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Markets Summary
Australian Market Preview
On behalf of the team at DJ Carmichael, we hope that you have a safe and happy festive season. This will be the last daily report for 2017 and we will be resuming it again in mid-January.

Local Markets
Australian equities weren't able to continue on from the recent five-day winning streak with the ASX200 closing marginally lower, down 0.2% finishing at 6,011. The market received a boost in early trading after the Dow Jones hit a new record high the previous night as the US lifted interest rates as expected, but a pullback in telecommunications and utilities pushed the market into the red over the course of the day. 

Shares in Myer (MYR) slumped by 9.6% after the department store issued a profit warning less than two weeks out from Christmas after its sales and profits have been worsening in the second quarter, which is following on from an already tough first quarter for FY18. Myer advised that sales in the first couple weeks of December are down 5% and were down 2.3% in November reflecting the ongoing challenging retail conditions which have been characterised by reduced foot traffic, widespread industry discounting and subdued consumer sentiment. MYR expects that its 1H18 profit will be materially lower than a year ago.

Woolworths (WOW) received a knock back from the ACCC which opposed the $1.8b planned acquisition by BP of WOW's 531 petrol stations on grounds that it would be likely that petrol prices would rise as a result of reduced competition if the if the deal was allowed to go ahead. In a tip on where you should be buying your petrol, the regulator highlighted that BP prices tend to be significantly higher on average than WOW prices in the major capital cities. They also noted that they generally increase their prices at a faster rate during the price increase phases, and are slower in reducing their prices during the discounting phase of the cycles. The news pushed WOW shares down 0.6% but boosted Caltex (CTX) shares by 3.7% as it  will continue to benefit from the fuel supply arrangement which is in place with Woolworths.  

In positive signs for the Australian economy, employment rose for the fourteenth straight month as 61,600 new jobs were created in November which was three times larger than what was expected by economists, and was the largest monthly increase in two years. The unemployment rate was unchanged at 5.4% as the participation rate (more people looking for work) rose to 65.5% from 65.2%, which is the highest level in six years. 

Consumer confidence hit a four-year-high as the Westpac/Melbourne Institute survey of consumer sentiment rose by 3.6% in December, following a 1.7% fall in the November reading. Australian consumers are feeling positive heading into the festive period which bodes well for the retailers with the index standing at 103.3 which is above the long-term average of 101.5. 


International Markets

Stocks on Wall Street ended lower with gains in shares of technology and consumer discretionary companies unable to offset losses in healthcare stocks such as Johnson & Johnson. Investors were concerned about potential roadblocks to the Republicans' tax overhaul after Republican Senator Marco Rubio's spokeswoman said he'll oppose the tax legislation unless a larger tax credit is agreed to. The Republicans can only afford to lose up to two votes to guarantee passage. 

Walt Disney struck a deal to buy Twenty-First Century Fox's assets for $US52.4 billion in stock. Fox rose 4.12% and Disney 2.2%, boosting the consumer discretionary sector by 0.5%. Other media stocks Netflix and Comcast were also higher. Gains in technology stocks Alphabet and Facebook initially lifted the Nasaq, before it followed its peers and fell into the red. 

In data out of China, strong retail sales were recorded in November, rising by 10.2% over the year as strong domestic household demand picked up as consumer confidence is at a 22-year high. US$25b was spent in just 24hrs of trading during China's annual Singles Day sales held in November.

