Australia

• The index changes for the ASX Index family for the March 2023 Rebalance were announced after the close on Friday 3rd March 2023.
• There will be one, two, and four changes for ASX 20, ASX 100, and ASX 200 indices, respectively. There will also be 12 ADDs and 9 DELs for ASX 300.
• In this insight, we take a closer look at our expectations for index flows, short interest, and recent price performance of the names involved in the rebalance event.

AFT Pharmaceuticals (AFT) has announced it has received FDA approval for Maxigesic Rapid tablets, a quick-release version of its flagship Maxigesic product line. Notably, this marks the first regulatory win for AFT in the US (the world’s largest analgesic market), valued at c US$7bn. While AFT awaits Maxigesic IV’s clearance in the US, we expect this approval to help it build initial commercial traction in this high-margin market. The Rapid tablets, a patented combination of paracetamol (325mg) and ibuprofen (97.5mg), has been authorised for the treatment of mild-to-moderate acute pain. Negotiations with potential distribution partners are ongoing, with plans to release other dose versions in the future. The market has reacted positively to the news, with shares trading up by 10% at close of business.

Paradigm has presented its half yearly results and accounts, reflecting an active period. This included an encouraging safety review for injectable pentosan polysulfate sodium (iPPS, Zilosul) in the pivotal Phase III trial (PARA_OA_002) for patients with knee osteoarthritis (kOA) pain. The Phase II (PARA_OA_008) biomarker trial reached its primary endpoint, positioning iPPS as a potentially disease-modifying drug. In our opinion, the initiation of the confirmatory Phase III trial (PARA_OA_003) and six-month follow-up results from the PARA_OA_008 trial represent major catalysts expected in CY23. At end-December 2022, the company had A$83.9m cash, supported by an August 2022 capital raise of A$66.0m.

• Pureprofile Ltd (ASX:PPL) is a data analytics, consumer insights and media company underpinned by proprietary technology, servicing business decision makers in brands and media companies as well as market researchers.
• The company has an established position delivering insights to clients across 89 countries and has captured through its panel fully declared, deep consumer profiles, first-party data and insights.
• Pureprofile has delivered a better-than-forecast 19% increase in H1 FY23 sales revenue to $24.8m and H1 EBITDA adjusted of $2.16m, down 12.9% on the previous corresponding period due to the loss of income from the UK premises, new premises in India, forex losses and a bad debt provision. 

• As per Downer (DOW AU)‘s website: “Our purpose is to create and sustain the modern environment by building trusted relationships with our customers“. They should extend that trust to shareholders.
• Having already announced accounting irregularities back in December, Downer further cut profit forecasts – and interim dividend – this week. After shares cratered 24%, Downer’s CFO promptly tendered his resignation.
• Allan Grey, which holds 6% in Downer, reckons the company has been inept and that a “culture reset” was in order. 

• Downer EDI Ltd (DOW AU) shares are battered on the back of two quick successive profit warnings, accounting restatements and dividend cuts.
• A worrying deterioration in cash generation and an increase in leverage add to the nervousness. Management flux adds to the uncertainty and the chance of a third profit warning.
• While Downer’s multiples are in line with peers, momentum is against it and there are question marks if the earnings have been flattered by the misuse of exceptional items.

• Mayne Pharma (MYX AU) reported triple-digit revenue growth in branded products division in H1FY23, driven by oral contraceptive Nexstellis, which contributes ~80% of segment sales.
• The company had an encouraging start to H2FY23. Both Nexstellis and dermatology are expected to exit FY23 with a positive run-rate contribution.
• The company has decided to cancel the previously proposed pro rata capital return and intends to use its cash in a better and productive way.

Respiri’s H123 report summarised an eventful period, marked by commercial traction (six client wins; patient onboarding commenced at four centres) and recognition of the first remote patient monitoring (RPM) revenue from the Centers for Medicare & Medicaid Services (CMS). H123 revenues were A$0.6m (primarily R&D tax credits), lower than A$0.7m in H122, but we expect (wheezo-related) product sales to ramp up with increased patient onboarding and associated annuity income. The partnership-based US commercial strategy, along with tight checks on expenses, benefited operating performance, with the adjusted EBITDA loss improving 15% y-o-y to A$2.3m. The end-H123 cash balance of A$0.2m was bolstered by the A$1.9m post-period equity raise, which we estimate will provide runway into Q124. We adjust our estimates to reflect H123 performance and FX changes, which resulting in revising our valuation to A$165.5m or A$0.20/share (from A$189.1m or A$0.24/share previously).

