The Week Ahead

In the coming week, Aussie consumer and business confidence surveys will dominate the economic data releases. Household spending, business turnover, payroll job and wages data will also be issued. Earnings Reporting Season continues with a larger list of earning statements being made this week.

Overseas, both US and Chinese inflation data issued on Wednesday will dominate investor attention. In the US, economists expect that annual growth rate of headline consumer prices could slow from 9.1% (highest annual rate in 41 years) to 8.8% in July. China's July international trade figures will highlight China’s trade surplus hitting a record high in June as exports surged after Shanghai emerged from its “Covid- Zero” lockdowns and virus outbreaks eased.

US policymakers responded to the pandemic shutdowns with the most aggressive fiscal and monetary stimulus in over 75 years. As a result, monetary policy since the pandemic is most like that of the years right after World War II (WWII). Strong M2 money-supply growth in the mid-1940s created double-digit inflation that quickly subsided as M2 growth fell two standard deviations below normal, causing slight consumer price deflation by 1949. A similar pattern today suggests inflation could fall much faster than expected over the next two years. The economy is expected to continue to lose momentum until the Federal Reserve stops draining liquidity with its aggressive quantitative tightening schedule.

Some corporate highlights from last week

Energy & Resources

Eyes on Glencore’s CSA Mine sale post copper sell-off - Glencore’s snap decision to cash in its 6.4 per cent stake in Yancoal Australia has put the spotlight on one of its other divestments, CSA Copper Mine in NSW. Glencore signed a $US1.1 billion deal to sell the mine to NYSE-listed Metals Acquisition Corp in March, which would also see it issued a $US50 million stake in the company. MAC was to fund the deal with a mix of debt and equity. Its funding included $US375 million senior secured debt underwritten by Citi and CBA, a silver streaming agreement worth $US90 million with Osisko Gold Royalties, $US175 million in mezzanine convertible debt via Sprott, and equity. The final piece worth $US418.25 million was to be sourced from cash (its $US265 million in trust, raised at IPO), new equity and alternative sources. More than four months later, the deal’s still to complete. The price of copper is down about 25 per cent since MAC signed the deal in March, hitting valuations on listed copper stocks in Australia and offshore. (1 August 2022).

Finlayson ‘patient’ as St Barbara rebound raises merger price - Raleigh Finlayson’s plan to consolidate the historic gold mining province around his childhood home in Menzies and Leonora is getting more expensive daily. Mr Finlayson’s new explorer Genesis Minerals wants to drive “logical” consolidation of the fractured gold province around Leonora and Laverton, under a plan that relies heavily on the team, the investors and positive reputation Finlayson garnered over the seven years he spent steering gold miner Saracen from microcap to a $6 billion company and a merger with Northern Star. Mr Finlayson suggested he is not in a rush to strike a deal with St Barbara, despite the fact such a deal has notionally become $330 million more expensive over the past month after a recovery in St Barbara’s depressed share price. (1 August 2022).

Genex Power knocks back Skip, offers management meetings - It’ll take more than a 70 per cent premium and a clean cash offer to get a proper look under the bonnet at renewable energy group Genex Power. It is understood Genex’s board told Skip Capital and bid partner Stonepeak it wouldn’t give it a full look at the books at 23¢ a share. It’s a big call by Genex. The rejection was described as a “soft rejection”, indicating that Genex’s board wasn’t opposed to recommending deal, just not a first offer at 23¢. The board wants shareholders to think about last year’s trading, when Genex was regularly around Skip/Stonepeak’s 23¢ mark, and small cap broker target prices of 29¢ to 35¢. It also reckons there’s signs of better times ahead - There’s strong wholesale electricity prices are in its favour in the near term, while the longer term story is propped up by Labor government policy to target 82% renewables by 2030. (31 July 2022).

QIC thinks about doubling down with CWP - Renewable energy’s one of the hottest scale games in town, so perhaps we shouldn’t be surprised to hear that QIC Ltd’s going back to the well. CWP is owned by Partners Group and is up for sale via Macquarie Capital. First round bids are due in early September. CWP is the biggest of the several renewable energy projects currently up for sale, and has long-term PPAs with counterparties including Sydney Airport, SnowyHydro, Transurban, Telstra and Australian banks. The weighted average contract was 12 years long and 70 per cent of the revenues were contracted to 2030. (31 July 2022).

