Question 1: The price of copper has been on a tear, and everyone says that with the energy transition, it is the “metal of the future”. How can I play the copper boom?
Answer: BHP is by far and away Australia’s largest copper producer. However, with BHP you also get material exposure to iron ore and other metals and in the short to medium term, these are a bigger driver of profitability and share price. Copper accounts for approximately 20% of earnings.
Sandfire Resources (SFR) is Australia’s biggest “pure play” copper stock. While it is head quartered in Perth, its mining assets are on the Iberian Peninsula in Portugal, the Kalahari in Botswana and if approved, a mine in Canada. Its share price has soared, up more than 50% since November. The analysts like the stock but think it is over-valued. They have a consensus target price of $7.88, about 17.5% lower than the last ASX price of $9.55.
Gold miner Evolution Mining (EVN) is also a major copper producer. However, gold is probably a bigger driver than copper when it comes to EVN’s share price. Currently, the analysts think it is fairly value – consensus target price of $4.18 vs last ASX price of $4.06.
Question 2: Altium (ALU) has had a takeover offer of $68.50 per share and has been recommended by the Board. I can’t find any information on time period or date finalization etc. Any clues?
Answer: Altium received an offer from Renesas Electronics (a Japanese Company) at $68.50 per share. The all-cash offer was announced on 15 February and is to be implemented via a scheme of arrangement. The offer has been unanimously recommended by the Altium Board.
Schemes of arrangement typically take six to nine months to implement. Because shareholders need to vote, there is a requirement to prepare a report from an independent expert. This, together with obtaining regulatory approvals such as from the Foreign Investment Board, typically takes some months.
Once a scheme meeting is held and shareholders vote, the process tends to move very quickly (assuming Court approval is received).
Altium has said that it hopes to close the deal by the end of the calendar year – this gives you some idea of the timeframe.
The next communication to shareholders will probably be the publication of the independent expert’s report and scheduling of the Scheme Meeting.
Question 3: I am a shareholder in Macquarie Telecom (MAQ) which recently announced a $100m capital raising to fund the development of further data centres. Initially when the announcement was made, I thought one of the tranches would be via an offer to existing shareholders. Having just received notice of an Extraordinary General Meeting (EGM), it appears that all tranches are only going to institutional, professional and sophisticated investors. How does the Company think this is fair to existing shareholders that don’t fit that category? It seems like a really dumb way to tell small shareholders we don’t give a toss about you.
Answer: Prima facie, the Company’s (Macquarie Telecom’s) behaviour looks outrageous and is discriminatory against small shareholders.
However, the Board would argue:
- It is a small placement and not that dilutionary. The 1.38m shares being issued represents around 5% of the issued capital (24.4m shares) of the Company;
- The price achieved is strong – only a 6% to 7% discount to the traded ASX price prior to the issue; and
- Cost effective and time efficient for all shareholders given the size of the funds raised (over and done within a couple of days, rather than the weeks involved through an entitlement issue to retail shareholders).
On balance, I think the Company is right.
You get a chance to approve it or not (retrospectively), and if you still think it was “poor form”, vote against it at the EGM.
Question 4: Have any of these three stocks – Arcadium Lithium (LTM), Nanosonics (NAN) or The Reject Shop (TRS) – reached the bottom?
Answer: In regard to “have the stocks reached the bottom”, I am not Nostradamus. I have never met an investor who can consistently “pick bottom” or “pick tops”.
However, of the three stocks, I like Arcadium Lithium (LTM) the most and The Reject Shop (TRS) the least. I remain wary of discretionary retailing in Australia, and although spot prices for the lithium concentrates have come under enormous pressure, LTM is a quality lithium play and longer term, I see more upside than downside.
As for the brokers, the target prices (and implied upside to last ASX price) are as follows: Arcadium Lithium $10.13, 50.8% upside; Nanosnics (NAN) $3.30,13.0% upside; The Reject Shop $5.32, 24.5% upside.
