Stock Watch

Information current as at 31 August 2008

In stock trading news standout performers for the month were David Jones (+27.9%), Cochlear Limited (+26.4%), CSR (+26.1%), Billabong International (+25.6%) and Goodman Group (+24.7%).

This month's stocks

1. QBE Insurance Group Ltd (QBE) – Buy – Acquired PMI’s mortgage insurance business in Australia and New Zealand. Cost appears favourable with long term upside.
2. Lend Lease Corporation Ltd (LLC) – Buy – Announced it will achieve its 2008 earnings targets but has downgraded expectations for 2009. Bad news should be priced in to the current price.
3. David Jones Ltd (DJS) – Hold – Upgraded second half 2008 net profit guidance by 10% due to improved margins and cost cutting strategies.

Profile: Westpac Banking Corporation (WBC)

Westpac Banking Corporation (WBC) is one of the four major banks operating in Australia. It offers a full suite of banking and financial services to the consumer, business and corporate sectors. It also operates throughout New Zealand and the South Pacific, and has offices in Singapore and Hong Kong. Its key business areas include Consumer Finance; Business Financial; BT Financial; Westpac Institutional Bank (WIB); New Zealand Banking; and Pacific Banking.

WBC and SGB announced a revised merger proposal also approved by the independent expert however, there were amendments to the Merger Implementation Agreement (MIA) first signed on May 28, 2008, which include: Scope for a special dividend of A$0.28 per SGB share (~A$160m), A$100m break fee payable by SGB to WBC in certain specified circumstances including a change in the SGB’s unanimous recommendation of the merger proposal, and SGB disposal and acquisition limits significantly tightened from an aggregate value of A$300m to A$5m.

While SGB noted "The revised merger terms recognize the contribution of SGB to the strength of the combined organization", WBC was quite pragmatic in their assessment of the ‘sweetener’, noting "we have agreed to a number of measures to enhance the certainty of a successful outcome." In our view, the A$0.28 per share (or ~A$160m) in additional value transferred to SGB shareholders represents less than 1% of the deal’s overall value and should be seen as a practical solution to ensure all SGB stakeholders ‘embrace’ the WBC offer, as opposed to merely ‘accepting’ it.

You should always consult your Bridges financial planner before taking action on any recommendation given.