Financial Services

Barrenjoey signs with Forsyth Barr for Kiwi deals, research - New investment bank Barrenjoey Capital Partners will be out for a larger slice of Trans-Tasman deal flow, after signing an old-fashioned strategic alliance with Kiwi broker Forsyth Barr. Barrenjoey and ForBarr will have access to each other’s institutional equities research and trading, corporate advisory and capital markets teams, in a bid to offer clients expertise of both firms. They worked alongside each other on Ventia Services’ IPO last year, and were jointly preparing Graeme Hart’s Building Supplies Group for the ASX-boards before the IPO market closed. ForBarr is one of the bigger NZ broking houses servicing both institutional and retail clients, competing against the likes of Jarden, Craigs Investment Partners, UBS and Macquarie. (2 August 2022).

Suncorp investors will not vote on ANZ’s $4.9b bank purchase - Suncorp investors will not be given a vote on the $4.9 billion sale of its bank despite it making the lion’s share of profits in the latest results because the deal avoids two sharemarket triggers. Meanwhile, politicians are debating pledges on keeping the bank’s operations in Suncorp’s home state of Queensland. The ASX confirmed it had reviewed the offer in extra detail to confirm a shareholder vote was not required. Suncorp is a conglomerate of insurance and banking operations. The bank in the previous six months generated $200 million in profit, the Australian insurance arm generated $114 million and the New Zealand division $81 million. (1 August 2022).

Pendal takeover wouldn’t mean smooth sailing for Perpetual - Equity analysts are bullish on Perpetual, but would another acquisition really calm the choppy waters facing active managers? When it comes to Perpetual Limited, equity analysts seem quick to give the blue-chip investment house benefit of the doubt. “As a fund manager, it was always likely Perpetual would suffer a tough fourth quarter – and so it proved,” Citi Research wrote in its note to clients on July 25, following Perpetual’s update for the three months ended June 30. Of the $7.5 billion wiped off the firm’s total assets under management (AUM), a decline of 8 per cent in just three months, $4 billion was attributed to investors actively pulling their money out of Perpetual’s Australian and international funds. (31 July 2022).

EY rules out trade sale in global staff briefing about split - EY global boss Carmine Di Sibio told staff no decisions had been made about splitting the firm, but ruled out a trade sale of the advisory business. EY’s consulting partners have already been told they would have their cash pay cut by up to 40% to reduce costs if they split off into a standalone company. This would be offset by the consulting partners receiving shares worth as much as 7 to 9 times their annual income, estimated to be worth as much as $US8 million ($11.6 million). Staff were told that the audit-focused “AssureCo” would have $US18 billion in revenue, while the consulting-oriented “NewCo” would have $US25 billion in revenue. “NewCo” would be majority owned by partners, with staff also able to own equity. The decision about whether to pursue the split is expected by the end of August. (29 July 2022).

Healthcare

CSL gets green light for $16.7b Vifor deal - Blood products giant CSL has received all regulatory clearances for its $US11.7 billion ($16.7 billion) acquisition of Switzerland’s Vifor Pharma, paving the way for the ASX-listed biotech to enter into new territory with iron deficiency and kidney products. The acquisition, expected to close on August 9, is the third-largest outbound M&A deal for an Australian company ever. CSL will hold more than 97 per cent of Vifor shares upon completion of the deal. Vifor’s key products include Ferinject for iron deficiency, which is one of the largest revenue earners. (2 August 2022).

Adamantem Capital caps off CardiologyCo acquisition - Private equity firm Adamantem Capital has locked in a deal to buy KKR-backed GenesisCare’s cardiology business, CardiologyCo, after about six weeks of exclusive talks. Adamantem is understood to have paid between $200 million and $250 million. It would own the lion’s share of the CardiologyCo, while the doctors would keep a minority shareholding. CardiologyCo has more than 100 cardiologists and 700 odd technicians who see 200,000 plus patients a year. (5 August 2022).

