Global markets were mixed overnight, with the US market (S&P 500 index +0.3%) recording its fourth consecutive gain as investors await key corporate earnings results. A number of big names are set to report in the week ahead, including Netflix, Johnson & Johnson, United Airlines and Procter & Gamble on Tuesday. Solid results last week left investors in a more optimistic tone, despite weak economic data from China.
China’s economic growth (GDP) ‘only’ grew by 4.9% in the third quarter which mussed expectations of 5.2%, and US Industrial production also missed forecasts, rising 3.1% in September, against expectations in a for a 4.5% increase.
European Markets (Stoxx 600 index +0.7%) were up on Friday as strong earnings leave markets in an upbeat mood, with European Banks stocks leading gains.
The big news closer to home was that NZ CPI (inflation) came in at 4.9% over last year and up 2.2% form the previous quarter – the highest quarterly inflation since June 1987 and the highest annual inflation since Sept 2008.
The implications showed that current monetary policy was too easy and that a more aggressive stance from RBNZ would be required with local treasury yields (interest rates) rising as well as rates in Australia – with the market pricing in at least one rate hike in the middle of 2022 – contrary to RBA’s recent comments to keep rates unchanged until 2023.
Aristocrat shares were put in a trading halt to raise equity for the cash offer to acquire London-listed leading global online gambling software and content supplier, Playtech, for $5 billion – with most of Playtech’s shareholders voting in favour of the deal. This represents a valuation multiple of 11.4x Playtech’s adjusted EBITDA for the twelve months ended 30 June 2021.
The acquisition is expected to be mid to high single digit earnings per share accretive during the first full year of ownership. Management believes the acquisition will accelerate Aristocrat’s growth strategy over the medium term and deliver sustainable shareholder value
Aristocrat expects to fund the acquisition with $1.1 billion of existing cash, a $2.8 billion debt, and the remaining $1.3 billion equity raising. The latter will be via an underwritten pro rata accelerated renounceable entitlement offer with rights trading issuing fresh shares at $41.85 per new share, which represents an 8.6% discount to its Friday’s close.
Aristocrat also provided a strong solid trading update for the year expecting its Net profit (NPATA) to come in at $864m for the 2021 financial year, a +81.1% increase year on year – the strong growth reflects positive performances across all its operations during the 12 months.
We are BUY rated on Aristocrat
Australia & New Zealand Market Movers
The Australian market was up (ASX 200 index +0.3%) up yesterday as a flurry of M&A delas and rising commodity prices offset concerns of persistent inflation in New Zealand and a slowdown in economic growth in China.
Stronger commodity prices saw Materials and Energy stocks lead the market higher, while financials were also stronger – as bond rates rose following news of NZ’s inflation hitting its highest level in a decade. On the flip side tech shares lead losses accompanies by healthcare both generally trading on higher multiples and sensitive to any rate hikes
A wave of M&A across Australia yesterday with Aristocrat Leisure making a $3.9bn billion bid for UK gaming software company Playtech, HomeCo Daily Needs REIT signing a $2.8 billion deal to acquire shopping centres owner Aventus, fund manager 360 Capital making a $1.1 billion bid for office properties group Irongate and Posco putting east coast gas producer Senex Energy in play with an $815m offer. Wealth platform owner Hub24 also signed a $386m deal to buy Class Ltd while Sydney Airport remains in talks about its own $32.6 billion takeover.
The New Zealand market was a touch lower on Monday (NZX 50 index, -0.1%), as most stocks traded weakly in reactions to NZ’s strong inflation numbers.
The stronger kiwi saw many local exporters and those with overseas exposure slip with Vista Group leading losses down -4.3%, A2 Milk (-1.7%), Pushpay (-1.1%).
A number of yield stocks also fell amidst fears RBNZ would have to raise rates more aggressively, as well as retirement village operators and property stocks all sensitive to a interest rate movements.
Mainfreight was one of the best performers on the day up +2.4% following the resignation of Craig Evans, who leaves its NZ operations, in January, while healthcare stocks were generally stronger offset broader market weakness.
3 Things Markets will be Watching this Week
- Key events this week include third quarter economic growth data (GDP) out of China and CPI (inflation) prints across Europe
- US Third Quarter Earnings Season kicks into gear this week.
- Locally, NZ CPI (Inflation) data is due as well as quarterly updates from listed companies, while the latest lock down restriction updates will be closely followed.