2009 - July/August

WINNERS

Lion Nathan (LNN) was the best-performing ASX 100 stock for the period, up 40.91 percent. During the month, Kirin Holdings offered $12.22 for the 54 percent of LNN it does not own. The $12.22 bid includes the 22c interim DPS and a 50c special DPS, both fully franked. The special dividend will be paid around mid-October and will effectively replace the final FY09 DPS. Arguably, Kirin’s bid multiples should be adjusted for the interim and final FY09 DPS shareholders would receive anyway. Kirin is effectively just offering $11.50. MD Rob Murray is increasingly confident on the FY09 guidance after the first six weeks of the second half. Kirin’s $11.50 bid is at only 11.0 times enterprise value (market cap plus net debt) to the interim EBITDA. This compares to the 11.6 times multiple LNN says is the average paid in similar brewer transactions. The share price went up $3.40 from $8.31 to $11.71.

GPT Group (GPT) was the second best performer for the period, with a gain of 40.56 percent. GPT announced a massive $1.72bn capital raising on May 7 comprising a one-for-one entitlement offer at a fixed price of 35cpu. The reasons given for the raising are to pay down debt and accelerate an exit from the Babcock and Brown JV. Balance sheet gearing will fall from 34 percent to 25 percent, compared to the covenant level of 40 percent. While unitholder value has been diluted, one bright spot for GPT unitholders is that the need to sell the family jewels has now demonstrably reduced. The capital raising will definitely avoid the need to sell trophy assets, such as the recent sales of the GWOF and GWSCF fund interests at a discount of around 30 percent. It will also provide a war chest – the purpose of which is not currently clear. The share price increased 13 cents from $0.36 to $0.49.

ABB Grain (ABB) enjoyed a 39.26 percent increase in its share price over the period. On April 28, ABB Grain received a $1.6bn takeover offer from Canada’s Viterra to “create one of the world’s largest exporters of wheat, canola and barley”. The bid implies a value of ABB shares ranging from $9.11 to $9.41. The offer is via scheme of arrangement and has been unanimously recommended by the directors of ABB. Foreign Investment Review Board and shareholder approvals are required. Farmers, which make up approximately 45 percent of the share register, have expressed concern over the pricing of the offer. However, Viterra says the premium compares favourably with recent comparable acquisitions. In addition, Viterra CEO Mayo Schmidt has said the deal would open up access to premium markets for the grain producers. ABB rose $2.45 from $6.24 to $8.69.

LOSERS

Macquarie Office Trust (MOF), an office specific AREIT, shed 18.4% over the course of the period. Conditions are deteriorating in commercial real estate markets around the world. The loss of a major lease in the US contributed to the global occupancy rate falling by 3%, however it still remains solid at 91% as at 30 April 2009. The US is weaker, with 88% occupancy, but is offset by resilient levels of occupancy in Australia, Europe and Japan, each over 95%. Recent fixed rent reviews have yielded 4% pa increases over prior rents in the US and Australia, with Australian market based rent reviews averaging a 6% pa increase. Despite the deteriorating conditions in the global office market, MOF’s global weighted average lease expiry of 4.9 years insulates the portfolio by lagging market vacancies and falls in rental value, insolvencies excepted. The share price fell $0.035 from $0.19 to $0.155.

Elders Limited (ELD), formerly known as Futuris, a rural services conglomerate, fell 26.3% during the period. The company downgraded its FY09 NPAT guidance once more. Elders now expects second half underlying profit to fall between $7m and $17m giving it a full year underlying loss of $5m to $15m, after having predicted NPAT of $39m to $45m in February. Heavily impacted by declines in both prices and demand for its products, a more pressing concern is the refinancing of its $525m short-term facilities maturing on June 30. Elders is currently in negotiations to roll over $1.1bn of its unsecured facilities into three year secured facilities, the outcome of which is difficult to gauge. Due to the stretched balance sheet, Elders remains a stock at the mercy of bankers and Mother Nature – the company counting on season-breaking rains in WA to give it a boost. The share price slipped $0.10 from $0.38 to $0.28.

Goodman Group (GMG), an owner, developer and manager REIT, plummeted 28.4% during the period to find itself amongst the losers for a second straight month. The stock slumped as the key terms for the company’s recent refinancing were finally revealed, disappointing investors. GMG announced that Macquarie Bank had provided a $300m finance facility for nine months expiring in February 2010, being extendable for a further 15 months on undefined terms. Furthermore, in return for the refinancing, Macquarie is set to receive 414 million options over GMG securities at an exercise price of $0.30 with a two year term. Although this large options issue will need securityholder approval, even if securityholders do not approve the issue, Macquarie will still be entitled to a cash amount from GMG equivalent to the benefit foregone. The share price dropped $0.095 from $0.335 to $0.24.