Good Evening,

Welcome to Equity Espresso’s Daily Recap. I guess we can forget about easing into the end of the year. It’s M&A season! We got the official news today that Sigma Healthcare and Chemist Warehouse will merge, which will see the pharmacy giant enter the ASX via a reverse takeover. Plus, plenty of global news to sink your teeth into, including the possible buyout of a popular U.S. retailer. Let’s jump in.

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The Recap

Markets started the day positively before giving back almost all of the early gains as the ASX 200 closed 4.1 pts. 0.06% higher to 7,199.0. Seven sectors finished the day higher in a mixed session, with Energy (+1.16%) and Discretionary (+0.58%) leading the way, while Materials (-0.58%) and Utilities (-0.61%) were the biggest fallers.

Today's big company news was Sigma Healthcare (SIG) announcing that it has agreed to a “transformational merger” with Chemist Warehouse. The smaller Sigma Healthcare will merge with the pharmacy giant to create a nearly $9 billion business in a reverse takeover deal. Here are some of the highlights:

• Chemist Warehouse shareholders will own an 85.75% stake in the newly merged company.

• The market cap of the newly formed group is expected to be $8.8 billion, which would place it in the top 60 ASX companies by market cap.

• Sigma will fund the deal via a $400 million equity raise, refinancing $300 million of existing debt and take on $700 million of new debt.

• Chemist Warehouse says that international expansion will be the fundamental pillar of the company's growth, but it has room to grow in Australia, with more new stores planned.

• Sigma expects to find $60 million in cost savings annually, with an EBIT of more than $495 million.

Gold companies were some of the worst hit today as the gold price fell below US$2,000/t.oz. Northern Star Resources (-2.06%), Perseus Mining (-2.14%) and DeGrey Mining (-5.24%) were some of the gold miners that felt the most significant impact to their share price.

Economic Data

• The U.S. economy added 199,000 jobs in November, surpassing the 150,000 added in October and exceeding market expectations of a 180,000 gain. Health Care (+77,000) and Government Payrolls (+49,000) saw the most significant increases.

• U.S. Consumer Sentiment rose to 69.4 in December, up from 61.3 in November, beating expectations of 62.0.

• U.S. Unemployment fell to 3.7% in November from 3.9% the prior month, dropping to its lowest point since July.

• China's Consumer Prices (CPI) fell by 0.5% YoY in November, a sharper drop than the 0.1% forecasted and below last month’s fall of 0.2%. It marked the fastest decline in CPI since November 2020, as the cost of food decreased by 4.2%.

Wall Street

U.S. markets closed higher on Friday as the S&P 500 and NASDAQ registered their highest closing levels since early 2022, with a stronger-than-expected jobs report fuelling optimism of a soft landing for the economy.

Lululemon shares rose by over 5% on Friday after the apparel company reported Q3 earnings, which came higher than expected. Adjusted EPS was $2.53 vs. analysts expectations of $2.28. Meanwhile, revenue for the quarter was $2.20 billion, a slight beat on the $2.19 billion expected.

Outlook

A busy upcoming week for economic data, with only two weeks left of the trading year. Tomorrow, we get consumer and business confidence data in Australia, with employment and unemployment readings for November dropping on Wednesday.

No critical data of note tonight in the U.S.; however, Tuesday night will be the all-important CPI read for November, which is expected to increase by 3.1%. Meanwhile, GDP, trade balance, and PPI data are all set to be reported this week, too.

NASDAQ (-0.26%) futures are in the red this afternoon, while the S&P 500 (-0.06%) is only slightly lower. Oracle is the largest company set to report quarterly earnings overnight.

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Quick Singles

🪃 Local News

• A recent NAB superannuation insights report showed that offshore investment allocations rose to 47.8% in 2022, up from just 46.8% in the previous year.

• The federal government announced changes to the foreign investment framework yesterday, including tripling foreign investment fees for purchasing established homes. Foreign-owned houses left vacant will also see a doubling in fees.

🌏 Around The Globe

• Around 750 Washington Post staff went on a 24-hour strike to protest the newspaper’s demands that they accept below-inflation pay rises.

• Arkhouse Management and Brigade Capital Management have reportedly lobbed a $5.8 billion buyout offer for retailer Macy’s, valuing the company at $21.00 per share - a 21% premium to Friday's closing price of $17.39. Macy’s didn’t respond to requests for comment on the deal, which The Wall Street Journal first reported.

• Amazon is suing a group of scammers known as REKK for allegedly manipulating their systems to register fake refunds, enabling buyers to keep items such as MacBook Airs and iPads for free.

• German energy company RWE AG will receive €2.6 billion in compensation from the government to accelerate the phase-out of coal from its energy systems.

• GameStop announced that the company's cash can now be used to buy equities instead of just short-term debt and that CEO Ryan Cohen is in charge of the investments.

• Krispy Kreme opened its first store in Paris, France, last week and plans to roll out 500 stores in the country over the next 12 months. The opening was met with a frenzy, with around 400 customers lining up to try the iconic doughnut.

