Weekly review: deals keep flowing after a record-breaking year
WEEKLY MARKET REPORT
It is particularly appropriate that even as Christmas approaches fast, CSL has announced a massive $17.2 billion bid for Vifor – followed up by an enormous and successful global $6.3 billion placement.
This has been a massive year of big deals in Australia and it looks set to continue next year as well – a fact that has been obscured somewhat by the ongoing COVID-19 pandemic.
The biggest of them all with a record that won’t be quickly broken was Block’s (formerly Square) successful $39 billion pursuit of BNPL darling Afterpay.
There were plenty of others as well – the successful “third time lucky” superannuation fund $23.6 billion raid on Sydney Airport, BHP’s merger of its petroleum assets with Woodside to form a $41 billion business, Aristocrat Leisure’s $5 billion deal to buy gaming software company Playtech, the purchase of telco Vocus for $3.5 billion and Blackstone’s ongoing pursuit of Crown after its $6 billion initial offer was rejected.
More than $308 billion of M&A deals
Preliminary figures show that there were at least $308 billion of merger and acquisition deals done in 2021 – more than triple the usual annual average.
That record might well be broken with plenty of indications that the growing $3.3 trillion superannuation fund sector is hungry to buy more local and offshore infrastructure assets, with some Australian property trusts likely to be in the crosshairs in 2022.
The CSL deal similarly has a fairly industrial logic to it, with Swiss pharmaceutical company Vifor ownings a pipeline of new drugs particularly for kidney disease.
With CSL’s global market reach and ability to raise huge wads of cash, it is the sort of bolt on addition that makes a lot of sense as it tries to develop new, long term revenue streams.
Tech falls pushing market down
Of course, doing deals can take some of the fizz out of stock prices for a while, which was the case on Friday with Afterpay (ASX: APT) shares down 7.6% and CSL (ASX: CSL) dipping 0.3% as the Australian share market closed up just 0.11% or 8.3 points on Friday, which wasn’t enough to wipe out a 0.67% loss for the week.
Energy, materials and utilities were positive influences but technology companies were a dead weight, with US regulators holding a probe into buy now pay later companies pushing Afterpay shares down and Domain (ASX: DHG) down a thumping 8.5%.
On the other end of the scales, recurring inflation worries helped big gold producer Northern Star Resources (ASX: NST), which bumped up its share price by 5.59%.
It was also a positive day for fintech stock and frequent takeover target Iress (ASX: IRE) which added 5.55%.
Small cap stock action
The Small Ords index fell 0.59% for the week to finish on 3448.4 points.
Small cap companies making headlines this week were:
Kalamazoo Resources (ASX: KZR)
This was a huge week for Kalamazoo Resources, which executed a joint venture with major Chile-based lithium producer SQM over two of its Pilbara lithium projects – DOM’s Hill and Marble Bar.
SQM is sole funding a minimum of $12 million on exploring Kalamazoo’s projects over four years to earn a 70% interest in the mineral rights.
The joint venture news with SQM came two days after Kalamazoo revealed it had pegged up the Pear Creek project, which is adjacent to DOM’s Hill and is close to Pilbara Minerals’ Pilgangoora lithium mine.
Lake Resources (ASX: LKE)
With mounting interest in its future environmentally friendly and sustainable lithium production, Lake Resources is looking to double its planned output at its flagship Kachi brine project in Argentina’s lithium triangle.
The company has been drilling at the project, with results continuing to support a doubling in future production to 50,000tpa of lithium carbonate equivalent.
To further meet the increased demand, Lake is also drilling its other projects in the lithium triangle to build resources and add to future production.
Credit Clear (ASX: CCR)
Credit Clear has made a bid to acquire Australasian debt collection company ARMA Group Holdings to accelerate its growth.
The deal will see Credit Clear acquire ARMA for $46 million, with 60% to be paid in cash and the remaining 40% in scrip.
Credit Clear says the acquisition will boost the group’s revenue by 140% to $26.5 million and bring across ARMA’s portfolio of more than 400 active clients.
E2 Metals (ASX: E2M)
Ongoing infill and step-out drilling at E2 Metals’ Malvina prospect in Argentina has continued to unearth high-grade silver and gold.
Part of E2 Metals’ wider Conserrat project, drilling at Malvina has returned highlight results of 5m at 4.2g/t gold and 1,174g/t silver from 60m, and 6m at 2.9g/t gold and 638g/t silver from 44m.
Malvina mineralisation has been identified across 325m of strike with average grades of 2.2g/t gold and 592g/t silver.
Recharge Metals (ASX: REC)
Recharge Metals has restarted drilling at its Brandy Hill South project after it uncovered visible copper in the first four holes of its maiden drilling program last month.
Assays from the initial holes are expected next month and the company now has a larger RC rig to complete 15 holes for 3,000m at the project.
Recharge managing director said the visible copper in the first four holes was “extremely encouraging” and the company would be targeting the continuity and depth extensions to mineralisation in the current program.
Zenith Minerals (ASX: ZNC)
Drilling at Zenith Minerals’ Develin Creek project in Queensland has intersected massive copper-zinc sulphides at the Wilsons North and Snook targets.
Three rigs have been drilling at the project since September with the first hole hitting 2m at 0.8% copper from 25m at Wilsons North, and three follow-up holes unearthing a combined 7m of massive to semi-massive sulphides.
Similar results were generated at Snooks with mineralisation remaining open along strike and to the south. A highlight interval from Snooks was 2m at 2% copper, 3.4% zinc, 0.6% lead and 77g/t silver.
The week ahead
While there are not a lot of statistical nuggets to look forward to in the coming week, one that really catches the eye are the Australian wealth figures that have just been released.
There is a lot of concentration on statistics around income and employment but looking deeper at wealth levels shows that Australian households are really getting a wriggle on with their assets.
Investments in shares and property were the bedrock behind the 4.4% or $590 billion rise in Australian household wealth in the September quarter. That takes total household wealth to a record $13.9 trillion, which leaves the wealth per person at $540,179.
That takes household wealth growth for the year to 20.4% for the year. The main components of the increasing wealth were residential property, which added 3.5% to the quarterly total while increased bank deposits (0.6%) and rising superannuation (0.4%) were also contributors, while an increase in household loans subtracted 0.3% from growth.
It is particularly interesting to contrast the strong growth in wealth during the pandemic lockdowns compared to very subdued wages growth.
The bottom line here is that with the lighter taxation on capital compared to the relatively heavy taxation of wages, you are unarguably better off having assets working for you rather than personal exertion income – particularly at the moment.
Of course, that is a luxury usually reserved for the more wealthy and those who own and run businesses.
That picture feeds directly into future Australian Federal Government budgets, with the mid-year economic and fiscal forecast showing budget deficits as far as the eye can see, even as the economy is expected to keep improving.
If taxes were applied to wealth rather than income, it would be a very different story. The bad news for those relying solely on wages is that in real terms they are projected to fall, with inflation reducing spending power faster than wages are expected to rise.
There are a few releases to watch out for in the lead up to Christmas with the Reserve Bank board minutes to be released on Tuesday, weekly payroll jobs and wages on Wednesday and private sector credit on Thursday.
Internationally, US economic growth, home sales and prices and personal income and spending are all out in the coming week, with Chinese purchasing managers indexes released a little later on New Year’s Eve.