In this briefing:
- LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
- Moore’s Law May Not Be Dead, After All
- Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
- MYOB (MYO AU): Manikay’s Valuation Requires Flawless Execution
- Brexit Sucking up Oxygen from the FX Market
1. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus.
2. Moore’s Law May Not Be Dead, After All
For years semiconductor makers and investors have worried that Moore’s Law will end. Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.
3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.
Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016
4. MYOB (MYO AU): Manikay’s Valuation Requires Flawless Execution
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
5. Brexit Sucking up Oxygen from the FX Market
- Brexit fear diminishing boosting GBP and other currencies
- Eurozone IP rebounds, the first sign of stabilisation
- Pressure increases for a rate cut in Australia
We can see a case for GBP to rise towards 1.40 helping recoveries in EUR and AUD, and weakening the USD more broadly. But the outlook for a more sustained period of low EUR rates, no structural underweight in EUR, and limited demand for Euro assets suggest that its upside may be limited. Rate cut expectations have reached a new peak in Australia, and the AUD should continue to remain heavy. Chinese economic reports (trade, credit, PMIs) have been weak, Jan/Feb activity data are due later today. The overall outlook for the USD remains mixed and cautious trading continues to be advised. Event risk will keep traders playing the short game.
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