A report from Citigroup late last week rated the top ten Aussie companies most vulnerable to a takeover from private equity or a competitor. “Resources giants BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO) have topped a list of Australian companies most vulnerable to private equity takeovers. The rankings were released this week by Citigroup Research, which also included energy firm Santos (ASX:STO), explosives maker Orica (ASX:ORI), leisure group Tabcorp (ASX:TAH), miner Zinifex (ASX:ZFX), retailer Coles Group (ASX:CGJ) and Woodside Petroleum (ASX:WPL) in its top 10 most vulnerable,” reported Charlie Corbett at investordaily.com
There’s always more to say but we have to hit the squeaky clean Singapore pavement today. A quick few random notes, though. China’s PetroChina discovered 7 billion barrels of oil in Bohai Bay in Northeast China. It’s the largest oil find in that part of the world in 30 years. And no, it is not proof that peak oil is wrong. It is proof that oil is more expensive to find and produce than ever before.
This would seem to favour service companies rather than producers. In this case, we think Sinopec is the better long-term Chinese energy stock. It is not forced to replace production with new reserves each year. And it has far more exposure to the refined fuels business in China, a vast and growing business that has, yes, huge cash flow. All those new cars in China are going to need fuel. And it has to come from somewhere. Check out the price of Valero (AMEX: VLO) and you’ll see what could happen for Sinopec over the next five years.
Another idea we mentioned here at our talk on Saturday is that sometimes the easiest investment in a growing financial market is to buy the exchange, not the banks or the biggest blue chips. In Singapore, the local blue chip index, the Straits Times, set a new high last week. Everything seems to be going up (everywhere).
More Chinese, Vietnamese, and Thai companies are listing here (for various reasons.) When you compare the performance of Goldman Sachs (NYSE:GS) over the last three years to that of the Chicago Mercantile Exchange (NYSE:CME), you’ll see why buying the house is usually a lot better than buying the best gambler. Lucky streaks end, but there are always more gamblers. And in a region producing 200,000 new millionaires a year, there is a lot of gambling to be done.
Markets and Money
Will BHP and Rio be bought out by private equity? Leave a comment below.