BHP and OZ Minerals – does the pairing make sense and do you think it will happen eventually?
Strategically, an agreement makes sense. The question is the price. BHP’s Olympic Dam and Oak Dam assets are located quite close to OZ Mineral’s Carrapateena and Prominent Hill mines. This puts BHP in a unique position to extract synergies from the deal, such as processing concentrates from OZ’s mines at BHP’s facilities, which would save transportation and other costs.
BHP has the financial clout, but will need to be disciplined not to overpay, and they have recently shown this with the termination of the Noront deal. BHP’s initial proposal looks opportunistic as OZ’s share price was depressed by short-term factors.
OZ Minerals is an exceptionally valuable proposition, offering the right commodity exposures in largely low-risk jurisdictions with growth potential. We do not see the rejection of the deal by OZ Minerals as the final step.
He started his career on the buy side as a media analyst. Do you have any media wallet today?
When I started working in stocks, News Corp was the largest stock on the ASX, and it was an exciting time to cover media with many deals in the works. But in 2004, News Corp changed its main listing to the US, which meant it lost its heavy weight in the benchmark ASX 200 index and BHP was elevated to the number 1 position.
The media industry has changed a lot in the last two decades: most of the companies I analyzed back then don’t exist today.
Within the communications sector, we have a positive outlook for Telstra and Spark New Zealand. Both telcos have increased their dividends for the first time in six or seven years and are benefiting from reasonably benign competitive conditions in their key mobile divisions, as well as reaping the rewards of simplification and digitization programs.
What stocks do you own that we’ve probably never heard of?
We own IPH Limited, which is an intellectual property service company. The management team has proven capable of keeping its sticky core operations running smoothly, while also executing major deals along the way, including the acquisition of Xenith IP and Smart & Biggar in Canada, which was recently announced.
While we are always skeptical of Australian companies going overseas to new markets, this management team has consistently taken a conservative approach to running the business and has a strong track record of executing previous deals and synergies.
We believe IPH is a defensive growth business with a long history of Asian organic growth complemented by ongoing industry consolidation and eventual expansion into the adjacencies.
Did you lose any action in the M?&A boom, possibly too cheap?
We lost some names to M&Most were done at fairly comprehensive valuations, especially given that interest rate expectations have changed a lot since last year. For example, Sydney Airport was acquired at an EV/EBITDA multiple of around 23x based on pre-COVID earnings, which is a fair valuation considering the circumstances.
We lost Ausnet in a disputed offer between Brookfield and APA. In general, I would have to say that with the offer tension, you get the best result for the shareholders. But taking a long-term lens, I wonder if it was sold at a bargain price.
Our internal climate scenario analysis platform noted that Ausnet had a material upside valuation. This is because Ausnet is a clear beneficiary of the energy transition as connections for renewables grow, and I think the market was about to realize this and start to price it properly, but it sold out too quickly.
Any show or podcast you liked lately?
I get a lot of practical insights from The Huberman Lab podcast. The episode with Dr. Suzuki changed the way I think about exercise. There is clear evidence that exercise increases memory and cognitive function, which is why it has become a non-negotiable activity in my weekly routine.
On ABC, there’s a great documentary series called The Poles Revealed. I watched the second episode about the polar shift twice because I thought it was so exciting. Scientists reveal changes in the Arctic and Antarctica and how climate change is unfolding as polar ice melt accelerates. The urgency of tackling climate change is reflected in the reports of publicly traded companies.
We have seen an increasing number of companies set emission reduction targets and commit to decarbonisation capital spending, such as BHP.
Best value dinner in Sydney?
I eat a chicken laksa for lunch every week at Malay Chinese on Hunter Street. Everyone on my team knows that I am addicted to this place. It was my first lunch when I got back to the office after closing. The whole place is very authentic, from the elderly “uncle” who removes the plates to the cashiers who knock on the kitchen.
It’s only $13 and it’s hands down the best laksa in town. If you arrive after 12:30 there is a big queue out the door and out onto the sidewalk. At Circular Quay, the Marrickville Pork Roll is quickly becoming another addiction for me.
Closer to home, I often eat at Uyen Vietnamese in Waverley and Dong Dong Noodles in Kingsford. Both have authentic flavors at a reasonable price.
On weekends, I like to eat at Moxhe restaurant in Bronte. It’s a very underrated local restaurant with a cozy and unassuming atmosphere. They hand select the best products daily and everything is made from scratch.
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