Genesis Capital back in clinical research with Crux Biolabs deal - It has cut a deal to take a controlling stake in the business, and existing owner Leading Technology Group will retain a minority position. The Crux’s research helps develop vaccines, immunotherapies and the like, and tries to ramp up its pre-clinical and clinical testing using funds from Genesis Capital. (4 August 2022).

Livingbridge taps Stanton Road for Habit Health review - Five years after acquiring specialised clinical health business Habit Health, Livingbridge is thinking about an exit. Private equity investor Livingbridge has called in the bankers to help consider strategic options at specialised clinical health business Habit Health, fuelling expectations of a $250 million-odd sale. Habit Health is New Zealand’s largest provider of integrated rehabilitation, occupational health and fitness services, and makes about $NZ25 million in earnings a year. Suitors will be looking to see how Habit Group plans to grow earnings in the coming five to 10 years. (31 Jul 2022).

Infrastructure & Construction

IFM tightens grip on Atlas Arteria, seven days after walking - It is expected to push for a board seat at the toll roads group after increasing its stake to 19 per cent. They’re also likely rivals in an auction for US tollroad, Chicago Skyway in the coming month or so. IFM’s latest buying saw a line of 30.7 million shares, worth nearly $250 million or 3 per cent of the company, cross via Jarden’s equities desk early on Thursday morning. The trade was at $8.10 a share, or a 4.5 per cent premium to the last close. The trade comes only one week after IFM Investors walked away from talks with Atlas Arteria. (4 August 2022).

Aurizon bulks up for rail and ports expansion - Aurizon chief executive Andrew Harding will be in Adelaide on Monday following the closure of the company’s $2.35 billion acquisition of freight haulage group One Rail. For Mr Harding, it is the biggest and most significant acquisition since joining the rail group more than five years ago. It’s also a deal that he says will be “transformational” for Aurizon, as it diversifies away from coal. Other challenges remain - Aurizon still needs to either sell or spin off into a new company One Rail’s coal haulage business - known as East Coast Rail - over the next 12 months. Annual earnings from Aurizon’s core coal haulage business are expected to rise in the 12 months to June from cost-cutting, despite an expected drop in coal volumes. Aurizon reaffirmed its full-year guidance of $1.42 billion to $1.5 billion in earnings before interest taxation depreciation and amortisation in May. (31 July 2022).

Real Estate

JLL earnings growth eases as rates, inflation rise - The agency recorded a 6% rise in revenue over the first six months of the year. A year ago, revenue growth was surging at 30%. as the commercial real estate market rode an initial rebound from the COVID-19 lockdowns. JLL’s markets advisory business – office leasing, property management, advisory and consulting – posted revenue growth of 6%, while its work dynamics arm – workplace management, project management and portfolio services – booked growth of 17%. Revenue from its capital markets business, which includes property transactions, was in line with results from a year earlier. (4 August 2022).

Growthpoint launches into funds management with $45m Fortius deal - Listed property trust Growthpoint Properties Australia has established a beachhead into funds management, taking over Fortius Funds Management, a boutique operator that controls $1.9 billion in third-party funds. Growthpoint has completed the deal it flagged last month at an initial purchase price of $45 million for the Fortius platform, with the potential for a further $10 million earn-out component. The deal takes Growthpoint’s assets under management to $7.2 billion and launches its journey into funds management, which managing director Tim Collyer described as a “key strategic priority”. Fortius platform had a long-term record of generating internal rates of return of 17 per cent for its investors. (3 August 2022).

Move over Qualitas, Apollo writes a $1b cheque to MaxCap - While Melbourne real estate house Qualitas is the talk of the town thanks to its eye-watering mandate, rival MaxCap has gone one better with a deal with Apollo. Sources said MaxCap was looking to deploy the capital in the property credit market, providing construction facilities, first mortgages on land and the like, at a time when there’s no shortage of deals for credit funds. It’s not surprising seeing Apollo getting closer to MaxCap, with Apollo having taken a a 50 per cent stake in the Melbourne-based property financier last year. But it’s interesting to see the sheer size of Apollo’s commitment, particularly at a time when analysts and property market watchers are fawning over Qualitas. Qualitas announced on Monday that it had secured a $700 million investment mandate from the Abu Dhabi Investment Authority (ADIA), in a deal that could also see ADIA take a near 10% stake in the manager. (3 August 2022).

