Ann: First Quarter 2024 Trading Update, page-8

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Morrison6

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08/03/24

15:57

Post #: 72817917
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Originally posted by madamswer: ↑

"Do you think that as money gets cheaper we shall see an increase in merger and acquisition activity?"

Yes. Already happening.

But with a caveat: I don't think it is a certainty that money is going to get cheaper [*], but I think there is certainly a perception that money is going to get cheaper, which is going to continue to drive M&A. (Well, until that perception ceases to exist, that is.)

[*] I feel the concept of inflation is overwhelmingly misunderstood - the vast majority of people are unable to distinguish between rateand levelwhen it comes to inflationary debate. The market is very frothy currently, driven by anticipation of easing interest rates.
So, what the market is implicitly doing is seeing the ratefigure moderating and getting excited about that. But that merely reflects cycling strong pcp bases.
Fast forward to the end of this year and inflation numbers will be cycling the current comparatively soft rate of change numbers.
Not only will the future delta be driven off the current soft base, but also structural increases in prices due to wages which are currently rising and still to be reflected in inflation numbers.
I therefore think inflation is going to prove far stickier than prevailing consensus wisdom expects, and I feel the current narrative about interest rates about to fall meaningfully is a rather large head fake. We might see some token dovishness from central bankers in coming months, but nothing substantive, I suspect.

"Is this the time certain small caps might appear on the radar of larger companies looking to buy growth? Will the small cap sector in general benefit?"

Yes, if M&A activity increases then the small cap sector will not be excluded from it, but I'm not sure about the extent to which the entire small cap sector will benefit. So, like always, the critical thing is to focus on buying the right kind of businesses at the right price, with consideration for takeover potential being subordinated consideration.

So, if you are asking if the small cap sector is about to repeat a 2020/21 performance, driven by falling interest rates, my answer is decidedly:

No, I don't believe it will. I think the headwinds and tailwinds are evenly poised, making investing a highly stock-specific undertaking, as opposed to taking a shotgun approach to the entire small cap sector.

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Very helpful, thanks.

VUK Price at posting: $4.07 Sentiment: Buy Disclosure: Held
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