Rat's Rant: What's hot, what's not and... the Lehman Brothers

By Rat's Rant. Published at Sep 17, 2019, in Market Wrap

Did you know that on 16 September 2008 Lehman Brothers filed for Chapter 11 bankruptcy protection.

This was the largest bankruptcy in US history and what a wild day that was for anyone working in the markets at the time.

What's hot

Bellamy's Australia Limited (ASX:BAL)

Bellamy's closed up 55% to finish at $12.89c on $377m stock traded yesterday. The reason they were up on such small volume was because they received a takeover bid from a Chinese company called China Mengniu Dairy Company Limited for $12.65c cash plus a 60c fully franked special dividend.

Bellamy’s is a globally recognised Australian organic brand business and is not a primary producer. Its products are distributed in Australia, Vietnam, Singapore, Malaysia, New Zealand, the People’s Republic of China and Hong Kong. Products are also available through multiple online retail platforms.

Details on the bid are listed below:

Bellamy’s enters into Scheme Implementation Deed with Mengniu
Bellamy’s Australia Limited (ASX:BAL Bellamy’s) has entered into a Scheme Implementation Deed under which it is proposed that China Mengniu Dairy Company Limited (SEHK:2319 Mengniu) will acquire 100% of the issued share capital of Bellamy’s via a scheme of arrangement (the Scheme). If the Scheme proceeds, it is intended that Bellamy’s shareholders receive a total of $13.25 cash per share (Cash Amount) comprising:

  • $12.65 cash per share from Mengniu under the Scheme; and
  • $0.60 per share fully franked special dividend paid by Bellamy’s prior to implementation of the scheme as outlined below (Special Dividend).

The Cash Amount values Bellamy’s equity at approximately $1.5 billion. This compares favourably to precedent transaction multiples and represents an enterprise value of 30 times reported normalised FY19 EBITDA.

The Cash Amount represents a material premium to the prevailing share price:

  • 59% premium to the closing price on 13 September 2019 of $8.32; 4 and
  • 54% premium to the 3-month volume weighted average price to 13 September 2019 of $8.59.

Bellamy’s Board of Directors unanimously recommend that Bellamy’s shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an Independent Expert concluding (and continuing to conclude) that the Scheme is in the best interests of Bellamy’s shareholders. Each Director of Bellamy’s intends to vote all the Bellamy’s shares that he or she holds or controls in favour of the Scheme, subject to those same qualifications.

Bellamy’s Chair, John Ho, said: “The proposed Scheme is an attractive all-cash transaction at a 59% premium to the prevailing share price. It reflects the strength of the Bellamy’s brand, the dedication of 160 passionate employees and the progress of our turnaround plan.”

Bellamy’s Deputy Chair, John Murphy, added: “Following careful consideration of the offer, the Bellamy’s Board has unanimously concluded that the Scheme is in the best interests of shareholders.”

Bellamy’s Chief Executive Officer, Andrew Cohen, said: “Mengniu is a preeminent dairy company in China and an ideal partner for our business. It offers a strong platform for distribution and success in China, and a foundation for growth in the organic dairy and food industry in Australia.”

Mr Cohen added: “This transaction can further deliver on our founder’s original vision of a truly iconic Australian brand and ‘A Pure Start to Life’ for the world. Our employees, our trade partners and local organic manufacturers will continue to grow and thrive with the success of our business”

Mengniu’s Chief Executive Officer, Mr Jeffrey, Minfang Lu, said: “Bellamy’s is a leading Australian brand with a proud Tasmanian heritage and track record of supplying high quality organic products to Australian mums and dads. This leading organic brand position and Bellamy’s local operation and supply-chain are critical to Mengniu.”

YPB Group (ASX:YPB)

YPB Group Limited closed up 33% to finish at 0.008c on $469,000 stock traded. The reason they were up was they announced a supply agreement with Pan Pass Inc. - China's leading security label supplier.

Pan Pass Inc. was established in 1996 and has six service centres and 48 branches in China. It is China's largest product data identity management service provider, and its market share exceeds the total of the second to fourth companies combined. It offers a range of security label solutions to its customers.

Pan Pass prints approximately 15 billion security documents annually which includes in the order of 3 billion product security labels per annum predominantly with “QR” codes to its customers in China and initially intends to use YPB’s solution to protect its own product security QR codes from counterfeit.

That's a lot of volume in anyone's language and today's news looks exciting for YPB and it's shareholders.

A big congrats to John, Martin and the rest of the team at YPB on executing what to me looks like a pretty bloody good deal with a large Chinese company - where counterfeit products are a huge problem as most of you would already be aware.
Did you know that they sell more bottles of Penfold's Grange in China each year than what Penfolds actually produce each year.

So, yes it's a big problem in China and worldwide for that matter.

For more information about yesterday's announcement read:

YPBs Motif Micro opens up large global markets

YPB to Generate First Revenues for its Breakthrough Anti-Counterfeit Technology

Andromeda Metals (ASX:ADN)

Andromeda Metals Limited today closed up 28% to finish at 6c on $2.1m stock traded. There was no news in the market today but last week there was some news out about its Drummond Gold Project Joint venture partner Evolution Mining Limited who advised ADN that it will proceed to Stage 2 under the terms of the Earn-in and Exploration Joint Venture Agreement.

