ASX Today — Live ASX News | XJO Steady, US CPI As Expected, Allkem Merges with Livent

The ASX 200 ended flat on Thursday, largely unchanged from Wednesday at 7,449.70.

However, the Information Technology sector rallied strongly, up 1.44%.

Wisetech Global (ASX:WTC) closed 2.95% higher.

Life360 (ASX:360) and Megaport (ASX:MP1) closed 2.50% higher.

On the more speculative end, Brainchip (ASX:BRN) closed 3.50% higher.

 

Health, beauty, and care products retailer McPherson’s [ASX:MCP] has recorded year to April sales revenue of $175.4 million, 1% below the prior year.

Underlying profit before tax fared worse.

Year to April profit after tax fell 32% to $5.3 million. McPherson’s anticipates a similar drop in profit for the full year.

‘Positive sales growth in Essential Beauty brands and Fusion, coupled with increased advertising and promotion spend, have been more than offset by a decline in sales and contribution of Multix and A’kin. Recent supply chain disruptions impacting key Dr. LeWinn’s products have also adversely affected availability and sales. The Company is progressing with its recruitment process of a new Managing Director. While the Board remains confident in the sustainable potential of the Health, Wellness and Beauty sectors, the new Managing Director will be tasked with undertaking a comprehensive review of the execution of the strategy, to ensure the appropriate structure and investment to support the growth agenda,’ said Mcpherson’s in a terse statement.

Maybe I can institute a new running joke here on the ASX live feed, using the ChatGPT paper I discussed earlier. The one that used this prompt to prognosticate about a stock’s future price:

‘Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line. Is this headline good or bad for the stock price of company name in the term term?

‘Headline: _headline_’

No major outlets have covered McPherson’s trading update so I used its actual announcement as the source. Let’s see what ChatGPT ‘thinks’:

Source: OpenAI

And here’s what Google’s Bard ‘thinks’:

Source: Google

Health, beauty, and care products retailer McPherson’s [ASX:MCP] has recorded year to April sales revenue of $175.4 million, 1% below the prior year.

Underlying profit before tax fared worse.

Year to April profit after tax fell 32% to $5.3 million. McPherson’s anticipates a similar drop in profit for the full year.

‘Positive sales growth in Essential Beauty brands and Fusion, coupled with increased advertising and promotion spend, have been more than offset by a decline in sales and contribution of Multix and A’kin. Recent supply chain disruptions impacting key Dr. LeWinn’s products have also adversely affected availability and sales. The Company is progressing with its recruitment process of a new Managing Director. While the Board remains confident in the sustainable potential of the Health, Wellness and Beauty sectors, the new Managing Director will be tasked with undertaking a comprehensive review of the execution of the strategy, to ensure the appropriate structure and investment to support the growth agenda,’ said Mcpherson’s in a terse statement.

Maybe I can institute a new running joke here on the ASX live feed, using the ChatGPT paper I discussed earlier. The one that used this prompt to prognosticate about a stock’s future price:

‘Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line. Is this headline good or bad for the stock price of company name in the term term?

‘Headline: _headline_’

No major outlets have covered McPherson’s trading update so I used its actual announcement as the source. Let’s see what ChatGPT ‘thinks’:

Source: OpenAI

And here’s what Google’s Bard ‘thinks’:

Source: Google

Data centre company NEXTDC (ASX:NXT) wants to raise $618 million to fund two new data centres in Malaysia (KL1) and New Zealand (AK1). The offer is for $10.80 a share, a 7.5% discount to NXT’s TERP of $11.67.

The total power planned for KL1 is 65MW while the total power planned for AK1 is 10MW.

That said, a footnote reveals the initial capital expenditure for KL1 will deliver IT capacity of 7.5MW and 1.7MW for AK1.

NXT also updated its FY23 revenue guidance.

Data centre services revenue is now expected in the range of $350 million to $360 million (previously $340 million to $355 million).

Underlying EBITDA is now expected in the range of $192 million to $196 million (previously $190 million to $198 million).

Capital expenditure got a bump, too. NEXTDC now expects CAPEX to be between $670 million to $720 million (previously $620 million to $670 million).

 

Data centre company NEXTDC (ASX:NXT) wants to raise $618 million to fund two new data centres in Malaysia (KL1) and New Zealand (AK1). The offer is for $10.80 a share, a 7.5% discount to NXT’s TERP of $11.67.

The total power planned for KL1 is 65MW while the total power planned for AK1 is 10MW.

That said, a footnote reveals the initial capital expenditure for KL1 will deliver IT capacity of 7.5MW and 1.7MW for AK1.

NXT also updated its FY23 revenue guidance.

Data centre services revenue is now expected in the range of $350 million to $360 million (previously $340 million to $355 million).

Underlying EBITDA is now expected in the range of $192 million to $196 million (previously $190 million to $198 million).

