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January 4, 2013, 3:56 PM Citi’s Best Aussie M&A Ideas in 2013 Article Comments Deal Journal Australia HOME PAGE »
By Gillian Tan Citi’s Australian Hedge Fund Sales Desk has sent clients their annual wish list of potential M&A in the year to come.
The desk only got one right last year, picking that GrainCorp would catch the eye of an offshore buyer, though the basket of stocks rose a collective 15.2% in 2012 outperforming the benchmark S&P/ASX200, which added 14.6%.
Reuters Citi reckons 2013 will be full of M&A, demergers and share buybacks. Check out the Wall Street bank’s 19 ideas and rationale below:
Total SA FP.FR -0.30%or another major could make a tilt for Santos, which has a market value of 10.7 billion Australian dollars (US$11.2 billion) and is trading at a steep discount to risked net present value. It offers strong production growth and a balance sheet to match plus a number of growth projects, particularly in the Cooper Basin.
Santos Royal Dutch Shell RDSB.LN +0.78%and ExxonMobil cou XOM -0.18%ld make a play forBeach Energy BPT.AU +0.13%, which is generating cash through producing oil and gas wells, and ALS ALQ.AU -0.72%o has the option of developing unconventional gas in the Cooper Basin. The same trio could also eye cheaper optionSenex Energy SXY.AU +3.29%, which may look to sell at a premium rather than raise further capital to fund ongoing appraisal work.
Petrobras PETR4.BR +3.61%BG Group BG.LN +0.78%Repsol REP.MC -0.38%or Sinopec might take a shine toKaroon Gas KAR.AU -0.73%, which has a large undeveloped natural gas portfolio in the Browse Basin and Brazil. Talbot Group — which owns nearly 12% — is a known seller so a bidder ‘toehold’ is possible.
Johnson & Johnson JNJ -0.14%Medtronic MDT +1.41%and GE Healthcare could snap upResMed RMD +0.54%for a premium to its market capitalization of A$6.3 billion. It offers good earnings-per-share growth at an inexpensive price and has catalysts on the horizon in the U.S., which could find favor with competitors seeking market share.
If they’re seeking immediate scale and market share, SGSSA, Intertek and Bureau Veritas BVI.FR -0.78%are potential buyers of the world’s largest minerals-and-commodity-testing business ALS Ltd., which is also ramping up its dominance of environmental testing. The group’s process and procedures are tough to replicate, giving it the advantage of intellectual property.
Though James Packer-controlled Crown Ltd. will be busy with development plans at Barangaroo in Sydney, he may consolidate casino interests by buyingEcho Entertainment Group EGP.AU +0.72%rather than waiting or applying for a New South Wales state gaming license. Echo has an exclusive license, which runs until late 2019. Crown already has an application in to lift its stake in Echo to a maximum of 25%.
Newmont Mining NEM -2.73%or another gold major could make a run at Regis Resources RRL.AU -4.69%— of which it already owns 19.8%. The company has tier-1 operations in Garden Well and Moollart Well, which are located in a politically friendly jurisdiction: Australia. Similarly, majors could also move to take overMedusa Mining MML.AU -3.68%, a low-cost gold producer with a strong management team who have a track record of delivering.
Commonwealth Property Office Fund CPA.AU -1.26%could catch the eye of global pension funds, Asian investors or Dexus Property Group DXS.AU -1.30%due to its stature as the only pure-play Australian office real-estate investment trust, or REIT. It’s trading at a premium to its net tangible assets, has modest gearing and operates in a more attractive asset class than residential REITs.
News Corp NWSA -1.32%. could mop up the rest of its majority-owned online real-estate businessREA Group REA.AU +0.22%post the demerger of its print and broadcast businesses in 2013. The Consolidated Media deal highlights News isn’t averse to a minority trade. News could also acquire the rest ofSky Network Television SKT.NZ -0.40%to boost pay-television exposure in New Zealand.
Arrium might again be a target for Posco or other global steel producers. It offers good growth in iron ore coupled with exposure to steel at an inexpensive forward price-to-earnings multiple.
OZ Minerals OZL.AU -1.24%appears a more passive shareholder inSandfire Resources SFR.AU -1.23%, which also has Posco on its register. A global copper major could make a tilt for Sandfire following the takeover of Equinox Minerals and live tilt for Discovery Metals.
Interest from Singapore Airlines C6L.SG -0.09%might seeVirgin Australia VAH.AU -1.82%‘s price take flight. Such a deal would transform the business, providing a robust competitor to the Qantas-Emirates tie-up. The split in legal entities could allow a deal with the domestic entity alone. Substantial stakes held by Air New Zealand AIR.NZ +0.38%and Etihad remain a hurdle.
Cameco AREVA AREVA.FR +4.48%or a Chinese buyer could approach uranium producerPaladin Energy PDN.AU -3.13%, given it is the bottom of the cycle and an opportunistic entry point. There is a relatively open register with the potential to acquire Newmont’s 6.2% block. Other investors with a more than 5% stake include L1 Capital and GIC.
Miclyn Express Offshore could take the fancy of Maersk, Hanjin or another global shipper. It’s a business with strong cash conversion, and with two private equity owners who own almost 60%– Australia’s Champ Private Equity and SEA6, a company affiliated with Headland Capital Partners — there is an opportunity to secure a large ‘toehold’ stake.
Archer Daniels Midland Co. ADM -0.80%Glencore GLEN.LN +0.27%, Noble Group or another grain handler might make a move on Ridley Corp. RIC.AU -0.73% Post the sale of its Cheetham salt business, the remaining Agriproducts business offers leverage to growing Asian protein demand and synergy opportunities for a grain trader or processor. A ‘toehold’ through Guinness Peat Group GPG.LN 0.00%— which owns 22% — is a possibility. Other substantial shareholders include Lazard, AMP and Investors Mutual.
Premier Investments, NET-A-PORTER or private equity could splash out on Specialty Fashion Group if they’re after a suite of well-positioned brands. Notably, Cotton On is creeping up on the register — with a more than 20% stake — and Specialty Fashion Group could provide a vehicle for a backdoor listing.
Apart from the above names, Citi reckons consolidation could also affect mid-tier gold producers likePerseus Mining PRU.AU -2.27%and Resolute Mining. The hedge fund sales desk believesIncitec Pivot IPL.AU -0.31%, Orica or UGL could demerge businesses to create value, and is looking toRio Tinto RIO.AU -1.18%James Hardie Industries JHX -2.03%Aristocrat Leisure ALL.AU 0.00%, Flight Centre, Amcor and Challenger as buyback candidates.
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