ASX Market Recap: Tariffs, Deals and Automobiles

Good Evening,

Welcome to Equity Espresso’s Daily Market Recap. Another day, another takeover offer. At this rate, we will rename the ASX “Acquisition Shopping Exchange.” Today, we have fresh tariff news, M&A, and a deep dive into James Hardies’ acquisition. Let’s jump in. 

Local Market

The Aussie market fell from the start of Thursday’s session and never really got going, with the S&P/ASX200 index falling 30.0 pts. (-0.38%) to finish at 7,969.0. Global markets saw a sell-off after Donald Trump followed through with one of many tariff threats, signing a 25% tariff on auto imports aimed at bringing in more manufacturing jobs to the U.S. The move serves as a precursor to “Liberation Day” on April 2, where many more tariffs are expected to be signed. The news hurt our own car parts sector, with Bapcor (-2.47%), ARB Corporation (-2.02%) and Eagers Automotive (-2.67%) all falling.

Seven sectors on the ASX closed lower, with Technology (-2.07%) seeing a sharp drop after a similar percentage fall on the NASDAQ overnight. NextDC (-6.46%), Life 360 (-3.13%) and Wisetech Global (-2.04%) all fell lower. Energy (+1.00%) was the biggest positive mover, with widespread gains in the sector. WTI crude oil futures hovered around $69.70/bbl, nearing a four-week high, supported by signs of strong demand and concerns over tightening global supply.

Deal Flow - The Reject Shop (+109.5%) saw its share price more than double after it received a $259 million takeover offer from Canadian retailer Dollarama, with the deal a whopping 112% premium to The Reject Shop’s last closing price. Domain Holdings (-4.92%) received a second, higher offer from U.S. real estate company CoStar of $4.43 per share, up from the original $4.20 offer in February.

In today’s deep dive, we look closer at the James Hardie and AZEK deal announced earlier in the week, covering the positives, negatives and risks to consider.

Global Markets

Wall Street tumbled on Wednesday, with the Nasdaq (-2.06%) losing the most ground, followed by the S&P 500 (-1.19%) and Dow Jones (-0.45%). Technology (-2.46%) stocks led the decline, as Nvidia (-5.74%) and Broadcom (-4.78%) both fell. Adding to the downward pressure was Barclays cutting its S&P 500 target from 6,600 to 5,900 points.

Market anxiety increased during the session after the White House announced President Trump would unveil new auto import tariffs after the market close. GameStop (+11.65%) stock shot higher after approving plans to invest corporate cash in Bitcoin, following a strategy similar to MicroStrategy's.

After the market close, Donald Trump announced wise-spread 25% tariffs on automobiles not made in the U.S. The White House projects that the tariffs would add $100 billion of new annual revenue to the U.S. Ford Motors (-4.7%) and General Motors (-6.2%) fell in after-hours trading.

European stocks declined Wednesday, with the Stoxx Europe 600 Index (-0.7%) falling by the London close. Technology and Automotive sectors led the losses, while Energy and Utilities bucked the downward trend with modest gains. Meanwhile, U.K. mid-cap stocks rose after inflation data unexpectedly showed a cooling trend, providing a positive backdrop.

Asian equities declined at the open on Thursday, dragged down by automakers Toyota Motors (-3.40%) and Hyundai Motors (-3.60%) in the morning session.

Global Indices

U.S. Fear & Greed Index

Economic Data

• China's industrial firm profits fell by 0.3% YoY to ¥910.99 billion in the first two months of 2025, highlighting persistent deflationary pressures and escalating trade tensions with the US.

• U.S. New Orders for Manufactured Durable Goods in the US unexpectedly increased $2.7 billion or 0.9% month-over-month to $289.3 billion in February 2025, following an upwardly revised 3.3% jump in January and beating forecasts of a 1% fall.

• U.K.'s Annual Inflation rate fell to 2.8% in February 2025 from 3% in January, below market expectations of 2.9%, though in line with the Bank of England's forecast.

Outlook

U.S. futures indicate a flat start on Wall Street tonight, with the S&P500 (+0.15%) and NASDAQ (+0.09%) trading slightly higher.