Regional pub sets record at $51m - Fund manager Harvest Hotels has lifted its portfolio to 8 regional pubs worth more than $210 million after buying the Windsor Castle Hotel in Maitland. In May, The AFR’s Street Talk column reported that Harvest Hotels was pitching a third fund at investors targeting venues in Adelaide and seeking to raise about $50 million. Total returns of 17% and a cash yield of 8% were on offer, Harvest Hotels said, as it looked to acquire a $250 million portfolio within five years. (4 August 2022).

Other news of interest

Victoria-backed fund behind scrap metal roll-up - It is understood that the Victorian Business Growth Fund, which is a 10-year fund that invests capital on behalf of the Victorian government and First State Super investment, has acquired a 50% equity stake in two scrap metal businesses, Pacific Metal Group & Cougar Metals, which would be welded together to create a larger entity. Pacific Metals is one of the largest collectors, processors and suppliers of recycled metal products in Victoria. (31 July 2022).

Kinetic beefs up bid for London bus operator - Australasia’s largest bus operator and its Spanish partner have had to double their special dividend offer, to keep pace with a surging share price. The Kinetic consortium’s revised offer values Go-Ahead, which operates many of London’s iconic double-decker buses, at £669 million ($1.17 billion), a boost of almost £22 million. This marks the sixth attempt by Kinetic and its partner, Spanish transport concession manager Globalvia, to snap up Go-Ahead. ASX-listed Kelsian Group was also in the race to acquire Go-Ahead, but Kelsian on July 21 formally dropped out. Kinetic is backed by OPTrust, one of Canada’s largest pension funds with net assets of more than $23 billion, and Australian investment firm Infrastructure Capital Group. OPTrust also backs Globalvia. (5 August 2022).

Infomedia bids pushed back, shares soft - The electronic parts catalogues group’s auction is stuck in a bit of traffic, and the bid date has been deferred closer to its August 26 results date. The timetable’s moved to mid to late August bids, with Infomedia’s annual results the logical time for a material update. Infomedia has taken both TA Associates/Viburnum and trade player Solera Holdings through second stage due diligence over the past four weeks. Management meetings were in mid-July. Both parties are in the data room with indicative bids at the $1.70 mark, but TA/Viburnum also has a 14.46% pre-bid stake which arguably gives it the upper hand. (4 August 2022).

American bigwig Leidos lands Cobham Aviation’s special missions - American military contractor Leidos has won the bigger of two Cobham Aviation auctions. Leidos, which is listed in New York with about a $US14 billion market capitalisation, is expected to pay hundreds of millions of dollars for the business after winning a six-month auction run by Macquarie Capital. Cobham Aviation’s special missions unit runs flights for the Australian Border Force, seeking to intercept illegal fishing boats in Australian waters and the like. Sources said Leidos would take all of Cobham special missions’ contracts, $1 billion order book, 350 employees and 14 highly modified aircraft, in a transaction that paves the way for Cobham’s UK parent to exit Australia in full. It recorded about $180 million revenue in the year to June 30 at a 43% margin, which would mean about $75 million in annual earnings. (2 August 2022).

Singapore’s ComfortDelGro behind enemy lines at A2B - Singapore-listed ComfortDelGro, last week added Sydney-based businessman Russell Balding as the first ever overseas-based director to get a seat around its boardroom table. In hiring Balding to its board, ComfortDelGro said it wanted to expand its Australian footprint, which was already its biggest exposure outside of Singapore. It entered Australia in 2005 and has more than 4400 buses. The group, having cancelled plans to spin off its Australian buses on to the ASX last year, appears to be thinking about other opportunities, to add to its Aussie portfolio which includes buses and even a Western Australian taxi business, Swan Taxis. Which brings us back to A2B, a company ComfortDelGro knows extremely well and whose market value has diminished to $140 million. Acquiring A2B could give it a truly national presence in Australia, along with greater scale and ability to lead consolidation in the taxi industry. While there’s no concrete evidence that ComfortDelGro has an A2B play on the cards, there are a few dots that can easily be joined. (2 August 2022).