Australia

• Changes to the S&P/ASX indices, VanEck Vectors Rare Earth/Strategic Metals ETF, VanEck Vectors Junior Gold Miners ETF, Vaneck Aus Equal Weight ETF, and other indices will be implemented 17 March.
• There are plenty of stocks with multiple days of ADV to trade. Some pre-positioning would have taken place prior to announcement and positions adjusted in the last couple of weeks.
• There has been a reversal in stock performance over the last few weeks and short interest has moved a lot in some stocks.

• Australia’s gaming equipment/systems giant is among the best poised to reward shareholders over the next 18 months as sector recovery speeds.
• ALL’s stock performance over the past 5 years amid 3 of covid headwinds has rewarded investors with ~a 62% total shareholder return–including dividends.
• ALL is riding the front of the cashless gaming systems tech which can grow exponentially over the next 3 years in all key global jurisdictions, Asia, US and EU.

• We have compiled a summary of the results and outlook statements for our assessed peers of Ricegrowers Limited, trading as SunRice (ASX:SGLLV), with a particular focus on trading conditions, product pricing, freight costs, outlook statements and consensus earnings changes.
• The overwhelming summary of trading conditions over CY22 was ‘challenging’ outside of Treasury Wine Estates (ASX:TWE) and Ridley Corporation (ASX:RIC).
• The overwhelming outlook commentary assumes normalising weather conditions, price increases recouping cost inflation, lower freight costs, improved labour availability and higher earnings. 

• Harvey Norman Holdings (HVN AU) will be deleted from the MVIS Australia Equal Weight Index at the close of trading on 17 March.
• One way turnover is 3.9% resulting in a one-way trade of A$68m. Only Harvey Norman Holdings (HVN AU) has more than 1 day of ADV to sell from passive trackers.
• Harvey Norman Holdings (HVN AU) has underperformed Myer Holdings (MYR AU) significantly over the recent past and the index deletion could provide an entry point into a trade.

• The upcoming rebalance of the MVIS Australia A-REIT Index will be implemented at the close on 17 March. There are no constituent changes, but there are float and capping changes.
• Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of A$11.1m. There is limited impact on the index constituents.
• The largest inflows are on Stockland, HomeCo Daily Needs REIT, Gpt Group and Charter Hall, while the largest outflows are on Goodman Group, Vicinity Centres, Dexus Property and Scentre Group.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads  21Vianet Group (VNET US), 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Oishi Group PCL (OISHI TB), Toyo Construction (1890 JP), Aag Energy Holdings (2686 HK), Jiangnan.
• Lowest spreads – Norwest Energy NL (NWE AU), Genesis Minerals (GMD AU), GK Goh Holdings (GKG SP), Nitro Software Ltd (NTO AU), Boustead Projects (BOCJ SP), Nissin Electric (6641 JP).

• There are no constituent changes for the MVIS Global Rare Earth/Strategic Metals Index at the March rebalance. There are free float and capping changes though.
• One way turnover is estimated at 3.1% and will result in a one-way trade of US$19m. Flows are relatively small with no impact over 1x ADV on any stock.
• The June rebalance should have constituent changes with an increase in the number of stocks in the index universe.

• Short seller Blue Orca is alleging Atlantic Lithium (ALL LN) is seeking to obtain a Ghanaian lithium mining licence via “textbook corruption”.
• Piedmont Lithium (PLL AU) is a substantial shareholder of Atlantic, together with a co-development agreement for the Ghanaian project, in which the mining license has yet to be ratified. 
• Orca reckons the license ratification will fail the corruption sniff test, which in turn will jeopardise the Tennessee lithium offtake facility, currently awaiting a DOE grant.

• Carsales.Com Ltd (CAR AU) aims to raise around US$330m (A$501m) via a renounceable entitlement offer. The deal is relatively large to digest at 28.2 days of three month ADV. 
• The use of proceeds will be to acquire 40% of Webmotors SA and strengthen its balance sheet. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• X2M Connect Limited (ASX:X2M) has reported a 23% reduction in RaaS-adjusted EBITDA losses (to $2.4m) for H1 FY23 on the back of operating leverage from 96% sales growth, 135% gross profit growth and just a 14% increase in operating costs.
• While sales growth was driven by hardware sales (connected devices +100% over the pcp), hardware margins have improved ~500bps and connected devices in the field ultimately drive SaaS/maintenance fees (platform fees).
• Cash at bank was $3.05m with an additional net $0.5m received in January 2023 from an R&D tax credit. 

