Is QBE a takeover target?
What Mattered Today
A fairly soft session to kick off the trading week with the market opening lower following some slight weakness overseas + we also saw some Trumpism over the weekend which prompted selling in the $US on open this morning – seems that got investors into profit taking mode with some decent conviction, the index down more than ~60pts at the lows. Protectionism, anti-immigration, travel bans, walls and a number of other calls is starting to get investors somewhat nervous. We reiterate our view that selling strength on the expectation that we’ll get an opportunity to buy weakness courtesy of a handful of likely triggers is the way to play the market at the moment.
On a positive note, news that QBE might be in the sights of overseas acquirers got that stock up early on but the rally fizzled on the realisation that a takeover, at the prices discussed ($15) would not get shareholder support. More on that below.
Elsewhere, another BIG downgrade from a high PE stock Aconex (ACX) - which finished down 45% on its lows, while Servcorp (SRV) also lowered guidance and was smacked by 19%. On the flipside, Warnambool Cheese (WCB) got a takeover bid from its major shareholder Saputo which saw that stock up almost 24% - although not sure who else owns the stock given liquidity is so low.
Golds did well with a number of production reports dropping today – Newcrest (NCM) of most interest to us with the stock moving higher by +1.27%
We had a range today of +/-65 points, a high of 5708 a low of 5643 and a close of 5661, off -52pts or -0.92%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
QBE Insurance; There were a couple of articles out last week that were fairly vague around the potential for a QBE takeover however some meat on the bone in one out Friday and this got some airtime in the AFR this morning. According to media, Alliance is keen to BUY QBE for around $20bn or $15 a share and that got buyers revved up this morning with the stock hitting a high of $12.97 only to close at $12.35. We own QBE and from our own perspective, $15 (for a takeover) is too cheap. Insurance is at the bottom of the cycle and QBE’s earnings are extremely leveraged to higher US Bond yields. Every 1% increase in US bond yields adds $US250 million to the QBE bottom line. A 22% premium to the last traded price is simply too low. The art of investing is buying low, selling high. QBE (unfortunately) have been guilty of buying high, with a string of (now) overpriced acquisitions. Surely they would not then turnaround and SELL low?
Aconex (ACX); A very rough day for ACX with shares down more than 45% following downgraded guidance – the construction software coy which has been a mkt darling in recent times downgraded guidance by somewhere between 10% & 32% for 2016-17, and think now they’ll do earnings of $15-$18m versus $22-$25m expected. They used the old excuse of ‘Trump’ and ‘BREXIT’ for unsettling sales which is pretty hard to digest. Still on a high PE and now with weak earnings momentum. Give it a wide birth.
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ASX 200 Movers
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