Yovich & Co. Weekly Update - 21 October 2013
Oct 21, 2013 | Commentary
This Week's Themes
• Western markets soared after news that the U.S. had resolved the Government "shut down" and the Debt Ceiling. The proverbial "can has been kicked down the road" and these financial constraints will be revisited early next year and the questions remains, "how long can the U.S. go spending more than they make and how do they return to surplus?"
• The local market made a small but significant gain last week, helped by the news out of the U.S. The market broke out and made a fresh all time high after surpassing 4790, a level that had proven to be a ceiling several times over the past month.
• The Aussie market made more significant gains as the market was bolstered by improving resource prices and news that the Chinese economy grew at a rate of 7.8% per annum over the past 9 months.
• The Australasian currencies rose with a return to riskier assets after the resolution in the U.S. giving traders more confidence in the global economy.
Dexus Property Group (DXS.au) – Our Preferred Aussie Property Play.
Dexus, together with Canada Pension Plan Investment Board (CPPIB) have formed a consortium and made a bid to take over Commonwealth Property Office Fund (CPA.asx). The bid which priced CPA around the value of their net tangible assets ($1.15) has been rejected but clearly indicates that DXS is looking to expand their Assets Under Management (AUM). If the deal was to be accepted after an amendment to the offer, DXS would increase their AUM from $13.4 billion to $17.1 billion. As a result of the portfolios being complementary and with increased scale, this would position Dexus as one of the lowest cost operators in the Australian Real Estate sector.
The current portfolio for Dexus concentrates mainly in Office Buildings in central Sydney but they also have assets in the other main Australian Cities and Industrial and Retail assets.
First NZ Capital has an outperform recommendation for DXS and calculate their current Net Asset Value to be $1.17. They also believe that this deal would provide synergies and thus believe that it would add value to DXS if a deal was to be agreed to. Due to these prospects, DXS is now our preferred Aussie property investment.
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