Capital expenditure got a bump, too. NEXTDC now expects CAPEX to be between $670 million to $720 million (previously $620 million to $670 million).

 

Owner and operator of Westfield shopping centres Scentre Group (ASX:SCG) said it delivered a ‘strong operating performance’ in the early part of 2023.

Scentre attracted 163 million customer visits in the first 17 weeks of the year, up 13.7% on the prior corresponding period.

On a rolling 12-month basis, Scentre’s customer visits were 499 million, up 22.6%.

Scentre also said its business partners achieved record sales of$27.5 billion on a rolling 12-month basis.

Cash collections stood at $864 million for the first four months, up 8%. Portfolio occupancy was 98.9% at the end of April, up 0.4%.

Scentre reaffirmed guidance for funds from operations to be in the range of 20.75 to 21.25 cents per security in 2023. That’s a growth of 3.4% to 5.9% on the prior year.

Source: Scentre

When OpenAI’s ChatGPT first took the Internet by storm, former Bloomberg columnist Noah Smith made an interesting point when he said Americans tend to see in new technology danger instead of opportunity.

Americans tend to see any new technology and ask "Will this take away my position in society?" instead of "How can I use this to make a bunch of money?".

— Noah Smith 🐇🇺🇸🇺🇦 (@Noahpinion) March 25, 2023

But it was inevitable that the entrepreneurial spirit will turn its acquisitive gaze on ChatGPT.

Last month, two University of Florida finance academics released a paper using ChatGPT to forecast stock prices to surprising results. The paper is not yet been subject to peer review, so caveat emptor.

The authors — Alejandro Lopez-Lira and Yuehua Tang — described their methodology thus:

‘We examine the potential of ChatGPT, and other large language models, in predicting stock market returns using sentiment analysis of news headlines. We use ChatGPT to indicate whether a given headline is good, bad, or irrelevant news for firms’ stock prices. We then compute a numerical score and document a positive correlation between these “ChatGPT scores” and subsequent daily stock market returns.’

Not ones to shy away from the spotlight, the authors concluded that their findings ‘have important implications for the employment landscape in the financial industry. The results could potentially lead to a shift in the methods used for market prediction and investment decision-making.’

For the interested, part of their ChatGPT wrangling involved using the following prompt:

‘Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line. Is this headline good or bad for the stock price of company name in the term term?

‘Headline: _headline_’

Out of interest, let’s try their method on the recent headlines surrounding Allkem (ASX:LKE).

Here’s the ChatGPT output I received:

Source: OpenAI

And here’s the method applied to Appen:

Source: OpenAI

Is this revolutionary? Or common-sense dressed up in fancy AI?

Note, too, the authors’ description of the prompt:

‘The prompt is specifically designed for financial analysis and asks ChatGPT to evaluate a given news headline and its potential impact on a company’s stock price in the short term.’

Can an LLM like ChatGPT really evaluate anything?

Finally, the authors write that it is ‘implicitly assumed that the headline contains sufficient information for an expert in the financial industry to reasonably assess its impact on the stock price.’

But what moves stock prices, really? Haven’t we been told endlessly that if it’s in the press, it’s in the price?

When OpenAI’s ChatGPT first took the Internet by storm, former Bloomberg columnist Noah Smith made an interesting point when he said Americans tend to see in new technology danger instead of opportunity.

Americans tend to see any new technology and ask "Will this take away my position in society?" instead of "How can I use this to make a bunch of money?".

— Noah Smith 🐇🇺🇸🇺🇦 (@Noahpinion) March 25, 2023

But it was inevitable that the entrepreneurial spirit will turn its acquisitive gaze on ChatGPT.

Last month, two University of Florida finance academics released a paper using ChatGPT to forecast stock prices to surprising results. The paper is not yet been subject to peer review, so caveat emptor.

The authors — Alejandro Lopez-Lira and Yuehua Tang — described their methodology thus:

‘We examine the potential of ChatGPT, and other large language models, in predicting stock market returns using sentiment analysis of news headlines. We use ChatGPT to indicate whether a given headline is good, bad, or irrelevant news for firms’ stock prices. We then compute a numerical score and document a positive correlation between these “ChatGPT scores” and subsequent daily stock market returns.’

Not ones to shy away from the spotlight, the authors concluded that their findings ‘have important implications for the employment landscape in the financial industry. The results could potentially lead to a shift in the methods used for market prediction and investment decision-making.’

For the interested, part of their ChatGPT wrangling involved using the following prompt:

‘Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line. Is this headline good or bad for the stock price of company name in the term term?

‘Headline: _headline_’

Out of interest, let’s try their method on the recent headlines surrounding Allkem (ASX:LKE).

Here’s the ChatGPT output I received:

Source: OpenAI

And here’s the method applied to Appen:

Source: OpenAI

Is this revolutionary? Or common-sense dressed up in fancy AI?

