Shortlisted

Shortlisted – JB Hi-Fi and iiNet

Editorial director of Switzer
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It’s certainly heating up for merger and acquisition activity, with Expedia’s recent takeover bid for Wotif.com Holdings and David Jones finally going to Woolworths South Africa.

Merger mania

The Wotif.com bid was foreshadowed by Tony Featherstone in his SSR takeover target portfolio in April and last week he added OzForex Group and Ten Network Holdings to that list.

“Its undemanding valuation provides comfort for long-term investors, and parts of the financial services industry have a big target on their back from aggressive online players that can compete at a sharply lower cost base,” he said of OzForex.

Tom Elliot of Beulah Capital is well known for his takeover target portfolio and he is a little bit surprised that it has taken the M&A market a little while to heat up.

“This recent bout of takeovers has taken much longer than I would have thought of to eventuate,” he said on Switzer TV last week.

He had David Jones on his list but says it can be tricky to find the next retail target. Companies like Myer have already had most of the fat taken out of them.

“One that has caught my eye and is in fact probably an obvious one, is JB Hi-Fi,” he says.

“It would not surprise me if one of the big US groups, or possibly one of the big European groups, decided to have a look at JBH. Because they have got such a big distribution network, such a fantastic brand name in Australia and as far as I can tell, the shareholder register is wide open.”

JB Hi-Fi (JBH)

Source: Yahoo! 7 Finance, Data as at 21 July 2014

Wotif used to be on his list until the recent Expedia bid but he now thinks that Flight Centre could be a target.

“I reckon something like a Webjet and Flight Centre could merge at some stage fairly soon,” he says.

iiNet gets a tick from both Tony and Tom. It’s up 9% in the three months since it joined the SSR list.

“iiNet is a stock that I still think is very likely to be bid for at some stage. I was surprised to see there was so much short interest in it,” Tom said.

“Betting against the shorts can make you a lot of money. If you’re right and they are wrong… the shorts scramble to get out of the market and of course they actually bid the stock up in doing so.”

Telstra

Back to everyone’s favourite telecom, Telstra, and SSR director Paul Rickard issues some caution given the big price rise.

“Telstra (TLS) has been a strong performer this month – up 4.2% in July to $5.43. Probably too early to sell – however well past “buy territory” and starting to look expensive compared to the major banks,” he says.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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