In this briefing:
- Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential
- Memory Chips and the Elasticity Myth
- Nutrien’s Move On Ruralco Makes Agronomic Sense
1. Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential
Whilst Smartgroup Corporation Limited (SIQ) has reported a solid set of 2018 earnings, the real story is not the results, but the outlook.
We examine the potential for the company to simply deliver a multiple expansion. If SIQ succeeds with some further consolidation of acquisitions. The potential for this Event-driven upside is significant if this is combined with additional earnings trends.
Furthermore, the stock rank system which the company is benchmarked against suggests potential to post an upgrade, which inevitably fuels share price performance.
2. Memory Chips and the Elasticity Myth
During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
3. Nutrien’s Move On Ruralco Makes Agronomic Sense
Ruralco Holdings (RHL AU) has announced it has entered into a Scheme Implementation Deed in which Nutrien Ltd (NTR CN) has agreed to take Ruralco private at $4.40/share – a 44% premium to last close and the one-month VWAP. The Offer values Ruralco at A$469mn and an enterprise value of $615mn.
A fully franked special dividend of A$0.90 will reduce the Scheme consideration. An interim dividend of A$0.10 will be added.
The Scheme is subject to shareholder approval, and approval from the ACCC and FIRB. Previous commentary bv ACCC’s Rod Sims would indicate this regulatory approval will not be an issue.
Ruralco’s directors unanimously recommend the Offer in the absence of a superior proposal and a favourable independent expert opinion.
Concerning shareholder reception to the Scheme, Ruralco’s CEO Travis Dillon said “The feedback we’ve had … with all stakeholders, but including our shareholders (has been) overwhelmingly positive.“
This is a pretty clean deal and the gross/annualised spread of 1.4%/4.1%, assuming late June completion, reflects this.
A counter offer from Elders Ltd (ELD AU) cannot be ruled out. But given its comparative size, Nutrien would be the likely winner in such a scrap, potentially reducing the likelihood of Elders making an offer.
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