Some of the key economic news overnight to watch:

• Japan: March Tokyo CPI

• US: Q4 GDP, Weekly Initial Jobless Claims to 21 March, Home Sales (Feb)

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Company Spotlight

❗️ASX Company Announcements

A snapshot of some of the companies out with news today

• The Reject Shop is set to be acquired by Canadian value retailer Dollarama for $259 million, with shareholders offered $6.68 per share—representing a substantial 112% premium over the March 26 closing price of $3.15. Chairman Steven Fisher described the offer as recognising the company's "significant growth potential" and highlighted the all-cash deal's "attractive value and certainty" for shareholders. The board will unanimously recommend the acquisition pending an independent expert's assessment.

• Healius rose on plans to distribute a Special Dividend of approximately $300 million following the completion of the Lumus sale. This dividend will amount to 41.3 cents per share, fully franked, providing shareholders with a franking credit of 17.7 cents per share, totalling $128 million.

• Neuren Pharmaceuticals has initiated the development of NNZ-2591, a new drug targeting hypoxic-ischemic encephalopathy—a life-threatening brain injury in infants caused by insufficient oxygen or blood flow around birth and a leading cause of neonatal death.

• Domain Holdings has received an improved proposal from CoStar Group to acquire 100% of its shares for $4.43 per share in cash, up from the original $4.20 offer made in February. The new bid represents a 42% premium to Domain's pre-announcement share price. CoStar has described this as their "best and final" price, absent a competing proposal. Domain's board has unanimously agreed to engage with CoStar and, with support from major shareholder Nine Entertainment, will provide due diligence access after appropriate agreements are signed.

• Clinvuel Pharma will extend its share repurchase program for an additional 12 months, doubling its buyback target. The drug developer plans to repurchase another 1.5 million ordinary shares, representing approximately 3% of its outstanding share capital.

• Brambles has priced and allocated a €500 million Green Bond under its European Medium-Term Note programme. The bond, which matures in 2033, was priced with a 3.625% coupon. The transaction settlement is expected to be completed on April 2, 2025.

• Contact Energy will appeal the New Zealand Environment Protection Authority's rejection of its planned 300-megawatt Southland wind farm to the High Court. The company called the decision "flawed" after a panel blocked the project due to concerns about damage to Indigenous flora and fauna that could not be adequately offset or compensated.

Company Deep Dive

James Hardie’s Big AZEK Deal:
Growth Gambit or Pricey Bet?

James Hardie Industries (ASX/NYSE: JHX) announced an agreement to acquire The AZEK Company (NYSE: AZEK) in an $8.75 billion deal this week. The Australian-headquartered building materials firm is purchasing the U.S. maker of composite decking, trim and outdoor products. The acquisition aims to create a major player in exterior building products. Market reaction has been mixed, with AZEK investors responding positively while James Hardie's share price has declined.

Let's look at the details behind this acquisition.

Deal Overview and Strategic Rationale

James Hardie will acquire AZEK in an $8.75 billion cash-and-stock transaction, offering AZEK shareholders $26.45 in cash plus 1.034 James Hardie shares per AZEK share (a 37% premium). The deal values AZEK at $56.88 per share, including its $386 million debt. Upon completion, James Hardie investors will own 74% of the combined company, with AZEK investors holding 26%.

The merger combines James Hardie's fibre-cement siding expertise with AZEK's TimberTech composite decking products, creating a comprehensive exterior building products platform. The acquisition will expand James Hardie's market reach to an estimated $23 billion North American opportunity and leverage AZEK's 15% annual residential growth. The companies expect $350 million in added annual EBITDA (including $125 million in cost savings), improved earnings per share within the first year, and over $1 billion in annual free cash flow post-integration.

Market & Investor Reaction

The announcement of James Hardie's acquisition of AZEK was met poorly. James Hardie's share price dropped 20% to under $40. Investors appear concerned about the acquisition price and associated risks. Conversely, AZEK shares rose about 14%, a clear win for AZEK shareholders.

Investor sentiment remained divided following the announcement. While some viewed James Hardie's sell-off as excessive – with Morgan Stanley upgrading the stock to "overweight" after the price drop – many others expressed discomfort with the deal.

