Opportunities As WFD Exits The ASX Indexes

As the takeover of WFD by Unibail-Rodamco moves into its final stages, the ASX has decided which stocks will be added to their benchmark indexes.

In the ASX 20, WFD will be replaced by ORG: in the ASX 50 index, TAH will replace WFD: and in the ASX 200, ELD will fill in from the departing WFD.

Since many Super funds and managed equity firms have a mandate to hold a percentage of listed index shares, we see good value in these names once the takeover is completed.

We will update these shares with specific entry levels over the next few days.

Origin

TabCorp

Elders

 

 

WFD Weakens Into This Week’s Shareholder Vote

Shares of WFD have slipped to a 1-month low of $8.84 in front of this week’s shareholder vote on the Unibail-Rodamco takeover bid.

At this point, there’s no sign of dissenting investor groups, and the boards of both companies have already approved what will be the biggest M&A deal in Australia.

Because of a lower valuation in the shares of Unibail, the $10.01 cash and script offer has been re-priced lower over the last two weeks.

Still, even modest estimations put the real market value in the $9.15 to $9.25 area, about 5% higher than current prices.

WFD was added to our ASX Top-20 Model portfolio on February 7th at $8.90. We prefer the long side of the stock from these levels with an upside target of $9.45 to $9.50.

Westfields

 

 

 

 

WFD Looks Set To Rally Into The AGM

With less than 2-weeks until shareholders vote on the $27 billion takeover by Unibail-Rodamco,  WFD shares are trading at $9.15, 85 cents below the $10.00 per share offer.

We haven’t heard any indication that shareholders will reject the offer and see scope for a quick, short-term rally into the $9.75 area before the vote at the AGM on May 24th.

As such, we suggest investors can buy WFD shares in their cash accounts, as well as on the Saxo Go CFD platform.

Westfields

Westfield’s French Connection

Over the last three weeks, the $33 billion takeover offer of WFD by French commercial property company Unibail-Rodamco has moved a few steps closer to completion.

Following the approval from French regulators, the Australian Foreign Investment Review Board also gave the transaction the green light to proceed; shareholders will vote at the AGM on May 24th.

As illustrated in the charts below, since part of the $10.00 per share offer includes Unibail script, the price of WFD has been following price of Unibail shares higher.

WFD was added to our ASX Top 20 Model Portfolio on February 7th at $8.90 and our ALGO engine triggered a buy signal on the same day.

Technically, the December high of $9.77 is the next key level of resistance. We suggest shareholders look to add to long positions into the AGM and take profits or use a covered call strategy in the $9.70 price range.

This has been a very popular trade on our SAXO Go CFD platform. For more information on WFD or CFD trading opportunities, call our office at 1-300-614-002.

Unibail-Rodamco

Westfield Corp LTD

US Yield Curve Continues To Flatten

Even though the US Stock market has stabilized over the last week, the US Treasury curve continues to flatten.

As illustrated in the chart below, the difference  between the US two and 10-yr bonds has now dropped to 46 basis points (2.36% vs 2.82%).

This is the first time since 2007 that this spread has narrowed below 50 basis points, and, in the past, has been a level which has foreshadowed recessionary pressure.

It’s our base case that the bulk of the curve flattening has been a result the two-yr yields rising quickly and the longer dated yields trading sideways to lower.

In this respect, we would expect some of the local yield names to find some buying support this week.

Some of the stocks we prefer include; TCL, SYD, WFD, AMC and GPT.

For more information about how to trade the US yield curve, call our offices on 1-300-614 002

2-yr versus 10-yr yield spread

Transurban

Sydney Airport

Westfields

 

 

 

Westfield Corp – Generating 10% income

Westfield has a take-over offer on the table from European giant Unibail-Rodamco for the equivalent of $10.00 per share.

A combination of a weak US dollar and a fall in Unibail’s share price has seen WFD trade below the initial offer. With the stock finding support at $8.50 we feel there’s a low risk opportunity to buy WFD and sell covered calls.

The strategy generates 10% annualised cash flow and allows for a moderate increase in capital growth.

WFD goes ex-div $0.165 on the 11th August .

Westfield

Stress Is Building In the Inter-bank Lending Market

While much of the financial media has been pointing to the threat of a trade war as the source of recent market volatility, we have also noticed rising stress in the inter-bank funding market.

As illustrated in the chart below, the LIBOR-OIS spread has spiked from 22 basis points to almost 60 basis points over the last 5 weeks.

The LIBOR-OIS spread reflects the amount of premium one bank requires from another bank to loan them money.

In simple terms, when banks start to question the financial health of other banks, the spread widens.

Rising funding costs are a headwind to global equity markets, which in turn acts to dampen bond yields; especially in the longer end of the curve.

The practical impact of this dynamic has been seen in the recent firming in some of the local interest sensitive names.

At these levels, we prefer the long side of SYD, TCL, SCG and WFD

LIBOR-OIS Spread

Sydney Airport

Transurban

Scentre Group

Westfields

Buy GPT & WFD At Current Levels

We recommend buying GPT & WFD and placing a stop-loss orders below the recent support levels, indicated on the relevant charts below.

Investors may prefer to hold the position and sell call options to enhance the income, whilst staying exposed to the next round of dividends.

GPT will pay $0.123 dividend on 29th June.

WFD will pay $0.16 dividend on 11th August.

 

 

Property Stocks Find Buying Interest

As the US yield curve flattens, which is caused by the long-end of the curve no longer increasing at the same rate as the shorter-end, we’ve started to see institutional money flow back into ASX listed yield sensitive names.

Our preference among these, within the property sector is GPT, SGP, and WFD, (based on valuation grounds).

Within Utilities and Infrastructure, we continue to like AGL, SYD and TCL.

 

 

U.S. Retail Sales Weighing On Rates

U.S. Retail Sales fell for a third straight month in February as households cut back on purchases of motor vehicles and other big-ticket items, pointing to a slowdown in economic growth in the first quarter.

Consumer spending, which accounts for more than two-thirds of U.S. GDP, appears to have slowed at the start of the year.

The combination of weak consumer spending data and global manufacturing data has been enough to see yields run into resistance.

The peak optimism on synchronized global growth and inflation pick-up, now appears to have passed.

With yields moving lower, we’re likely to see a better environment for the yield sensitive sectors. Telecommunications, Utilities, Consumer Staples and Real-Estate.

Some of the local names in these sectors include: SYD, TCL, AGL, GPT, SCG and WFD.

The chart below illustrates the yield on the 30-yr bonds falling relative to the shorter dated 2-yr bonds. This is typical during a period of slower economic growth.