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 Westfield Corporation (WFD): Takeover Details
Real Estate Investment Trust – Shopping Malls
Unibail-Rodamco to acquire WFD for an implied value of AUD$10.01 per share
Current Price: $9.49

Key Points
  • Unibail-Rodamco SE and Westfield Corporation have announced that they have entered into an agreement for French based Unibail-Radamco to acquire Westfield via a Scheme of Arrangement, subject to the usual regulatory, shareholder, stock exchange and court approvals. The Westfield Board of Directors have unanimously recommended the proposed transaction, subject to a superior proposal and subject to an Independent Expert concluding that the transaction is in the best interests of WFD security holders. The Scheme is expected to be completed in the first half of 2018.
(Click on the picture above to bring up a larger image)      Source: WFD Company Presentation
  • Unibail-Rodamco intends to establish Chess Depository Interest (CDI’s) to be listed on the ASX which will be fully exchangeable with the new stapled securities listed in Amsterdam and Paris. 
  • WFD securityholders will be able to elect whether to receive the ASX listed CDI’s or overseas listed stapled securities in Unibail-Rodamco (0.01844 securities for 1 WFD security plus US$2.67 in cash). Unibail-Rodamco closed at EUR215 on Tuesday night. 
  • Prior to the implementation of the transaction, it is proposed that 90% of Westfield’s retail technology platform, called OneMarket, is spun-off into a newly formed ASX listed entity. This will mean that WFD holders will receive additional securities in the new entity on a pro-rata basis, which could offer some additional value as OneMarket may not have received much value recognition within the Westfield corporate structure. OneMarket will have around US$200m in cash and Steven Lowy as Chairman.
  • We recommend that investors that are wanting to accept the Scheme of Arrangement (paperwork will be sent by the share registries directly to holders in due course) elect to receive the ASX listed CDI’s to avoid additional transaction costs and administration burden with dealing on an international exchange. Investors that are not wanting to receive the new securities next year can opt to sell their WFD shares on the ASX, although WFD closed at $9.49, 5.5% below the implied offer price of AUD$10.01 per security.  
About Unibail-Rodamco
Created in 1968, Unibail-Rodamco SE is Europe’s largest listed commercial property company, with a presence in 11 EU countries, and a portfolio of assets valued at €42.5 billion as of June 30, 2017. As an integrated operator, investor and developer, the Group aims to cover the whole of the real estate value creation chain. With the support of its 2,000 professionals, Unibail-Rodamco applies those skills to highly specialised market segments such as large shopping centres in major European cities and large offices and convention & exhibition centres in the Paris region.
Unibail-Rodamco owns and operates 69 shopping centres, of which 56 attract more than 6 million visits per annum. These shopping centres are located in the largest and wealthiest cities in Europe, such as Paris, Madrid, Stockholm, Amsterdam, Munich, Vienna, Warsaw and Prague.
In addition to its standing assets, Unibail-Rodamco has €8.1 billion of development projects as of June 30, 2017. This pipeline includes iconic world-class retail projects such as Mall of Europe in Brussels and Überseequartier in Hamburg.
The Group distinguishes itself through its focus on the highest architectural, city planning and environmental standards. Its long term approach and sustainable vision focuses on the development or redevelopment of outstanding places to shop, work and relax. Its commitment to environmental, economic and social sustainability has been recognised by inclusion in the FTSE4Good and STOXX Global ESG Leaders indexes.
The Group is a member of the CAC 40, AEX 25 and EuroSTOXX 50 indices. It benefits from an A rating from Standard & Poor's and Fitch Ratings. Website:

Source: WFD Presentation 
Important points for shareholders 
  • On completion of the transaction Unibail-Rodamco will be a more globally diversified business than WFD alone. 73% of WFD’s assets under management are based in the US.
  • It’s expected that synergies of EUR100m per annum will be achieved through the merged group.
  • Unibail-Rodamco intends to distribute between 85% to 95% of the Group’s net earnings. The company current has a dividend yield of 4.6% compared to a dividend yield of 4.0% from Westfield, before the announcement was made. 
Indicative Timetable 
  • Receipt of regulatory approvals and satisfaction of other customary closing conditions: Q2-2018
  • Notice of meeting and information dispatched to Unibail-Rodamco shareholders and Westfield securityholders: Q2-2018
  • Unibail-Rodamco shareholder and Westfield securityholder meetings and Australian court approval: Q2-2018
  • Closing: Q2-2018. 
In Conclusion
The merger of the group appears to be generally positive for WFD holders as investors will hold securities in a more globally diversified business. The offer could flush out other potential bidders which may result in a higher offer for WFD, however as the Scheme is likely to be completed by mid 2018 there will also be some risks involved. With 65% of the Scheme to be issued in the Scrip of Unibail-Rodamco, there will be risks that its share price may decline, or the Australian dollar could rise which could result in a lower value for WFD security holders.
Shares in Australian REITS are likely to benefit in general with 35% of the Scheme of Arrangement to be distributed in cash which could be reinvested back into the new Unibail-Rodamco ASX listed CDI’s or provide an opportunity to diversify into other ASX listed REITS.

