Asian stocks down; Foster’s under pressure as SABMiller complains to takeover panel

<p>Asian stocks are down by 1.5-2.5% with the Australian market somewhere in the middle in afternoon trading. Clearly, the poor US jobs data and more […]</p>

Asian stocks are down by 1.5-2.5% with the Australian market somewhere in the middle in afternoon trading. Clearly, the poor US jobs data and more unease around Europe will weigh on sentiment over the next few days. 

Both problems don’t have a short term fix and a big picture policy plan is required to address them. US markets are closed overnight and with little direction to drive the afternoon trading session, we expect a weak finish with soft volumes. 

Australian corporate news flow remains quiet post reporting season. Foster’s is under pressure from SABMiller who lodged a complaint to the takeover panel on certain disclosure outcomes made by Foster’s. The battle for control is heating up and we think SABMiller is digging itself in for a long strategy which it obviously thinks Foster’s will find hard to fend off. 

Our view remains that Foster’s can only successfully fight the takeover by showing its earnings base is growing – something very difficult in the current market environment. Until then, SABMiller’s implied multiple is within the ballpark range paid for prior acquisitions over the past decade. Foster’s will no doubt defend the claims vigorously, but reassurances will count for little. SABMiller knows the domestic beer market fairly well and will continue to question Foster’s growth ability post-demerger. 

Elsewhere, QR National’s decision to construct $900m in rail to Wiggins Island near Gladstone highlights the investment opportunities available in Queensland’s energy market. The deal is part of a consortium but it’s unclear what types of returns QR National will generate on its investment. Still, some 3000 jobs will be generated through the project which is set to commence in early 2012. 

The jobs created by the deal don’t sound that significant but when taken in the context or recent bad news and manufacturing losses, it shows the domestic economy has the capacity to offset losses by gains elsewhere. The gains in Queensland will not be perfectly offset by the losses in New South Wales for example, but there is scope for companies policymakers to bridge the gap. The investment in rail infrastructure might also be positive for companies like United Group (UGL) which secured a $100m order with QR last year, among others.

Copper above US$4/lb

With so much doubt around global growth we think the copper price looks very resilient above US$4/lb. The metal is either due for a large decline soon or an indicator that demand in the east is offsetting weakness in the west. The one clear trend is more disruptions to supply. Not only are average grades continuing to decline across world class deposits but the prospect of strikes in Indonesia, following those in Chile over the past few weeks, have the market nervous on supply disruptions. Stock piles on the London Metals Exchange are flat on a one and two month basis, sitting at around 465,000 ounces. The strong price benefits the likes of Oz Minerals, PanAust and Rio Tinto. 

 

 

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