• For the month of February, 14 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$23bn.
• The average premium for the new deals announced (or first discussed) in February was 34%.
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• The review period for the March rebalance ended yesterday. Announcement of the changes will be made on 10 March and will be implemented at the close on 17 March.
• Mineral Resources (MIN AU) is a potential index inclusion if it is added to the index universe with lithium revenues nearing the 50% threshold.
• ioneer Ltd (INR AU) is very close to the 98% deletion threshold and could be removed from the index at the March rebalance.

Alkane has announced an initial inferred resource estimation at its Kaiser deposit based on approximately 49,000m of drilling, using a 0.3g/t gold equivalent (AuEq) cut-off required for open-cut mining at the deposit. The programme concluded with an estimate of 270Mt grading at 0.54g/t AuEq for 4.7Moz AuEq (0.48Mt Cu, 2.05Moz Au). As a result, the value of contained copper now surpasses the value of gold in the Boda-Kaiser deposits. Additional exploration is now underway at Boda and Kaiser, with updated resource estimation expected at the end of CY23.

• Beleaguered law firm Slater & Gordon (SGH AU) has announced an A$0.55/share cash off-market Offer from Aussie PE outfit Allegro.  
• The key condition is Allegro acquiring a a 50.1% interest. This condition may be waived. 
• The Offer was more than welcome by S&G’s board. “We don’t belong on the stock exchange,” said  CEO John Somerville.

• Connexion Telematics (ASX:CXZ) is a software supplier for Courtesy Transportation Programs (CTPs) run by OEMs in the automobile space.
• General Motors (GM) in the US is CXZ’s key customer. CTPs are seen as a key marketing programme, incentivising franchise dealer groups to provide new vehicle models for customers to drive, be it for a service loan, rental or a test drive.
• Dealers are compensated for every day and mile the car is on loan, but to receive compensation, they must subscribe to the OnTRAC software powered by CXZ for audit/compliance purposes. 

• Kingston Resources Limited (ASX:KSN) is an ASX-listed gold and copper mining company with two significant projects at Mineral Hill (Cobar, NSW), where the tailings production project is delivering record quarterly results, and the 3.8Moz Misima Gold Project in PNG, with a recently completed DFS.
• The tailings project at Mineral Hill is a precursor to the company’s aim to return to full-scale mining through building the reserves and resources base during 2023.
• The company expects to commence open-pit operations at the Pearse deposits in early 2024, progressing to underground works and first copper in late 2024 from the Southern Ore Zone.

• Best & Less (ASX:BST) is a leading ‘value apparel speciality retailer’ with a particular focus in baby and kids wear (~50% of revenue).
• The group has 245 stores under the Best & Less brand in Australia (183 stores) and Postie brand in New Zealand (61 stores).
• As an apparel based omni-channel retailer the cycling of lockdowns and a wet/cold beginning to the FY23 summer period impacted both like store sales and resulting gross margins due to clearance activity.

• Southern Cross Gold Ltd (ASX:SXG) is an ASX-listed gold and critical metals company with three projects in the Victorian goldfields and one in Mt Isa, Queensland.
• The company’s flagship project Sunday Creek is an epizonal gold-antimony deposit with antimony a critical metal used across the semi-conductor, defence and energy sector, in particular in lithium ion battery production.
• SXG listed on the ASX in May 2022 after raising $9.093mn at $0.20/share in an initial public offering to give a market capitalisation at listing of $31.25mn. 

• Pacgold Limited (ASX:PGO) is an ASX-listed minerals exploration company focused on the Alice River gold project at the northern end of the North-east Queensland Mineral Province.
• Pacgold has a 100% interest in Alice River, covering an historical high-grade goldfield and open-pit mine with eight mining leases and five exploration permits over an area spanning 377km2.
• The company commences drilling in March/April with a pipeline of high-grade targets along a previously overlooked 30km trend.

As expected, the NSW Minister for Planning has approved Alkane’s Tomingley Gold Extension Project, allowing both open-cut mining at the Roswell and San Antonio deposits (including underground mining at the former) and extending the mine life to 2032. The approval accepts a processing rate of up to 1.75Mtpa, with underground mining due to commence at Roswell before the end of CY23. Financing has been secured via A$50m of debt funding from Macquarie Bank, together with 100koz of gold hedging at a weighted average price of A$2,825/oz (US$1,928/oz).

• Star Entertainment Group (SGR AU) is looking to raise A$685m via an ANREO of 3 shares in The Star for every 5 shares at a fixed price of A$1.2/share.
• The A$1.2/share price is a 21.1% discount to the last close and a 14.3% discount to the Theoretical Ex-Rights Price (TERP) of A$1.4/share.
• Short interest is near the highs and there is an index deletion pending. We’d look to buy the stock on a move lower, especially closer to index deletion.