Research Analyst
Michael Ron
Company Update: AWE Limited (AWE)
Oil and Gas
Perth Basin continues to hot up – Mineral Resources bids for AWE
11 December 2017
Current Price: $0.85

Key Points 
  • MIN makes an all scrip offer for AWE: MIN has made an all script offer for AWE at an equivalent $0.80 per share without the need for due diligence on the Waitsia assets. MIN has already conducted extensive due diligence as it was in the dataroom evaluating the Origin assets which included the other 50% Waitsia that was acquired by BPT.
  • MIN has stated that this is part of its energy strategy: MIN has already acquired Empire’s gas assets in the Perth Basin and is looking to expand its gas exposure. MIN more than likely want to vertically integrate into the energy supply chain which could help it bring down its energy costs across its crushing, Iron Ore and Lithium business. Owning Oil and Gas assets would also give MIN  a fourth pillar to its current business. MINs is a multi-billion dollar WA headquartered business with the balance sheet and expertise to fully develop the Waistia field for the benefit of WA. 
  • The Waitsia discovery is the largest onshore discovery of gas in Australia for 40 years: It is likely that the Waitsia resources will exceed 1 TCF and the recent flow test of 90 mmscf/d is an incredible result. The field is also close to the Dampier-Bunbury pipeline making the commercialisation of the resource relatively simple. AWE is currently in the process of securing GSAs to underpin the expansion of the field to a 100 TJ per day operation which would supply some 10% of the WA’s gas demand. There are also opportunities to use the gas as a transport fuel using CNG (compressed natural gas) and LNG technology. A competitively large-scale supply of gas could also underpin the development of industries that use gas a feedstock such as fertiliser and plastics.
WA Gas Usage
  • Beach Energy (BPT) could also enter the fray: It is rumoured that the owners of the other 50% of the Waitsia field, Beach Energy, could also be considering a bid which would give them 100% ownership and operatorship.
Our View

The likely winners of this bidding war will be the shareholders in AWE. The analyst consensus target price for AWE is $0.63 a share, which makes the MIN offer a 20% premium to the consensus valuation of the AWE business. We, therefore, believe shareholders should support the MIN bid. MIN has a strong track record of realising shareholder value as demonstrated by its successful move into Lithium mining. The MIN share price touched a low of $3.60 in mid-2016 when the iron ore market was low. Partly helped by a recovering iron ore price but mainly fueled by the move into Lithium, MIN shares traded over $20 recently. The addition of a meaningful energy project to its portfolio could provide further impetus for further share price appreciation. MIN also has a strong project delivery track record having delivered substantial capital works projects for the likes of Fortescue, Rio and BHP.
As stated in our previous note we believe the increase in transactional activity is very positive for the Perth Basin as a whole. Other operators who are undervalued relative to their asset portfolios such as Triangle Energy and Whitebark Energy, who have exposure the exciting Xanadu oil discovery, will gain more attention and exposure from the focus on the basin.

Research Analyst
Michael Eidne
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The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on the company which is the subject of this report, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.

DJ Carmichael Pty Limited, including authors of this report, its directors and employees advise that at the time of publication they hold or may become entitled to securities representing in Triangle Energy (Global) Pty Limited up to 1.2% of the issued capital of the company and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report.
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Recommendation Definitions

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

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