THE shareholder machinations at oil and gas vessel outfit Miclyn Express have the market wondering if a takeover offer is just around the corner.
Miclyn was floated by Macquarie Bank in 2010, with Macquarie keeping a 33 per cent stake. The float struggled initially but the stock has got a wriggle on, rising 38 per cent in the past 12 months. Macquarie recently agreed to sell its stake to private equity group Champ for $2.15 a share. Within days of buying the holding, Champ agreed to on-sell close to 10 million shares in Miclyn to Singaporean private equity group and existing Miclyn shareholder SEA6. This means SEA6 and Champ each have about 30 per cent of it.
Champ rarely holds its investments in listed vehicles. This leads to the conclusion that SEA6 and Champ are preparing to take the company private by mopping up the 40 per cent they don't own. With a hive of offshore oil and gas activity scheduled in south-east Asia in the next five years, an unlisted company could take on more debt and accelerate capital expenditure on vessel purchases. With demand strong, this approach would dramatically propel earnings, in preparation for a sale of the asset in about three years.
Miclyn is trading on a price-to-earnings multiple of nine times forecast earnings, so it is feasible a takeover could be launched at $2.80, well above today's $2.25.
Ingenia Group stapled
MENTION retirement villages and many professional investors shudder with memories of stories such as Prime Life. This negative view is justified given the complex financial structures retirement village management companies operate under. That said, we shouldn't shut the door on a stock just because the industry is circumspect. Ingenia is an old ING trust that got into trouble by over-gearing its balance sheet from 2005 to 2007. Under the leadership of former Aevum boss Simon Owen, the group has been selling assets to pay down debt, the stock tripling over the past three years.
The company's stapled security is trading at 26?, a 23 per cent discount to the stated net tangible assets (NTA) of 34?. The group is awaiting regulatory approval to consummate the sale of its US assets. Once this is completed, the company has said it will use the cash to buy up to 10 per cent of its stapled securities back, and is happy to purchase them at up to a 20 per cent discount to the NTA.
At first blush the share price suggests the market has already factored the benefits of the buyback in. The dynamics change, though, if you believe the stated NTA is understated. The sale of the US business will add 3? a share to the NTA, taking it to 37?. Plus, the group is edging towards selling its education accommodation in New Zealand, which has the ability to push the NTA to 40?. This would mean the group could buy units up to 30?-32?, closing the discount to NTA. Ingenia also believes there are opportunities to buy aged-care facilities in Australia. If it can get the stapled security price up to NTA of 40? it will be in a much stronger position to take advantage of this opportunity.
Banking sector
THE big banks have emerged as the market leaders since the market bottomed in early June. The All Financials Index has piled on 20 per cent compared with a more moderate 12 per cent by the overall market.
The four majors traditionally have their best month in October. Investors searching for fully franked dividends zero in, with three of the four paying half-yearly dividends in early November. Since the government introduced the 45-day holding rule for franking in the 1990s, the banking sector has on average gained slightly more than 3 per cent in October. In this month the banks traditionally make almost half their gains for the year.
The four majors have already posted an average gain of 4.25 per cent this month, despite 13 days left in the month. The overall market has gained less than 3 per cent. The performance has been driven by super funds hungry for fully franked dividends. Adding to the demand has been funds in the northern hemisphere looking for any yield. The alternative is receiving close to zero on cash.
All this adds up to a crowded trade. It also means there is a higher level of risk holding banks through the dividend period. It may be wise to sell in the days leading up to the stocks going ex-dividend and reassess afterwards.
matthewjkidman@gmail.com
The Age takes no responsibility for stock tips.
Frequently Asked Questions about this Article…
Is a takeover offer likely for Miclyn Express and why are investors talking about it?
Yes — the article suggests a takeover is possible. After Macquarie sold its 33% stake to private equity group Champ (which then on-sold almost 10 million shares to SEA6), Champ and SEA6 each hold about 30% of Miclyn. Because Champ rarely keeps listed holdings, market commentary concludes the two investors may try to acquire the remaining shares and take Miclyn private to accelerate vessel purchases and boost earnings ahead of a future sale.
How have Miclyn Express shares performed recently and what takeover price is being speculated?
Miclyn’s stock has recovered after a slow start to the float, rising about 38% over the past 12 months. The article notes Miclyn trades on roughly nine times forecast earnings and suggests a feasible takeover could be launched at about $2.80 a share — noticeably above the quoted $2.25 level at the time of the piece.
What strategic benefits would taking Miclyn Express private deliver?
Taking Miclyn private would let the company use higher leverage and accelerate capital expenditure on vessel purchases to meet strong southeast Asian offshore demand. Operating unlisted could enable faster earnings growth through added debt-funded expansion, positioning the business for a potential sale of the asset in around three years.
Who are Champ and SEA6 and what does their shareholding mean for Miclyn shareholders?
Champ is a private equity group that bought Macquarie’s 33% stake and then sold nearly 10 million shares to SEA6, a Singaporean private equity investor and existing Miclyn holder. With both parties holding roughly 30% each, their combined position gives them significant influence and raises the prospect they could try to acquire the remainder of the company.
What is the situation with Ingenia Group’s NTA and share buyback plans?
Ingenia’s stapled security was trading at a notable discount (around 23%) to its stated net tangible assets (NTA). The group is awaiting regulatory approval of a US assets sale and has said it will use proceeds to repurchase up to 10% of its stapled securities, willing to buy at up to a 20% discount to NTA — a move aimed at closing the gap between price and NTA.
How could Ingenia’s asset sales change its net tangible asset value and strategy?
According to the article, completing the US sale would add to reported NTA and could lift NTA materially. Additional potential sales, such as education accommodation in New Zealand, could push NTA higher still. A stronger NTA and tighter discount could put Ingenia in a better position to pursue opportunities like acquiring aged‑care facilities in Australia.
Why have the big banks been leading the market and what role do fully franked dividends play?
Since the market bottomed in early June the financials have outperformed — the All Financials Index rose about 20% versus ~12% for the overall market. Demand has been driven by superannuation funds and overseas funds seeking yield, attracted to fully franked dividends the big banks pay. This demand pushes bank shares higher, especially in the run of months when dividends are paid.
What should everyday investors know about the 45‑day franking rule and timing bank share trades around dividends?
The 45‑day holding rule (introduced in the 1990s) requires investors to hold shares long enough to claim franking credits. Historically banks tend to gain in October ahead of dividend payments, but the article warns this can be a crowded trade and increases risk during the dividend period. It suggests some investors consider selling in the days before stocks go ex‑dividend and reassessing afterwards to avoid short‑term volatility.
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