In this briefing:
- Watch Out for Dovish Noises from the Fed and RBA
- China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
- Lynas Investor Briefing – Looks Like More Capex Ahead
- GrainCorp: Demerger Underpins the Share Price but a Second-Best Option
- APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms
1. Watch Out for Dovish Noises from the Fed and RBA
We see scope for dovish noises from the FOMC minutes and Fed speakers. The Fed appears to be in the process of shifting towards adopting an average inflation target, which should make them more sanguine if inflation rises above the 2% target and more responsive to signs that economic growth may be slowing. We expect no substantive changes in policy guidance from the ECB this week. The RBA has opportunities in a speech and the financial stability review this week, and its minutes next week to flesh out what appears to have been a shift to an easing bias earlier this month.
2. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.
3. Lynas Investor Briefing – Looks Like More Capex Ahead
At noon Sydney time Lynas Corp Ltd (LYC AU) held an investor briefing by webcast regarding comments made by the Malaysian Prime Minister in his first cabinet press conference on Friday 5 April 2019. Those comments were noted in the ASX regulatory update.
4. GrainCorp: Demerger Underpins the Share Price but a Second-Best Option
Graincorp Ltd A (GNC AU) said on Thursday it plans to spin off its malting and craft brewing distribution business (MaltCo). The proposed demerger, which will complete at the end of the year, would result in two independent ASX-listed companies – MaltCo and GrainCorp’s Grains and Oils businesses (New GrainCorp).
In the absence of an LTAP binding proposal, the GrainCorp Board to their credit has proposed an alternative way to create shareholder value or at least minimise a share price fall. Unfortunately, the proposed demerger is unlikely to be superior to the LTAP proposal, in our view.
5. APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms
On 5 April, Ap Eagers Ltd (APE AU) announced that it had lobbed an unsolicited all-scrip takeover for Automotive Holdings (AHG AU)/AHG. Under the proposal, AHG’s shareholders would receive 1 AP Eagers share for every 3.8 AHG share. In a 100% acquisition scenario, AP Eagers shareholders would own 75.5% of the merged AP Eagers-AHG.
Presumably, AP Eagers believes its proposal delivers fair value to both AP Eagers and AHG shareholders. While AP Eagers’ bid provides some relief for AHG shareholders, our analysis suggests that AP Eagers’ bid requires a bump to cross the finish line.
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