Brokers already after MIM loot

There's nothing like a bit of M&A action to get people talking, and the Swiss gnomes' $5 billion play for MIM has done exactly that.

One question to ponder is where the MIM money $3.4 billion in total will go should Xstrata get its $1.72 a share bid over the line. Presumably some investors will want to hop back into one of the few remaining Australian mining houses.

So it's not surprising that perennial bid candidate WMC Resources is at the top of some lists. In two weeks its shares have risen from $3.59 to $3.81, still a way off its $4.52 peak three months ago when speculation about takeovers (Rio Tinto, Anglo American?) and mergers (Canadian nickel group Inco?) was rife.

Having passed on MIM, WMC chief Andrew Michelmore says he is concentrating on improving existing assets rather than looking for new ones, so it looks as if an acquisition is unlikely in the next 12 months.

Meanwhile, it doesn't hurt if a bit of spare cash floats your way. Even WMC bear Merrill Lynch, whose investment bankers advise MIM, admitted in a note to clients yesterday that ``corporate action elsewhere in the sector may free up cash for investors".

More importantly, however, Merrill reckons WMC is a ``sell" based on the broker's nickel price and capital expenditure forecasts.

``We believe that WMC will require significantly more capital to sustain and grow its nickel business than the market is factoring in," Merrill notes.

However, a WMC spokeswoman said a ``misunderstanding" by the Merrill analyst had put the capital expenditure calculations on the high side.

Still, only on a ``bull economic recovery" scenario for copper and nickel prices does Merrill's valuation ``justify the current share price". WMC shares closed 16c lower at $3.81.

Aussies underperform

It's as though the final whistle has blown on the war. No sooner had the troops hit Baghdad than every analyst, economist, strategist and trader was giving their views on where now for financial markets. Would the US economy rally, sending share prices around the world higher, or would the data continue to disappoint and send stocks lower?

UBS Warburg's strategy team looked at how Aussie companies exposed to the London market have fared in the recent war-inspired rally.

According to the broker's UK valuation indicator a composite of six classic valuation methods the FTSE 100 has bounced 20 per cent since its mid-March lows, compared with a rise of just 12 per cent by the basket of four Australian stocks exposed to the index.

The four stocks are Brambles, BHP Billiton and Rio Tinto, which are all listed in the UK, and AMP, which is exposed to the London market.

Warburg points out that the bounce by the UK equity market is similar to that seen after the 1991 Gulf War.

``While the comparison with the last Gulf War suggests limited room for further gains in the FTSE, support for further gains comes from our UK valuation indicator getting to minus 30 per cent at the lows of March versus minus 4 per cent during the last . . . war," the broker says.

But there is also a word of caution: ``Given the short, sharp rallies seen in equities over the past three weeks, sustainability . . . may depend on a bounce-back in economic data post-war as occurred after the last Gulf War."

No sign of that yet.

Austar looks better

Speaking of Warburg, long-suffering investors in regional pay TV group Austar got a much needed boost yesterday after analysts there tipped that the shares could eventually rise as high as 52c.

That's still a far cry from Austar's 1999 $4.70 issue price but well above its recent range of 14c to 18c. The stock yesterday closed up 2c to 21c its highest level since July with 3.7 million shares traded.

UBS reckons that 18 months of rationalisation has done the trick and Austar should be cash-flow positive in 2004.

It upgraded its earnings forecasts for 2002-03 from a loss of $63 million to a loss of $24 million, and break-even for 2003-04.

If the broker is right, it's good news for the thousands of small shareholders left holding Austar's 19 per cent free float.

It could also mean little interest in the mop-up offer next month from majority owners, private equity fund Castle Harlan Australian Mezzanine Partners and UnitedGlobalCom, at 16c a share.

While punters might want to hang on, they also might not care to pour good money after bad by taking up a pro rata rights issue underwritten by CHAMP and UGC.

Austar also announced it had finally completed the sale of its 42 per cent of New Zealand telecom TelstraClear to Telstra for $25 million.