Recce Pharmaceuticals is developing a novel class of broad-spectrum synthetic anti-infective drugs to which, so far, all tested bacteria have been unable to develop resistance. This could be a very desirable trait given widespread concerns about antimicrobial resistance (AMR). The lead indication for Recce’s synthetic polymer antibiotic, Recce 327 (R327), is sepsis, a substantial area of unmet need with significant mortality and high costs of care. A Phase Ib/IIa multiple-dose study of an intravenous (IV) R327 formulation in healthy subjects is planned to start in H1 CY23. The company is also assessing other infection indications, such as complicated urinary tract infections (UTIs). A topical (spray-on) formulation of R327 is also being assessed in human trials for burn wound infections, and a new study for diabetic foot infections is expected to start shortly. We value Recce at A$497m, or A$2.79/share.

• Invocare Ltd (IVC AU) has received an unsolicited, preliminary, non-binding indicative offer from TPG Global to acquire the company at A$12.65/share in cash.
• TPG has also acquired 17.8% of the shares in Invocare Ltd (IVC AU) via a combination of stock and derivatives.
• With the company now in play, there could be competing offers. Already owning 17.8% of the company, TPG is now invested in ensuring they gain control.

• PE outfit TPG has taken a 17.8% stake in InvoCare Ltd (IVC AU), Australia’s leading funeral services provider, and also pitched a A$12.65/share non-binding indicative Offer via a Scheme.
• The Indicative proposal is subject to the completion of satisfactory due diligence, and FIRB.
• InvoCare, which has struggled to generate consistent profits in recent years, is mulling the proposal. Pricing is around the Covid cliff. 

• Ventia (VNT AU)’s two largest shareholders, Apollo Global Management and CIMIC Group, aim to raise around US$272m via a secondary block deal. 
• The deal is a relatively large one to digest at 77 days of three month ADV and about 19.5% of current mcap. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• AFR reports that TPG Capital, through UBS, is seeking to acquire 14.4m or 10.00% of Invocare Ltd (IVC AU)‘s outstanding shares at A$12.65, a 41.3% premium to the undisturbed price.
• If the aftermarket raid is successful, TPG will follow the tried-and-test private equity playbook of securing a pre-bid stake before lobbing a non-binding offer at A$12.65 per share
• TPG has timed its move to take advantage of the post-results price slump. While not a knockout offer, it is a starting point for the Board to secure better terms.

• The OZ Minerals (OZL AU) Scheme Meeting for the acquisition by BHP Group (BHP AU) will be held 13 April. The stock could stop trading post close on 18 April.
• OZ Minerals Ltd (OZL AU) is a member of the S&P/ASX100 Index and S&P/ASX 200 (AS51 INDEX) so there will be replacements made at the close on 18 April.
• Passive trackers will need to buy a fair amount of stock (with a decent impact) on the potential inclusions and the stocks could outperform over the next few weeks.

• Whitehaven Coal (WHC AU) underwhelming capital allocation in H1 2023 may have disappointed investors, but armed with a war chest of 2.47 bn AUD (35% mkt cap), we remain optimistic.
• The company aims to purchase 240 mn shares ( or about 25% of outstanding shares ) over and above the 10% it completed from last year’s buyback phase. 
• Trading at 2.2x/3.2x  FY23e/FY24e, the stock is extremely cheap with a conservative dividend yield of 9.1%/6.3% FY23e/FY24e ( assuming a 20% dividend-only payout ratio). 

• The IE considers BHP Group Ltd (BHP AU)’s A$28.25 offer for OZ Minerals Ltd (OZL AU) to be fair and reasonable as it is within its valuation range of A$27.37-30.47. 
• Copper prices and peers’ share prices have risen since the deal announcement. The IFA address perky copper prices by using reasonable long-term copper prices to value the assets.
• This is done with no hint of a competing bid. At last close price and for the 2 May payment, the gross and annualised spread is 0.9% and 6.1%, respectively.

• On 2 March, the Court approved the distribution of the OZ Minerals Ltd (OZL AU) Scheme Booklet, which was posted on 3 March 2023. The Scheme Meeting is 13 April 2023.
• The Independent Expert has concluded the Scheme is Fair and Reasonable and in the best interests of OZL shareholders. Directors unanimously support.
• This deal is almost certainly done. The IE report is, as is often the case, enormously informative. Watch the franking credit timing. Not a lot of spread left here.