Deutsche Bank analyst slaps a 'sell' recommendation on Macarthur Coal Michael Bennet From: The Australian April 01, 2010 3:24PM
DEUTSCHE Bank has made the biggest recommendation move of the major investment banks on Macarthur Coal, placing a "sell" on the stock in the wake of US giant Peabody's $3.3 billion takeover offer.
Analyst Brendan Fitzpatrick says the market is already factoring in the upside price risk if a counter bid occurs and there is an opportunity to secure a good price in the market now.
"We acknowledge that there is some upside price risk if a subsequent bid occurs, but the market is already factoring this; if the bid is withdrawn MCC could retrace. Sell," he said.
Deutsche left its 12-month price target unchanged at $10.50.
Goldman Sachs JBWere agreed, with a broker saying Peabody's $13 a share cash bid -- a 7.5 per cent premium to last closing price and 10.5 per cent premium to last month's average price -- undervalued Macarthur.
Fitzpatrick's recommendations went against his counterpart at Macquarie, Sophie Spartalis, who upped her 12-month price target to $15.50 from $13.50 based on mergers and acquisitions activity and a 15 per cent to 20 per cent upside to coal price assumptions.
"We believe the move by Peabody has changed the game play, opening up the floor to other emerging bidders," she said.
"We understand the major shareholders were intrigued by the offer and likely to engage in further discussions.
"These are mostly to be Xstrata and other US coal producers, in our view, although we cannot rule out the Chinese and Indians.
"We would not recommend that MCC shareholders accept Peabodys indicative offer.
"We believe a full takeover offer price of around $15 to $16 per share would be required for non-majority shareholders to become engaged."
Rival bank Morgan Stanley agreed with Macquarie that the offer had upside potential and based on comparable takeovers, such as the Yanzhou-Felix takeover, it implied a value of $14.53 for Macarthur.
The investment bank also noted that major shareholders ArcelorMittal and POSCO paid $15 a share, adjusted for subsequent share dilution.
Morgan Stanley has a discounted cash flow valuation of $12.59 a share to $15.50 a share. Macarthur last traded more than 5 per cent higher at $14.82 after yesterdays 16 per cent spike.
