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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Mar 14 2024

By Rudi Filapek-Vandyck, Editor FNArena

M&A Is Back (With A Vengeance)

Even the more casual observer would have noticed the high number of announcements regarding acquisitions and mergers this year, with troubled AI (?) company Appen ((APX)) the latest target on the ASX.

Analysts at Morgan Stanley believe it's only the beginning of what might well turn into a genuine tsunami in the months and weeks ahead.

The simplest explanation for the rapid pick-up in overall M&A activity is it has been very quiet for quite a while in this regard, as rising bond yields, central banks tightening and concerns of economic recession kept most corporate boardrooms in defensive mode. But now most of these scary headwinds are dissipating, companies are ready to explore buying growth again.

What adds to Morgan Stanley's confidence is overall activity has been so far below-trend, a simple reversal back to the 2014-22 average already implies a significant number of deals needing to be concluded. A 50% rise in M&A globally is easily on the agenda, the broker surmises.

The statistical 'undershoot' in recent years is estimated between -US$4-11trn. On the analysts' own data, corporates currently hold in excess of US$5trn in cash, while private markets have US$2.5trn of dry powder, on top of the observation that markets are once again open for new equity raisings.

Sectors identified as most ready for action include healthcare, staples, technology, and real estate. Europe, it looks like, will be the key epicentre of the global M&A revival.

However, judging from year-to-date activity in Australia, investors locally need not fear the fresh bonanza in corporate M&A might bypass the ASX. Already, more than 20 companies locally have attracted M&A interest, and many more are likely to follow.

The list below of M&A announcements is no doubt incomplete:

-A2B Australia ((A2B))
-Adbri ((ABC))
-Altium ((ALU))
-Alumina Ltd ((AWC))
-Ansarada Group ((AND))
-APM Human Services International ((APM))
-Appen ((APX))
-Azure Minerals ((AZS))
-Boart Longyear ((BLY))
-Boral ((BLD))
-CSR ((CSR))
-Genex Power ((GNX))
-Link Group ((LNK))
-Newmark Property REIT ((NPR))
-Origin Energy ((ORG))
-OreCorp ((ORE))
-Pacific Smiles ((PSQ))
-Pact Group ((PGH))
-Perpetual ((PPT))
-Probiotec ((PBP))
-Qantm Intellectual Property ((QIP))
-Southern Cross Media ((SXL))
-Superloop ((SLC))
-Task Group Holdings ((TSK))
-Virgin Money UK ((VUK))
-Volpara Health ((VHT))

One fund manager for whom all of the above is nothing but music in the ears is Tamim Asset Management; last year the manager decided to refocus the small cap portfolio towards potential M&A targets, and that switch in strategy has been handsomely rewarded already.

Stocks held in portfolio when news broke of a corporate approach include Link Administration, Pacific Smiles, Probiotec, Qantm Intellectual Property, Superloop, Task Group Holdings, and Volpara Health. Stocks held and explicitly nominated for that next announcement include Ainsworth Game Technology ((AGI)), Bravura Solutions ((BVS)) and Praemium ((PPS)).

Conviction Calls

Post February reporting season, analysts at Morgan Stanley have started to nominate their Key Picks in the mid and small cap space on the basis of reported results and anticipated outlook.

The two first nominations made are Accent Group ((AX1)) and SG Fleet ((SGF)).

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