• Star Entertainment Group (SGR AU)‘s announced it intends to raise $800mn after reporting a statutory $1.26bn 1H23 loss.
• This equity raising will be broken down into a A$685mn non-renounceable entitlement Offer and a A$115mn institutional placement. The equity raising is fully underwritten. 
• Star also announced it has secured covenant relief through to June 2025. Star’s immediate focus is to get its house in order and prove its suitability to hold casino licences. 

• Potentia has returned with an improved three-part offer for Nitro Software Ltd (NTO AU). The base offer of A$2.17 is 0.9% higher than Alludo’s A$2.15 offer. 
• The offer could rise to A$2.20 or A$2.25 per share based on hitting additional conditions. There is a clear path for the final offer to reach A$2.20 per share. 
• A A$2.25 per share offer is unlikely due to the onerous 25% scrip acceptance condition. At the last close, the gross spread to the likely final A$2.20 offer is 0.5%.

• Star Entertainment Group (SGR AU) will raise A$800 million with a fully underwritten 3:5 pro rata accelerated non-renounceable entitlement offer and institutional placement at A$1.20, a 13.6% discount to TERP.
• The equity raise of A$800 million will maintain leverage within the targeted 2.0x-2.5x net debt/EBITDA long-term range in our fines high-case scenario.
• Adjusting for the raise, Star trades at a discount to peers. While the shares will be under short-term pressure due to the raise, there is long-term value for the brave. 

• Millennium Services Group Ltd (ASX:MIL) has delivered a H1 FY23 result well below prior forecast, with a two-month timing lag between wage increases and pass-through impacting the gross margin over H1 FY23 (down ~190bps to 14%).
• With these costs now passed through under contract, gross margins improved in Q2 FY23 and are forecast to average around 15% for FY23, implying H2 FY23 margins of ~16%.
• This combined with ~$25m-$30m of new contract business wins over the past six months puts the business in good stead for solid growth in H2 FY23 and into FY24. 

• The Brookfield/EIG consortium has reduced its Offer for Origin (ORG AU) to ~A$8.90/share, down from A$9.00/share, after conducting due diligence in the wake of the Aussie government’s gas price intervention.
• Oddly, this revised proposal remains non-binding, suggesting a number of political kinks still need to be ironed out.
• For its part, Origin’s board reckons the revised proposal has the potential to deliver significant value to shareholders, all but guaranteeing board support, assuming a firm Offer unfolds.

• Origin Energy (ORG AU) has disclosed a revised non-binding proposal from Brookfield/EIG. The headline price has been lowered by -1.1% from A$9.00 to A$8.90 per share.
• Under the revised proposal, shareholders’ first 100,000 shares get A$8.90. Beyond that ownership, the offer is A$4.334 plus US$3.194 per share (currently worth A$8.99 per share). 
• While the recut introduces FX rate risk, the average implied value is A$9.01 since 10 November. Both the offeror and the Board seem keen to get a binding offer.

• Sibanye-Stillwater (SGL SJ), the holder of 19.9% of shares, has made an off-market takeover for Queensland zinc miner New Century Resources (NCZ AU) at $1.10/share, a 42.9% premium to last close.
• Sibanye-Stillwater said it was concerned about the change in the strategic direction of NCZ under the current management.
• Concurrently, Sibanye-Stillwater has made an on-market buy order for 10.92% (14.4mn shares) of shares out to take its stake to ~30%. Shares closed at $1.095. ~32mn shares changed hands.

Respiri has announced the successful completion of the Michigan Children’s Hospital’s pilot programme assessing the wheezo SAAS (Respiri and partner Access Telehealth) platform. The initial March 2022 agreement enabled pulmonologists to employ wheezo to increase the engagement of paediatric patients with asthma. The hospital will include the wheezo RPM programme in its current standard of care for eligible asthma patients. We expect the paediatric population to be one of the cohorts to find the most utility from the wheezo monitoring protocol (given this population is not always able to self-identify and flag symptoms) and usage feedback from these patients is anticipated to be crucial for Respiri. We also note the Michigan Children’s Hospital is a part of the of the NYSE-listed Tenet Healthcare Corporation (over 60 hospitals across the US) and uptake, if encouraging, can support a broader roll out.

• Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas assets.
• EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
• The NT energy basins are fast developing as strategic high calorific gas bolsters for east coast Australia’s future domestic requirements, growing Gladstone LNG ullage and potential supply for Darwin’s expanding LNG export terminals, amid funding support from territory and federal governments.