal.

• Cuscal Limited (1229Z AU) is looking to raise US$234m in its upcoming Australia IPO.
• Cuscal is an authorized deposit-taking institution (ADI) in Australia that primarily provides financial infrastructure and payment services in Australia.
• In this note, we will talk about the not so positive aspects of the deal.

• ADX is expected to start drilling the Anshof-2 appraisal well in November.
• The Anshof-1 well will then be drilled in Q2 or Q3 24 increasing gross production from the Anshof field to ~1,000 bbl/d with three wells (500 bbl/d net to ADX). 
• MND has already paid ADX A$3.2 million for past costs and long lead drilling expenditures.

• Light & Wonder (LNW AU) will replace United Malt Group Ltd (UMG AU) in the S&P/ASX 200 (AS51 INDEX) at the close on 17 October.
• Invocare Ltd (IVC AU) is expected to stop trading after the close on 3 November and Boss Resources (BOE AU) is best placed to be the replacement.
• There are stocks that are close on the heels of Boss Resources (BOE AU) and will compete for a place. Two of those could be added at the December rebalance.

• The Allkem/Livent “merger of equals” discussed in Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises and Allkem/​Livent: Enlarged Charging Unit is on track.
• As of the end of last month, all approvals are received or are expected to be received. The Scheme Booklet is expected next month. Deal is expected to close end-CY2023.
• The deal STILL has interesting side issues with index. Even more interesting than Newcrest/Newmont. This is an update with more detail as we probably have 8-10 weeks left.

• I tally 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this week: Haitong Securities Co Ltd (A) (600837 CH)‘s Offer for Haitong International Securities Group (665 HK).
• Key updates took place for: Origin Energy (ORG AU), Estia Health (EHE AU), Newcrest Mining (NCM AU), Liontown Resources (LTR AU), NWS (659 HK),IMAX China (1970 HK), and Eoflow (294090 KS).

• Pulsar Helium (PLSR CN)C; target price of C$0.90 per share: Additional acreage should increase the size of the prize – Pulsar has signed a lease with a private mineral rights holder to expand the area of the company’s Topaz helium project.
• The additional mineral rights are within a 6.2 mile radius of the Topaz discovery and cover a total of 2,840 gross acres (1,049 net acres).
• OMV (OMV AG): 3Q23 update – 3Q23 production was 364 mboe/d.

• Ansell Ltd (ANN AU) reported 11% YoY decline in revenue to $1,655M in FY23. Healthcare business experienced significant customer destocking through FY23, leading to 21% YoY decline in segment revenue.
• Ansell has outlined an investment program to improve productivity and accelerate digitalization for total cost of $70–85 million. The program calls for production as well as job cut.
• Strong headwinds in the glove sector are expected to continue as the global oversupply situation persists. Ansell expects FY24 adjusted EPS to be $0.92–1.12 (down 3–20% YoY).