Australian Investment Blog

WHAT MATTERED TODAY

Aussie stocks came under some pressure today, however most of the selling happened in the first hour of trade and the volume was incredibly light – a consequence of school holidays no doubt. Asian markets were mostly weaker while US Futures traded in the green throughout - however the moves were fairly lethargic across the board. Whitehaven Coal (WHC) were out with an ok scorecard today meeting production expectations that were lowered back in January for the full year, while Ramsay Healthcare (RHC) traded for the first time since their subsidiary Ramsay Générale de Santé, which RHC owns 50.9% of lobbed a $1 billion bid for the Stockholm-listed European rival Capio.

Elsewhere, there was some strong selling across the Lithium names today, with the sector giving back a whack of last week’s strong outperformance – Kidman Resources (KDR) has been hit particularly hard in recent months while Pilbara (PLS) and Orocobre (ORE) have been the two relative performers over the past view months. Gold stocks were interesting today – Newcrest (NCM) back down at $21.00 / -2.01% while Evolution (EVN) fell more than 4% to close at $3.17.

A slew of Chinese economic data was out at midday headlined by Chinse GDP which was inline with expectations at 6.7%. Industrial production was the biggest miss printing 6% versus the 6.5% expected.

Chinese Economic Data Today

Overall, the ASX200 lost -27 points, or -0.43% to close at 6241 – Dow Futures are currently trading up +33pts.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; JP Morgan put a more bullish note out on Brambles (BXB) and that has helped support the stock in recent weeks after a pretty torrid last 12 months or so. Brambles Likely to Gain From U.S. Industry Performance they say.

Elsewhere…

· Freedom Foods Cut to Reduce at Morgans Financial; PT A$5.50

· Alumina Upgraded to Outperform at Credit Suisse; PT A$3.10 – We like AWC and looking for an opportunity to buy again

· Hotel Property Upgraded to Overweight at JPMorgan; PT A$3.30

· OceanaGold Cut to Sector Perform at National Bank; PT C$4.25

· Huon Aquaculture Rated New Buy at Shaw and Partners; PT A$5.73

Ramsay Healthcare (RHC) $55.09 / +0.86%; It’s been an eventful few weeks for Australia’s largest hospital operator with the ink just drying on a disappointing earnings downgrade while over the weekend Ramsay’s French subsidiary, Ramsay Générale de Santé, which RHC owns 50.9% of lobbed a $1 billion bid for the Stockholm-listed European rival Capio. The bid has been re-bucked by Capio in the first instance however we doubt this will be the end of it.

Capio shares are now trading above the 48.5 Swedish Crown bid price which implies Ramsay have simply fired the first shot in a potential bidding war. Reading Credit Suisse research today on the deal, they reckon that RHC will need to sweeten the price substantially to get it across the line, and we tend to agree. Capio is a great operator particularly in the use of technology to improve better health outcomes across its network, something that would no doubt appeal to RHC, allowing them to roll out ‘Capio smarts’ across the broader RHC business.

While an overheated bidding war is not ideal in the short term for the RHC share price, we think the deal makes sense in the longer term assuming they maintain disciplined in the negotiation process.

Traders sold early but the pain was short lived and the stock closed in the green – looks bullish here.

Ramsay Healthcare (RHC) Chart

Sirtex Medical (SRX) $32.03 / -0.06%; Sirtex today announced the U.S. Federal Trade Commission has approved the private equity buy out by Chinese firm CDH Investments. FTC approval is one of a number of hurdles the deal has had to overcome, after first bettering US listed Varian Medical System’s offer and then gaining Australian Foreign Investment Review Board approval earlier this month. The offer for $33.60/share is a huge 78% premium to the last traded price before Varian’s offer in January has been given the board’s approval, and now just faces either a rival bid or a shareholder revolt – seems unlikely given the premium being offered.

Sirtex has been on a wild ride, falling over 50% in 2017 due to a profit warning late in the year among other issues. As a result, shareholders have welcomed the takeover news. The stock is still trading at a 5% discount signalling the deal still has small hurdles to overcome, although we see this as unlikely and expect to see SRX disappear from the market in the not too distant future.

Sirtex (SRX) Chart

Whitehaven Coal (WHC) $5.48 / -2.14%; Down today after they announced full year production numbers of 20.9mt which was within their guidance range of 20.5-21mt, although that had been lowered back in January from previously 22-23mt. QoQ production and sales momentum was noticeably lower. While WHC has enjoyed a considerable commodity price tailwind, commentary from the CEO today to me felt like ‘top of the cycle’ stuff!

Whitehaven Coal (WHC) Chart

OUR CALLS

No changes to the portfolios today.

Have a great night

James / Harry & the Market Matters Team

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