Afternoon Report / Takeovers ignite the ASX today (MTR, SHV, FMG, BHP)

By Market Matters 09 October 17

Takeovers ignite the ASX today (MTR, SHV, FMG, BHP)

Market Matters Afternoon Report 9th October 2017

A more bullish session today than overseas leads + local futures were suggesting this morning, with some combined buying amongst the banks and miners early on, although the miners were sold pretty aggressively from their earlier highs – more on that below. I love seeing headlines of corporate activity on the ASX – takeovers and the like – it tends to give a shot in the arm to an otherwise dull market + improves confidence and speculation of more to come with 2 such headlines coming across the ticker this morning – Mantra and Select Harvest both copping bids. We actually should see more of this in coming months given the end of super low interest rates is clearly approaching – and corporates can lock in cheap borrowing ahead of any rate hikes + organic growth is hard to generate and cost cutting to support earnings growth can only last so long! 

Overall, it was the beaten up retailers that did best on market today – Harvey Norman one of the better ones adding +1.8% to close at $3.93 after a fairly torrid run in recent times – the consumer discretionary sector adding +1.21% overall while the Energy stocks were weak, down by 0.09% following weakness in Crude prices last week, although some rig shutdowns in the US over the weekend cushioned the blow from the ~3% decline in Oil on Friday. Choppiness continues in that sector and that’s likely to be the theme for some time – taking a more active approach to energy stocks makes sense to us. Currently we have a small exposure to Santos in the Platinum Portfolio.

A range today of +/- 48 points, a high of 5759, a low of 5711 and a close of 5739,  up 28pts or +0.50%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

Takeovers – Mantra (MTR) & Select Harvest (SHV)  

MTR is a stock we’ve been in an out of in the past, liked the story, saw upside in terms of their exposures to Asian tourism and was keen from a valuation perspective, however the stock often looked poor technically and we finally cut and run from the holding. Somewhat frustratingly, today Paris-based hotel giant Accor has made a $1.2 billion all cash offer to buy Mantra at $3.96 a share, or $4.02 when you include the 6¢ final dividend paid in 2017 – the offer is all cash and represents a 23% premium to Fridays closing price of $3.23. We’d spoken of this stock as a potential takeover target in prior notes however we were not on the horse when it came though! The stock obviously rallied today closing up 16.41% at $3.76. Mantra operates 125 properties under the brands of Mantra, Peppers and Breakfree. At this stage, Accor has been granted access to DD which seems promising.

Mantra (MTR) Daily Chart

SHV was probably more interesting given they received a takeover bid – knocked it back – then launched an equity raising to pay down debt. SHV traded last Wednesday at $4.20 (before entering a trading halt) and received an indicative offer (with conditions) from Mubadala at $5.85 - which is a big premium. SHV saying it undervalues the company and now they have launched this equity raising ($65 million)  via a non-underwritten institutional placement at $4.20 + a share purchase plan for retail shareholders at the same price as a clear defence strategy.  Obviously, there will be a big scramble for stock in that raise.

Select Harvest (SHV) Daily Chart

Resources – a BIG reversal from early highs this morning in the likes of BHP / Fortescue and others as we saw some weakness in Iron Ore Futures in Asia throughout the session – settling down around 3% at time of writing. FMG in particular looks primed for another leg lower and on that move, we’ll look to be buyers again – a similar story / pattern playing out in BHP & RIO. Watch for alerts.

Fortescue Metals (FMG) Daily Chart

BHP Billiton (BHP) Daily Chart

Have a great night

The Market Matters Team


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