Another update

February 2012 update


CER - Consolidation - 5.29 to 1 conversion for new CRF units.


FGL - Taken out by SABMiller. 


PPX - Lessons learned. Dismal operating performance - not a great idea to fight major structural/macro headwinds. Maple-Brown selling out - big-name shareholder is an indicator only  they frequently get it wrong just like the rest of us. 


General rule - don't invest in turnaround stocks unless you know the catalyst is coming. Examples of the turnaround waiting game - Transpacific, Gunns, Elders, Goodman Fielder, Nokia - these stocks have been under the weather for some time. Until you see material improvement or can foresee a near-term catalyst with accuracy - e.g. Mike Burry's 2 year window for interest rates on sub-prime mortgages to reset - don't get involved. 


APH - Ascent Pharmahealth update.  APH was taken out by major shareholder Strides Arcolab for 40c a share in 2010 - c$100m for the whole entity.  


At the time I said it was a steal for Strides - shareholders got taken out by Strides at an estimated PE of c8x-9x. Of course, the Independent Expert's report said it was a fair deal.   


Fast forward to 2012, and Strides sells APH to Watson Pharma for $375m.   Their stake was 94% - APH CEO Dennis Bastas sold his share, which was 6%.  All up, APH resold for c$400m.  


Hang on, wait a minute.  How is it that Dennis retained his 6% stake when everyone else got bought out at 40c? Oh, I see - because everyone else was done over. Of course the Independent Expert said it was in the best interests of shareholders.  


It would not have been in the best interests for shareholders to retain their minority stakes for the company to subsequently be taken over in future at a much higher multiple ($400m instead of $100m - only out by a factor of 3x) Of course we didn't know that would happen at the time, but clearly someone bright thought that a PE of c8x-9x for a growing generics pharma business was a fair deal. 


FYI, KPMG was the Independent Expert in the APH deal. 

Update

CER - Amalgamation vote pending.  Requires 75% of CER non-associated holders. CNP-related interests hold c.52%.  Potential blocking stakes in excess of 12% held by three fund managers. 

GAP - Continued strong operational performance. 2.2c per share dividend close to 10% yield.

PPX - Continued restructuring against a backdrop of deteriorating conditions. Management taking cost out of business. Still waiting for the turnaround.  Too early on this one. 

LGD - Good performance but then loss of major customer.  

FGL - SABMiller takeover pending.

APH - Buyout at 40c.

VPG - Buyout at $1.80. 

Ongoing Watchlist


AUN - Pending ACCC decision on $1.52


HST - Recapitalisation at $0.14. Debt repayment. 


OCP - Vote on capital return.


MIX, RNY - US property trusts at significant discounts to NAV.

RDF - Takeover offer rejected $2.50/$2.55. 

Fosters (FGL) - Good call

News yesterday reporting that SABMiller had completed work with lawyers to establish/investigate clearance of commercial/regulatory hurdles to a potential takeover of Fosters sparked my interest. 

While a Fosters takeover has long been mooted, the catalyst for an initial rally in the share price occurred in late May 2010 when Fosters announced it was looking into demerger options to separate the wine and beer businesses.  The stock spiked again in August as news reports of potential bidders further excited investors.  But as can so often be the case, the initial fervour died away as news dried up.  News in early January of declining beer volumes also didn't help investor sentiment. 

Source: au.finance.yahoo.com

The SABMiller news yesterday was another reminder to mood-swinging FGL investors that a potential takeover was still on the cards and the stock rallied 4% yesterday.

Having been a tad early in establishing my AscentPharma (APH) position (discussed here and here) I sat out the FGL rally last year.  Recent experience has suggested that after the initial hype of takeover speculation clears, prices fall back as investors with short time horizons and limited attention spans get bored and move on. This is the exact behaviour that those with the appropriate framework and a longer time horizon can benefit from.  

In September last year, Fosters reported rejecting a conditional offer to acquire 100% of the wine assets for a reported $2.3-2.7b.  Using this as a starting point suggests an EV for the beer assets of $10.9-11.3b, and an EV/EBITDA multiple for the beer business of between 10.3x-10.6x (FY10).

A scan of other beer transactions suggests an EV/EBITDA multiple range of 12-14x would be reasonable (Asahi-Tsingtao, Inbev-AnheuserBusch, Kirin-Lion Nathan).  Using Foster's FY10 EBITDA the table below provides a range of valuations under various assumptions for the wine business EV and various takeover multiples for the beer business based on yesterday's closing price of $5.72.

 

Notably, SABMiller hasn't been the only potential bidder mentioned in the rumour mill. Fosters at $5.72 looks like a good call. 

