Miclyn Express looking to pick up even more speed

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.

Matthew Kidman owns NAB shares.

matthewjkidman@gmail.com

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