Key Investor Concerns and Risks

• High Price Tag: James Hardie is paying roughly 23× AZEK's earnings – a steep multiple in the building products sector. This lofty price and 30%+ takeover premium has prompted "sticker shock" among investors.

• Debt Load and Dilution: The acquisition will increase James Hardie's EBITDA leverage from about 1.1× to over 3×. Existing shareholders will own 74% of the enlarged company rather than 100% of the original business.

• Synergy Uncertainty: While James Hardie projects $350 million in synergies, including $125 million in cost cuts, market analysts remain sceptical about whether these targets can be fully achieved, particularly revenue synergies.

• Return on Capital Dilution: AZEK's lower returns (around 13% versus Hardie's ~55%) could drag down Hardie's overall margins and return on capital, potentially undermining its investment appeal.

• Housing Market Cyclicality: The acquisition increases James Hardie's exposure to the North American housing market, though AZEK's focus on repair and remodel provides some buffer against market fluctuations.

Potential Upside and Long-Term Value Creation

• Stronger Growth Profile: AZEK broadens James Hardie's market reach, adding the fast-growing outdoor living category to its mature fibre-cement siding business. AZEK's 15% annual sales growth is expected to accelerate the combined company's revenue growth rate.

• Cross-Selling Opportunities: With overlapping consumer journeys for siding and decking, the combined product lineup could capture a larger share of exterior renovation projects and accelerate material conversion from traditional wood or vinyl.

• Efficiency Gains: Estimated cost savings of $125 million through eliminating duplicate corporate overhead and optimising manufacturing appear achievable. Including synergies, the combined business could reach a 31% EBITDA margin.

• Greater U.S. Visibility via Direct Listing: While James Hardie is already traded in the U.S. via American Depositary Shares (ADSs), the company plans to list its ordinary shares directly on the NYSE following the AZEK acquisition. This shift from a depositary structure to a direct listing could improve liquidity, simplify access for U.S. investors, and make James Hardie eligible for broader U.S. index inclusion.

• Strong Cash Generation: Projected annual free cash flow exceeding $1 billion post-synergies would enable rapid debt reduction and potential shareholder returns, positioning the company as a market leader in the growing sector of low-maintenance, weather-resistant building products.

Conclusion: High Stakes for James Hardie’s Future

James Hardie's acquisition of AZEK is a high-stakes strategic move. The deal, expected to close in the second half of 2025, will make James Hardie a more diversified company but requires successful integration to justify its premium price. Investors will scrutinise progress on operational consolidation, synergy achievement and financial performance.

If successful, James Hardie could emerge as a global leader in exterior building materials with a suite of premium products spanning siding to decking. This expanded portfolio can increase market reach, pricing power and resilience across economic cycles.

Failure to deliver projected synergies or growth could leave the company overleveraged and facing a credibility gap with investors, as evidenced by the 20% share price drop following the announcement.

The expansion beyond fibre-cement products and increased focus on the U.S. market represents a turning point that will determine whether James Hardie can create a combined entity truly greater than the sum of its parts.

Headlines

📰 Local News

• EY is implementing a major global restructuring to reduce costs and address stagnant growth. The firm will eliminate three geographic groupings and consolidate 18 regional structures into 10 "super regions.

• Opposition Leader Peter Dutton has countered Prime Minister Anthony Albanese's budget tax cuts with a $6 billion proposal to reduce petrol prices by 25¢ per litre for one year.

• Tax cuts outlined in the federal budget have passed the senate during a late night session, securing support from the Greens and crossbench but facing opposition from Coalition senators.

 🌎️ Around The Globe

• BlackRock is expanding its cryptocurrency offerings by launching a Bitcoin exchange-traded product in Europe, building on its success in the U.S. market.

• Exxon Mobil announced Wednesday it will invest $100 million to upgrade its Louisiana chemical plant to produce highly pure isopropyl alcohol used for cleaning and processing microchips.

• The International Energy Agency reports that global energy demand increased by 2.2% in 2024, significantly exceeding the previous decade's average annual growth of 1.3%.