• McDonald’s is testing a new CosMc restaurant concept, opening its first store in Bolingbrook, Illinois. The restaurant will focus on caffeinated drinks and afternoon snacks like Churro Frappé, S’mores Cold Brew, Blackberry Mint Green Tea and Pretzel Bites.

• Did Google Fake it? Google released its new artificial intelligence model Gemini, which it says can understand images, video and audio in addition to text. However, it wasn’t all that it seemed. The video showcasing Gemini's capabilities may not be entirely truthful. Although the footage portrays Gemini as being able to perform the actions demonstrated, it cannot do so in real-time and in the manner suggested by the video. Instead, the video is a series of meticulously planned text prompts accompanied by still images that were carefully chosen to mislead viewers about the speed, accuracy, and method of interaction with the model. A breakdown of the video is available here.

• Nvidia wants to establish a base in Vietnam to establish its semiconductor industry as it considers the market an important one.

• According to X CEO Linda Yaccarino, more than 10 million users have signed up to the platform so far in December.

Markets

ASX Company Movers

Commodity Prices

Bond Prices

ETF Watch

ASX News

🗞️ Company Announcements

• Alcidion (ALC) announced it has signed an 8-year $23.3 million contract extension with South Tees Hospital NHS Foundation, which will take the total contract term to the end of 2033.

• Bubs Australia (BUB) expects its revenue from its U.S. segment to double to $48 million during FY24 as it puts stock shortage issues behind them. Bubs said it hit a weekly U.S. sales record of $770,000 in November.

• Compumedics (CMP) went into a trading halt today pending an announcement about correspondence from a Chinese-based distributor concerning additional MEG orders.

• Costa Group (CGC) shares fell this afternoon after it said it expects full-year FY23 earnings to come in below the prior year.

• Dexus (DXS) has appointed Chief Investment Officer Ross Du Vernet as the company’s new Chief Executive Officer and Executive Director.

• JB Hi-Fi (JBH) has been hit with a class action from Maurice Blackburn, lawyers in the Supreme Court of Victoria, concerning the sale of extended warranties to customers.

• PACT Group (PGH) has received an improved takeover offer from Kin Group, which has upped its bid to $0.84 per share from $0.68.

• School Group (SCL) provided a trading update today, reporting a 17% increase in November sales to $1.2 million.

• Sky City Entertainment (SKC) has settled a dispute with MPF Parking NZ about the SkyCity Auckland car park. The settlement will see Sky City pay $204 million to MPF in return for the car park.

• Smartgroup Corporation (SIQ) has been appointed by the South Australian government as its exclusive administrator of salary packaging services and novated leasing services under an initial 5-year agreement. The contract, commencing on July 1, 2024, will be available to around 110,000 South Australian government employees. Smartgroup also provided a trading update today, saying it expects 2023 NPATA to be approximately $63 million from revenue of $249 million, with the increase driven by higher novated leasing volumes.

• Whispir (WSP) said it is in ongoing discussions with Pendula regarding a takeover proposal of all of Whispir’s shares. Whisper said it expects the offer to be at a premium to the one provided by Soprano on November 6.

Social Media

 📱 Post of The Day

The yearly average cost of showers by country

Denmark has the unenviable position of number 1 on this list, with a year of daily hot showers costing $802. Australia comes in at $339.

Broker Research

Eagle Mountain Mining

Code: EM2 | Market Cap: $18m  | Current Price: $0.06
Price Target: $0.30 | Sector: Materials | Broker: Shaw & Partners

Overview

Eagle Mountain Mining is a copper, gold and silver explorer who owns the Oracle Ridge Copper project in Arizona, United States. The company provided a technical studies update for the project last Monday.

Highlights

Recent testing at Oracle Ridge has identified more cost-effective and environmentally friendly processing methods; these include:

• Increased mining productivity due to larger stopes and multiple fronts, enabled by the recent updated Mineral Resource.

• A 30% increase in copper head grade from ore sorting.

• Reduced power costs and operating footprint from high-pressure grinding rolls compared with traditional crushing equipment.

• Excellent copper recovery from rougher flotation, direct tank-leaching and an onsite SX/EW plant that produces LME-grade copper sheet.

Eagle Mountain finished September with $1.6 million cash. Copper’s inclusion on the U.S. Critical Materials allows Eagle Mountain to pursue U.S. Government funding under the enormous Inflation Reduction Act.

Recommendation 

The broker maintains their Buy rating with a price target of $0.30. The valuation is based on the current modelling of the project, with a long-term copper price of US$6,800/t. The broker expects the first production to be pushed back one year to 2026.

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Daily Quiz

❓️ Test Your Knowledge

A look back at 2023

A Little Extra

📉 Going Down?

Top-10 shorted stocks on the ASX - as of December 5

📊 Broker Ratings

What do the brokers have to say?

1. Alumina (AWC) - Upgraded to Neutral from Underperform (Macquarie)

2. Genesis Minerals (GMD) - Downgrade to Neutral from Outperform (Macquarie)

3. Gold Road Resources (GOR) - Downgrade to Neutral from Outperform (Macquarie)

4. Pilbara Minerals (PLS) - Downgrade to Neutral from Buy (Citi)

👨‍💼 Director Transactions

What are the insiders doing? (On-market trade only)

DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.