Stage 2 requires Evolution to spend a further $4.0 million over the next two years to earn a total equity interest of 80% of the Drummond Project. On making the election, Evolution is required to make a further $200,000 cash payment to Andromeda within 10 business days of notification.

This is pretty good news for ADN who can now focus on their halloysite‐kaolin project that's located down in South Australia, while EVN can spend up big on it's Gold project.

Hopefully for James, The Sheep Shearer and the rest of the ADN shareholders, this is the case and both projects are a success.

Some highlights from last week's EVN news are listed below:

Summary

  • Drummond Gold Project Joint Venture partner Evolution Mining Limited has advised ADN that it will proceed to Stage 2 under the terms of the Earn in and Exploration Joint Venture Agreement.
  • EVN has met the Stage 1 expenditure of $2.0 million within the first year of a scheduled 2 year period.
  • Having elected to now proceed to Stage 2, upon spending an additional $4.0 million over the next two years EVN will acquire an 80% interest in the Project.
  • Under the terms of the Agreement, ADN is to receive a $200,000 cash payment from EVN within 10 business days of it notifying the Company of the Stage 2 election.
  • The Company considers the pace at which EVN has met the Stage 1 commitment and the subsequent election by EVN to proceed to Stage 2 underlines the prospectivity of the Drummond Gold Project to host high‐ grade epithermal gold deposits.

Droneshield (ASX:DRO)

Droneshield Limited closed up 24% to finish at 39.5c on $9 million stock traded. There was no news in the market, but I did happen to see a large crossing go through the stock last week and from looking at the change in substantial notices that were lodged after market on Friday, it looks as though Regal Funds Management bought stock from the good boys and girls at Bergen Global Opportunity Fund.

The stock looks to have been crossed @ 30c per share, so currently Regal look to have got the better end of that trade. There are some smart cats at Regal, some of whom may or may not even read this tonight.

Some details on what Droneshield do are listed below:

About DroneShield:
Based in Sydney (Australia), Virginia and Washington DC (USA) and London (UK), DroneShield is a worldwide leader in drone security technology. The Company has developed the preeminent drone security solution that protects people, organisations and critical infrastructure from intrusion from drones. Its leadership brings world-class expertise in engineering and physics, combined with deep experience in defence, intelligence, and aerospace.

I dare say they could have done with Droneshield's technology over in Saudi Arabia this weekend. Maybe this has something to do with why the stock is up so much.

Liquified Natural Gas (ASX:LNG)

Liquefied Natural Gas Limited closed up another 23% to finish at 30c on $3.8 million stock traded. There was no news in the market but the stock did go into a trading halt at 2pm yesterday and said that "the trading halt is requested pending a further announcement setting out additional detail regarding the term sheet with Delta Offshore Energy relating to a proposal for an LNG-to-power project in Vietnam".

It's not one I follow very closely but hopefully you read about them here last week and bought a few shares as they have been mentioned several times recently - and hopefully there weren't any loose lips out there which has seen the stock price shoot up by more than 50% since this time last Monday.

Some details on what they do are listed below:

About LNG
LNG is an ASX listed company (Code: LNG and OTC ADR: LNGLY) whose portfolio consists of 100% ownership of the following companies:

  • Magnolia LNG LLC (Magnolia LNG), a US-based subsidiary, which is developing an eight mtpa or greater LNG export terminal, in the Port of Lake Charles, Louisiana, USA;
  • Bear Head LNG Corporation Inc. (Bear Head LNG), a Canadian-based subsidiary, which is developing an 8 – 12 mtpa LNG export terminal in Richmond County, Nova Scotia, Canada with potential for further expansion;
  • Bear Paw Pipeline Corporation Inc. (Bear Paw), which is proposing to construct and operate a 62.5 km gas pipeline lateral to connect gas supply to Bear Head LNG; and
  • LNG Technology Pty Ltd, a subsidiary which owns and develops the Company’s OSMR® LNG liquefaction process, a midscale LNG business model that plans to deliver lower capital and operating costs, faster construction, and improved efficiency, relative to larger traditional LNG projects.

EMVision (ASX:EMV)

EMVision Medical Devices Limited closed up 18% to finish at 54c on $269,000 stock traded. There was no news in the market, but co-founder Scott Kirkland presented at the ASX Small and Mid-Cap Conference in Sydney earlier this month, which looks to have gone down well with the punters/investors.

They also recently released an update announcing that their clinical trials are on track for CY Q4 this year with the fabrication and assembly of their clinical brain scanner devices having begun and a few weeks away from being finished.

The near term commencement of their clinical trial and some of the team’s track record clearly has the market interested.

Some details on the company and some of the board members are listed below for those of you that are interested.

EMVision

EMV aims to be a leader in transformational point-of-care imaging, solving clinical problems for which there are no current solutions. The Company’s lead product in development is a portable brain scanner for the rapid diagnosis and monitoring of stroke and traumatic brain injury.

