Investment Matters

Company News

Australian Equities sub-Portfolio

IGO Limited (positive impact) announced a long-mooted bid for Western Areas Ltd.

Western Areas is a Nickel producer with a portfolio of assets including Forestannia (Flying Fox and Spotted Quoll Mines) and Cosmos (Odysseus Mine) development.

The $1.1 bn all-cash transaction will see IGO expand its battery metal strategy, adding to its existing Nickel portfolio.

The transaction adds a total of 227kt of Nickel Reserves and 941kt of Nickel Resources to IGO’s portfolio, with a combined mine life of more than 14 years.

The combined portfolio will continue to benefit from an increase in lithium-ion battery production (particularly those with nickel-based cathode chemistries).

IGO combined portfolio
Source: IGO

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United Malt (positive impact) has attracted interest from John Wylie’s Tanarra Capital.

Tanarra recently acquired a 5% stake in the company and has historically taken on a more ‘active’ role in their engagement with companies.

Past examples include Boral, where Tanarra saw value in the company early and agitated for the sale of its US assets.

We note there has been considerable speculation that United Malt is a ‘takeover target’ and has attracted interest from several parties.

Tanarra’s appearance on the register may mean it has similar plans to be a catalyst for action and unlock the value that we see in the company.

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We have seen a few busy weeks for Woolworths (mixed impact). 

The company, like many of us, has been adjusting to living with COVID and changes in habits that have come with it.

The market was focused on the announcement of $220m COVID related costs expected over 1HFY-22.

These include direct COVID costs (including rapid antigen testing of staff) as well as indirect costs relating to supply chain disruptions and changing customer shopping habits.

Amazingly, the mix between eCommerce sales and in-store sales fluctuated widely – from 11% of total sales to as high as 18% at times (only sales represented just 4% pre COVID!). This has led to supply chain inefficiencies. Furthermore, there have been cost pressures in beef and difficulties in ensuring goods are in stock for the all-important Christmas period.

While the company’s share price declined by 8% over the week, we doubt that these disruptions represent a permanent loss in company value.

In the long term, we see Woolworths as best positioned to adapt to the shift online and achieve efficiencies required to ensure that it achieves strong margins when doing so. Furthermore, the company noted it is beginning to see food inflation come through, which we think in a consolidated market it will be able to pass on and benefit from.

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Earlier in the month, Woolworths made a bid for API, a pharmaceutical wholesaler that has been in the crosshairs of Wesfarmers.

As a long-term investment, we see that significant value may be unlocked through the acquisition as Woolworths grows in the health and beauty category and the pharmacy regulatory landscape evolves.

We anticipate that there will be a ‘battle’ for the business, who in our opinion, owns one of two commercially successful and scalable pharmacy retail franchise models.

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Origin Energy (positive impact) announced that joint venture partner Conoco Phillips will be exercising its pro-rata pre-emption rights to acquire Origin’s 10% stake in the APLNG project that is for sale.

Origin had previously looked to sell a 10% stake to global energy investor EIG. Sinopec, its other joint venture partner has until the 17th of December to exercise its rights.

The announcement highlights to us that there is an appetite from its joint venture partners for Origin’s remaining stake, which may allow it to unlock more equity in the project in the future as its capital requirements grow.

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Cardno (positive impact) announced it has completed the sale of its Americas and Asia Pacific consulting divisions.

As we previously highlighted, the company entered a share sale agreement with Canadian professional services company Stantec Inc in October.

The sale will net proceeds of US$500m (approximately AU$667m) of which AU$582m will be returned to shareholders (AU$1.49 per share).

This will be as a capital return ($0.92 per share) and unfranked dividend (AU$0.57 per share). Payment is expected to be made on the 22nd of December.

Clients will note a drop in the value of Cardno this week as its share price is now ex-dividend/capital return – representing the proceeds due later in the month.

After proceeds are distributed the shares will be consolidated on a 10 for 1 basis.

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Intega (positive impact) announced that the Supreme Court of New South Wales has approved the scheme of arrangement for Kiwa to purchase the company.

Shares ceased trading on Friday of last with proceeds from the sale ($0.90 per share) received on the 14th of December.

This marks the conclusion to a successful investment for clients, with a client average return of 144% (or 51.4% p.a.) post demerger.

Alternatives sub-Portfolio

Significant logo

Significant Early Venture Capital is a new position added to several client portfolios last week.

The fund provides a diversified exposure to early-stage companies, born out of Australia’s leading universities.

These companies are in the very early stage of their lives, having developed innovative offerings. with many having demonstrated early success.

Significant is helping bring these innovative ideas and inventions to commercialisation, capitalising on Australia’s ability to be a world leader in material sciences and manufacturing.

Their team has considerable experience and a proven track record in bringing early-stage companies to market.

Underlying investments are in a diverse range of companies (approximately 10-20), providing a diversified exposure in what is a modest-sized position.

The fund has had early success, with Liquid Instruments, a company born out of the Physics department of ANU achieving commercial success and sales in hundreds of universities across the world.

Some examples of current investments include:

Investing when it matters lifecycle

Source: Significant Ventures