Property Takeovers and Bear Calls

Melbourne, Australia
Tuesday, 30 March 2021
Twitter: @CallumRN

[3 min read]

Dear Reader,

62.5%. That’s how much broking and home loan stock Mortgage Choice Ltd [ASX:MOC] soared yesterday.

Why so?

Property portal behemoth REA Group Ltd [ASX:REA] wants to take it over and is prepared to pay $1.95 per share to make it happen.

It was only a few weeks ago I went over Mortgage Choice myself.

I decided to pass on it based off its limited growth in recent times. It never occurred to me it might be a takeover target.

Now that the news is out it does seem to make a great fit for REA. They have an army of people searching their website for property details all the time.

They can use this scale to send them to Mortgage Choice’s established infrastructure and expertise.

Well done to any Mortgage Choice holders. What a way to start your day!

These are the exact type of ‘flags’ I hunt for in the market.

Make sure you go here to learn more about that. You can’t get them all. But you certainly only need one or two a year to turbocharge your results.

I don’t think it’s unreasonable to expect more mergers and acquisitions across multiple sectors on the market. I’m thinking directly of gold and iron ore when I say this.

The main reason is that both industries have incredibly strong cash flows. This is giving existing producers huge amounts of money to allocate.

One way commodity producers can keep themselves in business is by buying future growth.

This is no small thing. Every day a producing mine is running down its existing reserves. They either have to extend the life of the operation…or find another one!

There is always a danger of a company overpaying for this type of asset. However, I don’t think that’s a concern in today’s market.

We are not in the boom years of 2007. If anything, the market is cheap and stingy at the moment. It’s time to go shopping!

Unless, of course, you take the Harry Dent view of the world. A mate of mine sent me a link to a news story about him.

It quotes him as saying…

‘Once you get bubbles of this extent, there’s no way to stop it, they have to come down to reality.

‘I’m telling you, it’s 30 to 50 per cent for real estate in most countries and it’s 60 to 90 per cent in stocks in most countries.

‘This is going to kill most people’s retirement portfolios.

‘And there’s nothing they can do about it...I’m telling you it’s coming in the next two-to-three-years.

‘And I think it’s about to start in the next month or two.’

Could Harry be right? Of course. Anything is possible. But I doubt it.

I see no reason why real estate markets would fall by such an extreme. The fundamentals of property look rock solid the world over.

This is where a careful study of market action can come in handy too. Take REA up above.

Would management there be prepared to pay more than $200 million for MOC if they thought the market was about to tank?

Don’t forget that REA must swallow a river of data every day on what people are searching for, the suburbs and states moving and all the rest of it.

That data is clearly telling them to expand their business to tap into the growth coming.

You only need to look out the window or at your local paper. The property market is moving up and it’s taking Australia’s total wealth with it.

The Australian Bureau of Statistics says Australian household wealth is now more than $12 trillion.

$7 trillion of that is residential housing.

If you ask me, this is going higher before it goes down. We haven’t even seen investors really chase this market yet, or the migrants come back (and I’m sure they will in time).

Much opportunity should spring from this (just ask MOC shareholders!).

I expect my friend Greg Canavan will find many of them. Many of Australia’s top 200 stocks have a foot, if not a whole leg, in the property market.

Some of the Real Estate Investment Trusts (REITs) yield as much as 6% currently.

Go here for Greg’s analysis of these types of opportunities.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia