Failed takeovers disappoint
It has been a disappointing week on the share market.
Takeovers have fallen over and bank profit results have been far from inspiring, leaving the ASX200 looking somewhat tired and in need of a trigger to either maintain recent gains or continue to trend up, otherwise a correction appears to be on the cards.
The takeover news began with a short statement from Western Desert Resources (WDR), which announced to the market that Chinese company Meijin Energy Group had decided to not proceed with its proposed A$1.08 per share takeover.
Taking Stock had previously mentioned the risk of this deal falling over given Meijin’s acquisition track record. This view was shared by the share market with the stock initially trading in the 85–90c range before crashing below 70c as news of Meijin’s withdrawal broke.
This was followed the next day by news the Asian consortium including Nobel and Posco was “walking away” from progressing the Arrium Ltd (ARI) takeover after the board rejected a revised offer of A$0.88 per share for the company, up from the original A$0.75.
The board felt that the conditional bid was opportunistic and undervalued the company.
Although shareholders may be disappointed in not receiving a short-term gain, we feel this is a positive result for the company and Australia in general.
National Australia Bank (NAB) also surprised the market by announcing that its cash profit was 1 per cent below market consensus. A week prior, it stated it would be broadly in line from a year ago.
Taking Stock was caught offside also, after covering the report last week only to find the company still had a ‘skeleton in the closet’.
Westpac Bank (WBC) reported its full-year results on Monday and although its full-year net profit fell by 15 per cent from last year, that was because it had received a tax benefit from the takeover of St George Bank last year.
The actual cash earnings were up 5 per cent from last year but, as with the other banks, it warned of the challenging environment in relation to credit growth and global share market volatility. The company raised the final dividend to A$0.84 from A$0.80, which was in line with market expectations.
Commonwealth Bank (CBA) will report its first quarter result as this article goes to print.
So with three of the four majors having reported, it is obvious our major banks have entered into a period of low growth and the key support for the shares comes from (dividend) yield seeking investors.
If this trend is to continue investors need to look forward to which stocks will be the target of the funds that are dividend stripping to improve their returns.
The two obvious targets for the next wave of dividends would be Telstra (TLS) and Commonwealth Bank (CBA) as there will be a shift from ANZ, NAB and WBC once they have gone ex-dividend in November into these two top 10 companies.
Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.
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