Portfolio manager\/senior equities analyst, IML<\/em><\/p>\n There\u2019s something of a renaissance going on right now in the Aussie M&A landscape. IML knows so, because it\u2019s had no less than nine takeover offers in its portfolios in the second half of 2023 \u2013 and across \u2018very different\u2019 sectors.<\/p>\n Building materials, death services, telecoms, packaging\u2026 Whittaker says the companies targeted shared \u201cunique add-on value\u201d, but still represented \u201calmost all corners of the broader Aussie market\u201d. <\/p>\n Whittaker says this surge in activity has been largely driven by the alignment of three particular stars:<\/p>\n \u2013 The economy is entering a low growth environment, with population growth contributing most of that growth<\/p>\n \u2013 Interest rates appear to have peaked and are likely to head lower, driving confidence to commit to M&A; and<\/p>\n \u2013 Valuations remain attractive, particularly in the Small Industrials part of the market, despite the rally in Small Industrials towards the end of last year.<\/p>\n With that in mind, here are Whittaker\u2019s ASX-listed small companies which IML believes are strong candidates for M&A interest heading into the new year:<\/p>\n Austal (ASX:ASB \u2013 $1.96, $712m MC):<\/a> The week before Christmas, Austal surged on the back of two deals with the Australian Government and US Navy, totalling over $1.3bn. Whittaker calls ASB one of the country\u2019s prime national and US defence naval contractors.<\/p>\n Austal USA has delivered 13 EPFs, a predecessor to the new Expeditionary Medical Ships (EMS) design, of which the United States Navy has just ordered another three.<\/p>\n The company is also preparing to deliver the first EPF Flight II, the future USNS Cody (EPF 14), which features enhanced Role 2E medical capability, and has two more Flight II vessels under construction.<\/p>\n Kelsian Group (ASX:KLS \u2013 $6.84, $1.84bn MC):<\/a> Australia\u2019s largest listed provider of public transport bus and ferry services.<\/p>\n The market was underwhelmed by its recent result, Whittaker says, with bus driver shortages in Adelaide, Sydney, and Singapore impacting its ability to meet service requirements.<\/p>\n \u201cHowever, those bus driver shortages are now abating. Kelsian is also fully staffed up to service its recently won bus contracts in Western Sydney. Moreover, its recent US acquisition All Aboard America looks like it will be transformational.<\/p>\n \u201cAll Aboard had 40% EBITDA growth in the six months to June 23, which provides a great starting point for Kelsian. The acquisition also gives Kelsian a great platform for further growth in the US. This future growth potential will also be boosted by the steps it has made in introducing electric vehicles into its fleets, which should help maintain its competitive advantage and contract economics.<\/p>\n \u201cKelsian is trading on 12 times FY25 earnings, with a fully franked dividend yield of 5%. We think that, when you include the increased US earnings for next year, it looks very cheap for the defensive and low risk earnings growth on offer,\u201d Whittaker says.<\/p>\n Integral Diagnostics (ASX:IDX \u2013 $1.91, $445m MC): <\/a>Integral\u2019s stock price crashed by a stunning 30% late in November, after revealing to the market that clinical staff shortages, particularly in regional areas, and cost inflation, have continued into FY24.<\/p>\n The company said it\u2019s responding to these pressures by accelerating productivity and efficiency initiatives. Its Australian Q1 revenue growth however was 8.4% higher on pcp, and in New Zealand, IDX achieved a 4.1% NZD increase in revenue vs pcp.<\/p>\n IDX is the fourth largest diagnostic imaging company in the country operating in an industry very familiar to private equity.<\/p>\n Cooper Energy (ASX:COE \u2013 0.14c, $369m MC): <\/a>\u201cOur preferred local gas producer,\u201d Whittaker says. \u201cWe previously owned Senex Energy (ASX:SXY), which was taken out by Posco, and believe Cooper also could hold strategic value for a larger E&P company.\u201d<\/p>\n And finally, a quick nod to Ridley Corporation (ASX:RIC \u2013 $2.67, $844m MC)<\/a> \u2013 a stock feed and animal ingredient producer that has been attracting attention with the growing global demand for biofuels.<\/p>\n Whittaker adds that RIC\u2019s impressive tallow output could hold strategic value to a refiner. Argonaut<\/em><\/p>\n Firefly Metals (ASX:FFM \u2013 57c, $2.06m MC): <\/a>Broker Argonaut has rated FFM a Speculative Buy, with a price target of $1.04.<\/p>\n The $200m market capped Firefly owns the Green Bay Copper-Gold project in Newfoundland, Canada. FFM says it aims to redevelop Green Bay as a significantly larger copper and gold producer than that run by former owner Rambler Metals.<\/p>\n Existing infrastructure including underground development, processing, port, and camp is estimated to be worth in excess of $250m.<\/p>\n \u201cWe estimate US$300 million for capital costs including upgrade of underground access and build of a new process plant,\u201d Argonaut says.<\/p>\n \u201cUsing a US$8,000\/t copper price, our Green Bay model generates a Build Date NPV of $739m, equivalent to $2.05 per share of currently listed capital.\u201d<\/p>\n The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n <\/span><\/p>\n The post SUNDAY ROAST: The stocks that lit a fire under our experts this week<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"
\n\u00a0
\n<\/strong><\/p>\nBroker upgrades<\/h2>\n