Disclosure: FGL (Long)  

Disclaimer: The information on this site is the author's analysis and opinion and is for informational purposes only and does not constitute a recommendation to buy or sell any of the securities mentioned on this site. The author does not assess, verify or guarantee the adequacy, accuracy or completeness of any information. You bear responsibility for your own investment research and decisions, and should seek the advice of a qualified securities professional before making any investment. 

Centro Retail Group (CER) - Lights, Camera....

Dec. 30 (Bloomberg) -- Blackstone Group LP, the world’s largest private-equity firm, has made a preliminary bid for assets of Australian shopping-mall owner Centro Properties Group, according to a person briefed on the offer.

Melbourne-based Centro -- which manages A$18.6 billion ($18.9 billion) of shopping malls in Australia, New Zealand and the U.S. -- put its assets up for sale two years after its acquisition spree in the U.S. backfired as the world’s largest economy contracted and debt costs soared. Centro said on Dec. 22 it had received several expressions of interest.

Lend Lease Group, Stockland, AMP Capital Investors Ltd. and Colonial First State Global Asset Management are among bidders for the malls, local media reports have said. Apollo Management International LLP has also joined the bidding, the Financial Times reported, without saying where it got the information.

News reports suggest that a competitive bidding situation may eventuate for some or all of the Centro property assets.  A recent look at commercial property outlooks in the US and Australia also suggest that any future writedowns in asset values may be lower than have been the case over the last few years.  With CER ("good" Centro) clearing its equity hedges linked to CNP ("bad" Centro) and an estimated NAV of $0.40, I have added CER to my portfolio over the last month. 

Disclosure: CER (Long)

AscentPharma (APH) - A steal at 40c a share

Further to my earlier post regarding the Strides announcement just a few weeks back (Dec 1),  APH this morning  released details of the Strides scheme of implementation agreement.  Strides have increased their offer from the original 35c to 40c, valuing APH at $100m.  At the same time APH have indicated that their FY2010 NPAT is likely to be in the range of $11.5-$12m.

APH have appointed KPMG to provide the independent expert's report on whether the offer is in the best interests of shareholders.  While I'm happy with the increased offer, a price tag of $100m values APH on a P/E of 8-9 - extraordinarily cheap for a generics business exhibiting the sort of growth that APH has done over the past few years.   Strides itself trades at a P/E of 15.  

Were there any semblance of competitive tension in this process, APH should be selling for at least $120m+ but given Strides' dominant 60% stake it is unlikely that anyone will gatecrash this little party.  All the figures being quoted of premium to VWAP and last traded price are indicators of mis-pricing, not of true value.  APH at 40c a share is a bargain and Strides knows it.  

Valad Property Group (VPG) - An inside view

It's always interesting when directors or management provide real indications of where they think a business is headed.  Commentary in annual reports and investor presentations varies in its level of usefulness but it's a different story when management signal their intentions with skin in the game. 

Valad Property Group came to my attention earlier this morning, with an ASX announcement stating that the board had received a proposal for acquisition of the European business by certain Valad management personnel.    

Valad recently undertook a share consolidation of 20:1.  At the recently traded price of $1.20, the pre-consolidation share price works out at $0.06 a share, against the NTA from the most recent annual report of $0.13 a share ($2.60 post-consolidation).  The MBO proposal may be an indicator that there is some value to be gained at current prices. 

Disclosure: VPG (Long - as of this morning)

AscentPharma (APH) - Strides ahead

In March 2010, AscentPharma issued a release indicating that they had received an indicative offer from their majority shareholder, Strides ArcoLab, for the remainder of equity at 35c a share.  Punters hoping to make a quick return on the deal will have been disappointed.  Eight months later and  progress since the initial announcement has been limited, though there have been signs that Strides is still interested.  

In August, Strides picked up 3% in an offmarket trade at 35c (taking them to over 60%).  Then in September, Strides completed an institutional placement to raise US$100m, which they announced they were earmarking for overseas acquisitions.  The most recent update from APH in November indicated that any eventual deal would need to be completed in 2011. 

In the interim, APH released their HY10 results, which suggest that Strides will be getting a good deal, if it can get the rest of APH at 35c a share.  That would value APH at a PE of c.8x trailing 12m earnings.  As at time of writing Strides was trading on the Bombay exchange at a PE of c.14x.  

At yesterday's 29c close, APH looks good value for a 20% return in the next 12 months if the offer for 35c comes through.  Given the bargain basement offer, if the independent directors can wrangle a little more out of Strides, it could be even better.  

Disclosure: APH (Long)