Week Ahead, M&A Flurry on ASX | Invocare Update

8 June 2021

Global markets were mixed overnight (S&P 500 index -0.08%), having rallied on Friday after the release of monthly US employment data (Non-Farm Payrolls).

There was sideways trading after G7 finance ministers' agreement to pursue a minimum 15% corporate tax rate on multinationals had minimal impact on stocks, with the most-impacted FAANG tech stocks trading mixed.

The pullback in equities comes as recent data, including Friday’s jobs report, seemed to vindicate the Federal Reserve’s dovish stance on monetary policy. Friday’s employment report was seen as not too strong to instigate a near-term Fed tapering decision, but strong enough to suggest the US labour market remains on a firm recovery path. The actual numbers for May saw 559k jobs added versus 675k jobs expected, while unemployment was slightly better than forecast at 5.8%.

Invocare (IVC:ASX)
Funeral services company IVC shares have been under pressure since the start of the year, following a weak result for the 2020 financial year that was greatly impacted by covid-19 and lingering affects delaying a recovery, with limitations on gatherings and a contraction in the level of deaths due to heightened awareness around flu-like illnesses.

Invocare announced more recently at their investor briefing that trading conditions continue to remain challenging over the near-term even in 2021 given the number of flash lockdowns covid-19 related restrictions on gatherings continue to persist disrupting operations. Invocare announced that a shift in focus from volume/market share to share of value with the aim of profitable growth, which did not go down well with the market as it means more short-term pain. However, management added that they still believe in the long-term outlook of the business.

Our long-term investment thesis remains intact as we believe IVC is set to benefit from favourable demographics of an aging population. We remain BUY rated on IVC on a medium-term view at current levels, with 2021 also likely to be a challenging transitional year with continued lockdown risks and we anticipate a return to normal trading over the medium-term.

Australia & New Zealand Market Movers

The Australian market (ASX 200 index -0.2%) was lower yesterday.
National Australia Bank (-3.2%) was the biggest drag on the index after Australia's anti-money laundering regulator, Austrac, said it was reviewing the bank for “potential serious non-compliance” with regulatory requirements. The regulator also raised non-compliance concerns over casino operators SkyCity Entertainment (-6.5% on the ASX), Star Entertainment (-2.0%) and Crown Resorts (-1.5%).

There was a wave of M&A across the ASX yesterday including Altium which jumped +39% after rejecting a $5bn takeover proposal from US company Autodesk. Altium received a non-binding, indicative and unsolicited proposal from engineering software company, Autodesk, for the acquisition of 100% of the business for A$38.50/share by way of scheme of arrangement, a 41-42% premium to its close on 4 June and its 5-day average trading price.

Hansen Technologies received a takeover proposal from BGH Capital and Japara Healthcare receiving an improved takeover offer from Little Company of Mary Health Care. Meanwhile, The Australian is reporting Santos is progressing towards a selldown of ~$6bn worth of infrastructure assets attached to its oil and gas projects and Origin Energy is being closely watched for a potential demerger or sale of assets.

The New Zealand market was closed yesterday, but rose on Friday (NZX 50 index +0.5%) with Milk processor Synlait Milk up 5.5% as investors saw value in the company’s deflated share price.

Fletcher Building said it will commence its on-market share buyback programme of Fletcher Building shares on 10 June 2021. The buyback programme may run for up to 12 months, for a maximum aggregate of NZD$300 million.

3 Things Markets will be Watching this Week

  1. Central bank rhetoric globally remains in focus for investors.
  2. Easily the key data release this week is the May CPI print in the US, which will be released early Friday morning NZ time.
  3. Aside from consumer confidence data in Australia and NZ, other releases of note this week include the ECB meeting and Scales Corp hosting its AGM.
Global markets were mixed overnight (S&P 500 index -0.08%), having rallied on Friday after the release of monthly US employment data (Non-Farm Payrolls).

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