11/25/2023 0 Comments Goldilocks fist![]() ![]() Electricity costs deserve a special mention. ![]() As a result, many companies with labour costs are seeing 7-9% year-on-year cost inflation which is difficult to offset. ![]() While goods price inflation has decreased, services inflation remains stubbornly high. At the same time, more persistent underlying cost inflation is taking over. Many of the incremental costs borne by companies due to COVID-19 are disappearing as supply chains normalise. Despite the long-term implications of many great companies being removed from our investment universe, the short-term impact is unequivocally positive.įigure 3: Silk Laser Australia received a bid from Wesfarmers in Q2 2023 For boards, there is clearly significant pressure to consider offers with attractive headline premiums. return compounded over the next 3 years? From a portfolio perspective, the answer depends on our ability to redeploy capital in companies with more upside than the company being taken over.įor some management teams, we understand that being unlisted may be preferable and, over the short term, lucrative. Put another way, is a certain 30% premium today worth more than a risky 20% p.a. Overall, the ‘premiums’ to share prices offered for many takeovers we’ve seen do reflect fair value for current year earnings but fail to value the companies’ 3-year outlook or fundamental changes in industry structure. Despite the positive short-term returns from takeovers, we question some of the recent valuations that boards and management teams have been willing to accept. For private equity with record amounts of ‘dry powder’, acquiring listed assets now makes sense. We expect this to continue, as evidenced by announcements by Costa Group ( ASX: CGC) and United Malt Group ( ASX: UMG) already in FY2024! Many industrial small companies that are self-funding and primed for growth are trading on single-digit price-to-earnings ratios or below the replacement value of their assets. Towards the end of FY2023, private equity capitalised on several instances where the listed market refused to pay fair value for small and micro-cap companies. Who wants to be listed anyway? Over FY2023, a combination of declining investor interest and liquidity created several bargains. Depressed valuations and a buyers’ strike opportunity for private equityĭepressed valuations and a buyers’ strike opportunity for private equity.Three key themes stood out to us over the year and continue to be a key focus: ![]()
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