Gillon Securities

Negative Lead for Aussie Market

Tuesday, March 7 - Wall Street has provided a negative lead for local markets, with stocks there falling overnight as a rise in bond yields led to fears over stock valuations.

Ahead of the local open the SPI futures were 36 points (0.73%) lower at 4,869.

The Australian sharemarket ended slightly ahead Monday. The All Ordinaries rose 5.3 points (0.11%) to 4,867.4 while the ASX 200 firmed 5.4 points (0.11%) to 4,903.9.

John Fairfax Holdings (FXJ) reported NPAT up 5.2% to $124.8m for the half-year ended 31 December 2005. Revenues from ordinary activities were $977.6m, up 4.4% from the same period last year. These results exclude the effects of significant and non-recurring items, which comprise of $4.4m from the sale of Australian Associated Press' operating division and restructuring costs of $13.3m. Diluted EPS was 12.92 cents compared to 13.76 cents last year. The interim dividend declared was 8 cents compared with 7.5 cents last year. The results were attributed to strong internet revenues, solid performance in New Zealand and continued growth in business publishing and our regional newspapers. The company advised that trading in Australia in January and February has been mixed and it is too early in the half to provide meaningful guidance. FXJ weakened 4 cents (1.02%) to $3.90.

John Fairfax Holdings (FXJ) also announced the acquisition of Trade Me Ltd, a New Zealand internet company, at a purchase price of A$625m cash, representing approximately 15.6 times expected 2007 EBITDA. The purchase will be funded through a combination of hybrid equity (40%) and senior debt (60%). According to Fairfax, Trade Me accounts for over 60% of New Zealand's web traffic.

PBL advised that subject to the approval of the Macau Government, it has acquired from Wynn Resorts a Subconcession to own and operate hotel casino resorts in the Macau Special Administrative Region. Following the issue of the Subconcession, Melco International will acquire a 40% interest in the PBL subsidiary. The purchase price payable is USD900m and will be funded by USD400m equity and USD500m of non recourse bank debt. The company now has a 50% economic interest in all of its JV casino operations in Macau. The newly acquired Subconcession will be effective until June 2022. PBL added 40 cents (2.34%) to $17.47.

Record Investments (RCD) agreed the key commercial terms of a merger with Allco (AEQCB), subject to execution of legal agreements and Record shareholder approval. The company will issue 86.43m shares to Allco's existing shareholders in consideration for the acquisition of all the shares in Allco. The pro forma forecast of NPAT for the merged group for 2006 is $140.5m, compared with pro forma forecasts of $94.9m if the merger does not take place. On completion of the merger, Record will be renamed Allco Finance Group and intends to distribute a pre-completion dividend to shareholders should the merger proceed. A meeting of Record shareholders to approve the transaction is expected to be held in May 2006. RCD strengthened 30 cents (3.02%) to $10.25 and AEQCB dropped 3 cents (1.18%) to $2.52.

Toll Holdings (TOL) announced an agreement with SembCorp Industries that will give the company a 60% interest in SembCorp Logistics (SembLog). The company proposes to make an offer for all the outstanding shares in SembLog at S$1.70 per share. The voluntary general offer will be subject to an acceptance condition of greater than 50%. In addition, the price will be S$1.80 should acceptances of greater than 90% be achieved, enabling the company to achieve compulsory acquisition. At S$1.80 per share the company is valued at S$1.4bn. The acquisition is EPS accretive in the first full year and the company intends to fund the acquisition with debt facilities. Also, the MD of Toll advised that "There is no change to Toll's strategy to acquire Patrick and the bid remains alive, subject to the outcome of the Federal Court hearing." TOL gained 43 cents (3.67%) to $12.15 and PRK shed 6 cents (0.86%) to $6.91.

Brambles Industries (BIL) has agreed to sell its Interlake business to United Fixtures Holdings for US$48m in cash plus the assumption of the company's pension liability, subject to a working capital adjustment. The sale is expected to be completed next month and is subject to customary conditions precedent. BIL fell 6 cents (0.6%) to $9.96.

