Question 1: Treasury Wine (TWE) is buying a big business in America and doing an equity raising by issuing new shares. It will return to trading on Friday morning. What are your thoughts about this transaction?
Answer: Treasury Wine Estates (TWE) is buying DAOU, a leading US luxury wine brand, for an upfront consideration of US$900m plus the potential for a workout. It is funding the acquisition through a renounceable entitlement offer on a 1 for 9.45 basis at $10.80 per new share to raise A$825m, a placement of A$157 to the existing owners, and debt of A$350m.
On paper, the deal looks to be attractive:
- It accelerates TWE’s luxury-led portfolio premiumisation focus, with the luxury portfolio to contribute about 50% of global net sales revenue.
- Establishes Treasury Americas as a leading and iconic US luxury wine business and provides the scale to support a future standalone Treasury Americas luxury division.
- It is EPS (earnings per share) accretive, expected to deliver mid-to-high single digit EPS accretion in FY25, the first full year of ownership (and this is pre-synergies).
- Additional synergies of over US$20m pa are estimated; and
- There is an additional US$100m of incremental cash tax benefits.
Doubters might say that TWE has had a pretty chequered record in the USA. Further, while DAOU’s recent growth has been very strong, just how sustainable is this.
This all said, I expect the market to give this the “thumbs’ up” when it returns to trade on Friday. Because the entitlements are renounceable and quoted on the ASX under TWER, you will be able to track the market’s ongoing enthusiasm for the deal.
Question 2: Liontown (LTR) is raising capital at $1.80 per share through a SPP (share purchase plan) to fund its Kathleen Valley project. The shares are now trading around $1.60. What is the latest valuation from the brokers?
Answer: If you participate in the issue, you may not pay $1.80. The issue price is actually the lower of $1.80 and a 2% discount to the weighted average price of Liontown shares traded on the ASX on the five days leading up to the close of the offer on 20 November. The major brokers are quite supportive. A target consensus price of $2.34, approximately 48% higher than the last ASX price. Range is a low of $1.90 through to a high of $2.75.
Question 3: Which was the best performing share market sector in October? Which was the worst?
Answer: The tiny utilities sector was the best performing sector with a gain of 1.68%. It was the only sector to finish in the black. Information technology was the worst performing sector with a loss of 7.55%, not far in front of healthcare that shed 7.22%.
Question 4: What is the market expecting for Westpac’s profit result next Monday?
Answer: Westpac reports its profit result on Monday morning (6 November). It doesn’t report a “cash profit” anymore, choosing to report just the statutory “net profit” result. However, it has told the market of the “notable items” in its result, which will see a loss for the second half of $351m. This compares to a profit on “notable items” of $178m in the first half. Overall, the market is expecting an underlying result that is flat to slightly down on the first half. This means a statutory profit of around $3,450m for the second half and a statutory profit for the full year of around $7,450m. A final dividend of 72 cents is expected