• Napster has been acquired by 3D technology company Infinite Reality for $207 million. CEO John Acunto revealed that the once-popular file-sharing platform will be repurposed for metaverse marketing.

• Vietnam's government said it will permit SpaceX to launch its Starlink satellite internet service in the country on a trial basis. The approval includes no restrictions on foreign ownership and establishes a trial period extending through the end of 2030.

🤖 All About AI

• Google has launched Gemini 2.5 Pro Experimental, touted as their "most intelligent" A.I. model to date. It features enhanced reasoning capabilities that essentially self-fact-check during output generation, improved multimodality, and an extensive context window.

• OpenAI has integrated a new native image generator directly into ChatGPT, replacing DALL-E with a system that promises more consistent results and fewer content restrictions for all users.

Technical

Data Points

A list of companies hitting 52-week highs/lows or hitting significant technical indicators:

*A Death cross is a technical analysis signal that occurs when a stock's short-term moving average (50-day) crosses below its long-term moving average (200-day). A golden cross is a technical analysis signal that occurs when a stock's short-term moving average (50-day) crosses above its long-term moving average (200-day).

On a Roll

Companies on long winning/losing streaks.

Winning Streaks

• Ive Group (IGL) - 10 days

• Perpetual (PPT) - 9 days

• Southern Cross Gold (SX2) - 8 days

• Australian Foundation Company (AFI) - 7 days

Losing Streaks

• Myer (MYR) - 8 days

• HMC Capital (HMC) - 5 days

• Clarity Pharmaceuticals (CU6) - 5 days

Brokers

Research Report - Lunnon Metals (ASX: LM8)

Shaw and Partners maintain a 'Buy' recommendation for Lunnon Metals with a price target of $0.60. This target is supported by Lunnon's recent agreement with Gold Fields for an exclusivity period to negotiate commercial terms for processing Lady Herial ore at Gold Field's nearby Lefroy plant. The broker sees this deal as enabling a low-cost, quick production start-up that could yield substantial cash flow at current gold prices.

Lunnon Metals has been actively exploring its 100% gold rights at the Kambalda Gold and Nickel Project, with drilling at Lady Herial identifying meaningful gold mineralisation. Early results show mineralisation widths between 4m and 20m with grades between 0.70g/t and 2.15g/t Au. If Lunnon can recover 15,000 to 20,000/oz of gold, this could generate gross cash flow of $70-90 million before mining and processing costs at prevailing gold prices.

The company is well-positioned financially, with $19.5 million cash at the end of December. If an agreement with Gold Fields cannot be reached, alternative processing options include Westgold's Higginsville plant and Black Cat's Kal East Gold Operation, both within trucking distance. Lunnon expects to report an initial resource estimate for Lady Herial in the first half of this year, with mining potentially beginning before the end of the September quarter.

You can access the report below:

Broker Forecasts

• Goldman Sachs has raised its gold price forecast for the end of this year from $US3,100 to $US3,300/oz. The investment bank also expanded its expected trading range for the precious metal to between $US3,250 and $US3,520/oz.

• Bank of America raised its gold forecasts to $3,063/oz for 2025 and $3,350/oz for 2026, up from previous estimates of $2,750/oz and $2,625/oz. This follows their revised two-year price target of $3,500/oz, contingent on a 10% increase in investment demand.

A Little Extra

 ⬇️ Short Data

Top 10 shorted stocks on the ASX - as of March 21

The Insiders

Director buying and selling.
On-market and Off-market trades only.
Net Buy/Sell positions from February 27 - March 24

💵 Dividends

Companies who traded ex-divided today

1. Maas Group Holdings (MGH)

2. Ipd Group (IPG)

3. Wiseway Group (WWG)

4. Australian Clinical Labs (ACL)

5. Eagers Automotive (APE)

6. Salter Brothers Emerging Companies (AB2)

🔍️ ETFs

Some of the ETFs with sharp moves today, min $100m FUM

Top 5 ETFs Today

Bottom 5 ETFs today

The Last Word

DISCLAIMER: Please note that the information provided in this newsletter is for educational purposes only and should not be considered financial advice. It is not intended to encourage you to buy/sell assets or make economic decisions. We strongly recommend conducting your own research before making any investment.