The Board of Volante Group (VGL) has unanimously recommended that, in the absence of a higher financial proposal, Volante shareholders accept the increased cash offer for Volante shares from Commander Corporation (CDR). The final offer will be made up of cash consideration from Commander of $1.05 per share together with a 10-cent special fully franked cash dividend. Volante shareholders will also receive the benefit of up to 4.3 cents of franking credits associated with the payment of the interim dividend and the special dividend as these dividends are expected to be fully franked. The offer is scheduled to close on Friday, 31 March 2006. VGL rose 5 cents (4.11%) to $1.14 and CDR firmed 12 cents (6.15%) to $2.07.

Metcash (MTS) forecasted the newly acquired Australian assets of Foodland Associated (FAL) to generate incremental EBIT of between $80m and $90m on a normalised, annualised basis. The expected growth in EBIT will be struck on an anticipated $1.86bn lift in normalised wholesale revenue and is in line with original expectations. MTS lost 21 cents (4.38%) to $4.59.

Coles Myer (CML) has received and is considering bids for purchase of the Myer business. The Board is considering bids for the business in tandem with bids submitted for the purchase of the Myer Melbourne property. Once these bids have been considered in full, the Board will determine whether retention, sale or demerger of the business will create the greatest value for shareholders. CML added 1 cent (0.1%) to $9.94.

OneSteel's (OST) Steel & Tube Holdings advised that the conditions precedent for the purchase of the assets of the NZF Stainless Group have now been satisfied and accordingly this contract is now unconditional and will be effective from Monday, 3 April 2006. The purchase price of approximately $11m will be paid in cash and is subject to adjustment based on net assets of the business on 3 April 2006. OST strengthened 5 cents (1.28%) to $3.96.

Consolidated Minerals (CSM) held an open briefing with MD Michael Kiernan commenting on the company's results and outlook. On the reasons for the fall in NPAT for the half year to December 2005, Mr Kiernan said, "The manganese ore price fell by some 30%-35% during the half after a series of events beginning in 2004." He also said that "the Chinese liquidated a significant amount of their manganese alloy stock and reduced their purchases of ore and this dragged down both alloy and ore prices." On the projected FY06/07 benchmark price for shipments of manganese ore of US$3/dmtu, Mr Kiernan added, "The new benchmark comes into effect in April...It sets up a much stronger June 2006 half year for CSM." CSM fell 8 cents (3.45%) to $2.24.

Tethyan Copper (TYC) said that Skafell's off-market takeover bid for all of the ordinary shares in Tethyan Copper has been increased from 77.5 cents to $1.35 per share. Skafell also confirmed that it will not rely on the proposed placement of new shares announced by Tethyan on 28 February 2006 as a triggering condition outlined in its bidder's statement dated 30 June 2005. The current offer is due to expire on 20 March 206, unless extended. TYC gained 22 cents (18.72%) to $1.40.

In economic news, TD Securities said in a report that inflation in Australia fell slightly in February, continuing a downward trend in price pressures since September 2005. The TD Securities-Melbourne Institute Monthly Inflation Gauge showed prices of goods and services fell 0.1% in February, resulting in an annual inflation rate of 2.8%. Contributing most to the overall decrease in the inflation gauge in February were falls in the cost of automotive fuel, furniture and some food items, according to Stephen Koukoulas, chief strategist at TD Securities. Increases in the cost of holiday travel, household appliances and tools partially offset these decreases, he added. Excluding volatile items (automotive fuel, fruit and vegetables), the core inflation measure was unchanged in February at 2.1% above the level of a year earlier.

The number of job advertisements in Australian newspapers fell 2% in seasonally adjusted terms in February from January, ANZ Bank, which compiles the data from major newspapers, said. The number of Internet job advertisements rose 0.8% in February from January. The total job advertisements in newspapers and the Internet in Australia rose 0.5% in February.

Companies commencing ex-dividend trading today include: Transfield Services, Hills Industries, Treasury Group, SAI Global, Templeton Global, Super Cheap Auto, GasNet Australia, Healthscope, Coventry Group and Senetas.

The Australian dollar was last quoted at 74.04 US cents.

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