Weekly News Wrap: US election, Chinese IPO, Australian interest rates

Monday 9 November 2020

Our pick of the week’s biggest stories affecting Aussie equity markets

IN FOCUS: OPTUS BUYS AMAYSIM FOR $250M

What’s going on? 

Optus is acquiring its biggest mobile virtual network operator (MVNO), Amaysim, for $250 million. Amaysim’s the fourth-largest mobile provider in Australia with 1.19 million subscribers. The deal also includes brands Vaya, Jeenee and OVO. The business specialises in SIM-only mobile plans, but has also expanded into the home internet market.

Amaysim will be delisted from the ASX and the business wound up. The announcement on Monday also saw Amaysim’s share price go up 10.45% to 74 cents. The company’s been enjoying a relatively good year due to the pandemic, but posted net revenue of $490.5 million for fiscal 2020, down 3.5% year-on-year.

Amaysim estimates that following the mobile sale between $207.2m to $225.7m will be distributed to shareholders equalling about 67–73 cents per share. Franking credits of up to 11 cents per share will also be attached to “certain components of the distribution”. The sale will only go ahead if shareholders agree at a meeting in January, currently the sale has full support of the board.

What’s the backstory? 

Amaysim is an MVNO – an MVNO partners with a mobile network operator – like Optus. Essentially the network operator (Optus) sells bandwidth at a wholesale price to the MVNO (Amaysim) who then packages it up and sells it on to the retail market at budget prices. Previously the low-cost side of the market has been the domain of MVNOs, while the operators (Optus, Telstra and Vodafone) kept to the premium end. With this acquisition, Optus is now getting into the low-cost side too.

Optus has been in talks with Amaysim for years, but has only come to the table with the cash now. It’s speculated the sale’s happening for a number of reasons:

  1. Amaysim also used to resell electricity services. The company has just sold their energy unit, Click Energy, to AGL Energy for $115 million in August. The sale also covered most of the company’s debts.
  2. After launching a strategic review, Amaysim received a number of expressions of interest.
  3. Amaysim’s contract with the Optus network is coming up for renewal in 2022, so by Optus getting hold of the company now, they’ll secure those 1.19 million customers.

What does it mean going forward? 

This is a signal Optus is getting serious about the low-cost end of the market. Along with buying Amaysim, the company also announced they’re launching Gomo in Australia – an MVNO and digital-only brand that’s already proven successful in Singapore (where Optus’ parent company, Singtel is based). Gomo would will have straight-forward subscription pricing targeting low data users – complementing Amaysim’s offerings which target high data users.

Optus isn’t alone in wanting a piece of the budget-consumer pie; TPG’s also announced they’re launching their own digital brand ‘Felix’, while Telstra already has Belong.


In Brief:

US ELECTION: WHY ARE THE MARKETS GOING SO WELL?

The Dow Jones is up 7% while the NASDAQ went up 9% this week despite an extremely tight election with results yet to be finalised, not to mention the pandemic. 

On the surface the markets might not make sense, but there is a reason; congress looks like it will be split evenly along party lines, potentially weighted toward the Republicans – and that’s good news for business. It means the Democrats will be pulled back from levelling more taxes and enacting social policies that could impact profits. 

While traders would prefer a Trump presidency, as long as the house is tempered by Republicans, the markets look like they’ll stay strong. Record low interest rates don’t hurt either.


RESERVE BANK DROPS INTEREST RATES, SPLASHES $100B

The RBA’s cut the cash rate 0.15% to 0.1% in hopes of stimulating the economy further after the first cuts back in March. With the Reserve Bank ruling out negative interest rates, they’ve had to go with the only other option to get the economy moving: quantitative easing.

The Reserve Bank announced it will buy $100 billion of government bonds or maturities of around five-to-10 years over the next six months –that’s unloading $5 billion a week into our economy. The aim of this is to increase the money supply and spark more lending and investment. It should also mean the Australian dollar will fall, leading to more demand for our exports. They’re also buying enough bonds to keep the bond rate at 0.1%, and that means keeping mortgage repayments down.

But when will rates start going back up? The bank said this:

“The board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.”


CHINA STOPS THE WORLD’S BIGGEST IPO

Three days out from floating Chinese fintech darling The Ant Group, Chinese regulators put a stop to it. The company had been ready to raise almost $40 billion USD before regulators got spooked by potential systemic risk. It’s believed the paperwork illustrating the company’s growth and scale caused concern.

The upshot of a meeting between the Ant Group’s executives and Chinese regulators on Monday saw the regulators signal major new changes were coming for financial-technology companies in China in order to protect financial stability and traditional lenders.

New draft rules say Ant and other internet platforms wanting to delve into finance, would have to put up 30% of the capital for joint loans with banks. Ant currently contributes about 2%, so now Ant has to figure out exactly what counts as a joint loan and how to deal with these new regulations before reconsidering an IPO.

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