EMVision’s CEO, Dr Ron Weinberger, is the former Executive Director and CEO of Nanosonics (ASX:NAN) and if any of you have held NAN shares for the last few years you would be a very happy camper today. (see NAN chart)

EMVision has also recently brought onboard Nanosonic’s former Head of Quality and Regulatory Affairs, Ruth Cremin, who has driven multiple successful CE, TGA and FDA registrations, to lead EMVision’s regulatory strategy.

The technology underpinning EMVision has been developed by world leaders in biomedical imaging at the University of Queensland, led by Professor Amin Abbosh, who has over 400 peer reviewed papers, and Professor Stuart Crozier, who created technology central to most MRI machines manufactured since 1997.

EMV was only recently listed and after today's share price rise they have put on their first bag (25c IPO).

Those that invested in NAN at the 20c listing price (May 2007) are now up by more than 30 bags, so fingers crossed for EMV shareholders that maybe Ron, Scott and the team at EMV can do it all again.

What's not

Sims Metal Management Limited (ASX:SGL)

Sims Metal Management Limited closed down 13% to finish at $10.90c on $36.9 million stock traded. The reason they were down, was because they announced that the recent and significant falls in ferrous and non-ferrous prices will negatively impact 1H FY20 and the result will be materially lower than 1H FY19.

Sims Metal Management is one of the world’s largest metal and electronics recyclers with over 250 facilities, including joint ventures operations in 18 countries and circa 5,000 employees globally, so they aren't small that's for sure.

It's not one I really follow but some details on today's news are listed below:

1H FY20 Trading Update

Sims Metal Management Limited announced that the recent and significant falls in ferrous and non-ferrous prices will negatively impact 1H FY20 and the result will be materially lower than 1H FY19.

Commenting on the rapid deterioration in the market, Alistair Field, CEO and Managing Director, said “the escalating trade wars that I discussed at our year-end results continue to reduce the demand for steel and aluminium. At that time, Steel mills appeared to be managing the lower demand, but in early September they materially reduced their scrap purchases, and also their outlook for scrap purchases. This reduction in demand for scrap has driven a steep fall in prices. The current sales price results in a buy price that is potentially below the level at which it is economic for a number of our suppliers to gather and sell scrap. Alternatively, some suppliers may choose to sit on inventory until the price recovers.

Automobile sales also continue to fall and this is impacting the demand for twitch, with an accompanying fall in price.

Compounding the impact of falling scrap prices has been a consistent rise in deep sea freight prices over the last month. Under normal market conditions this would be manageable, but in this very low price environment, with poor liquidity, it is not possible to recover increased freight costs through the buy price.”

Commenting on the financial impact of the situation, Mr Field said that “while it is not possible to predict the duration of these very low prices and poor liquidity, history shows that the scrap market tends to mean-revert, so we expect it will recover over the medium term. What I can say however, is that there will definitely be an impact on our first half result and I am expecting the outcome to be materially lower than the prior corresponding half year. We are seeing signs of falling volumes at these prices so we will need to carefully manage the volume versus margin trade-off. It is too early to say whether this continues to impact our second half. When the market recovers, it often does so very quickly. Regardless, our strategy remains sound, and the business is well positioned to deliver good returns through the commodity cycle.

While our focus has always been on disciplined capital expenditure and required returns, we will be particularly cautious during this market downturn”.

What's doing?

A company I am a shareholder in is Marmota Limited (ASX:MEU).

A lot of the below is old news, but I thought it was worth sharing with you again given the interest in the Gold space at the moment.

The company is funded for its next drill program as announced on 31/7/19.

What else was interesting, was it made reference to its Uranium resource which is also located in South Australia and is within close proximity to BOE's Honeymoon uranium plant (one of only 3 permitted in Australia).

"Marmota is also exploring options to monetise its significant uranium JORC resource, adjoining Boss Resources’ (ASX:BOE) Honeymoon uranium mine. Marmota’s resource contains 5.4 million pounds of Uranium U3O8 with an overall exploration target of 22-33 million pounds."

The MD, Dr Colin Rose, is the largest shareholder and he runs a pretty tight ship, the bloke used to pay himself $1 a year when he was at NED but has upgraded himself to a massive $85,000 a year, (which we argued about for ages) now that he is the exec chairman.

Dr Rose holds a PhD in Economics from the University of Sydney. He is a long-term fundamentals investor in the mining and exploration sector, with particular exposure to gold and copper.

He has extensive business experience as the founder and director of a technology company whose software is used in over 55 countries, so he's a smart cat or certainly much smarter than me.

He has been invited to speak to the Reserve Bank of Australia, the Bank of England, the National Bureau of Economic Research (USA), and the London School of Economics (Financial Markets Group).

There was a good interview done by Ross Greenwood recently on 2GB and even the guys at Channel 7 ran a story on MEU, which I will also share with you below.

Rosco certainly sounds excited.

In case you haven't worked it out yet, I own quite a few shares and I am quite keen on them but I am no Warren Buffet, just a young kid from Campbelltown just trying to make ends meet.

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