Note, too, the authors’ description of the prompt:

‘The prompt is specifically designed for financial analysis and asks ChatGPT to evaluate a given news headline and its potential impact on a company’s stock price in the short term.’

Can an LLM like ChatGPT really evaluate anything?

Finally, the authors write that it is ‘implicitly assumed that the headline contains sufficient information for an expert in the financial industry to reasonably assess its impact on the stock price.’

But what moves stock prices, really? Haven’t we been told endlessly that if it’s in the press, it’s in the price?

The following is an excerpt from our commodities expert James Cooper’s latest piece for Livewire.

Since our new resource publication was launched in November 2022 we’ve steered clear of the lithium sector.

Despite the flood of investment headlines late last year jumping on the lithium bull market, in my mind the market for this commodity was far too overheated.

Late last year, I wrote to my readers highlighting the risks and justification for avoiding the sector…

Most market commentators have stated future demand for EV batteries will continue to drive a boom in lithium prices.
But that’s the typical mainstream sentiment; I believe much of the excitement has already been priced in. In my opinion, I see much stronger opportunities presenting in other areas of the commodity sector.

You can read the full article here.

Indeed, by November 2022 the lithium hype had been ‘fully priced in.’

Lithium carbonate reached its highest-ever recorded price of around 600,000 Chinese Yuan on 15 November.

From there it fell a staggering 70% into April 2023.

See for yourself below…

Source: Trading Economics

Avoiding certain markets is just as important as picking the right areas for investment.

As an investor that places you in a MUCH stronger position to capitalise on lower prices… Both financially and mentally!

So, with the correction well and truly underway, does the recent sell-off offer an opportunity for investors looking to dabble in last year’s hottest commodity?

RUMBLINGS OF A RECOVERY ARE EMERGING…

Opportunistic bids from majors in the industry offer investors clues that the lithium market is preparing to stage a comeback.

It started in March when US chemical giant Albemarle made a $3.7 billion bid for West Australian lithium developer Liontown (ASX: LTR).

That sent LTR’s share price soaring more than 60% in a single trading session.

The company is now trading above its all-time highs…. Despite the underlying commodity still languishing well below its November peak.

But in many ways Liontown stood out…

In terms of scale, Liontown’s enormous Kathleen deposit in Western Australia will be competing with Pilbara Minerals’ (ASX: PLS) Pilgangoora Project.

As you might remember, PLS was the darling of 2022’s lithium surge…. Rocketing around 150% through the second half of last year.

With several late stage developers looking to enter production over the next 12 to 18 months there’s good reason to believe certain lithium stocks could be entering rare ‘Goldilocks’ scenarios.

But as investor its likely you’ll be competing with the majors in the months ahead.

The world’s largest mining firms have been unanimous in their push to grow their exposure to critical metals.

Lithium has now had its ‘come-back-to-earth’ moment … Meaning several majors could be about to embark on their long-awaited move into the sector.

As an investor, you should be trying to work ahead of the M&A activity…. That’s why we’ve steadily added lithium stocks to our portfolio over the last two months.

The majors have shown they move on opportunities when the market turns down.

We saw that last year with Gina Rinehart’s move on Arafura Rare Earths…. We also saw it amongst BHP exec’s winning a bid on copper producer Oz Minerals.

Andrew Forest also lit a match under the M&A mining space with his bid for the nickel play, Mincor Resources in March 2023.

That’s why, if the majors are prepared to make a serious commitment to lithium then now is the time to make their move.

While acquisitions shouldn’t be your main focus as an investment opportunity it adds an interesting flavour to your portfolio… A chance to capitalise on some short-term gains if the deal stacks up favourably.

Given that several lithium stocks are well off their all-time highs from last year there’s perhaps a short window of opportunity available to add exposure to this sector while prices remain depressed.

Last month, lithium developer Lake Resources (ASX:LKE) hit a fresh 52-week low of 40 cents a share.

But since then, the stock is up 45%.

Is the popular retail lithium stock back in the punters’ favour after cratering 70% over the past 12 months?

Are we about to see another speculative lithium rally?

Late last month, lithium developer $LKE hit a fresh 52-week low of 40 cents a share.

Since then, the stock is up ~45%.

Is the #ASX about to see another speculative #lithium rally?$LKE.AX

— Fat Tail Daily (@FatTailDaily) May 11, 2023

Last month, lithium developer Lake Resources (ASX:LKE) hit a fresh 52-week low of 40 cents a share.

But since then, the stock is up 45%.

Is the popular retail lithium stock back in the punters’ favour after cratering 70% over the past 12 months?

Are we about to see another speculative lithium rally?

Late last month, lithium developer $LKE hit a fresh 52-week low of 40 cents a share.

Since then, the stock is up ~45%.

Is the #ASX about to see another speculative #lithium rally?$LKE.AX

— Fat Tail Daily (@FatTailDaily) May 11, 2023

ASX lithium stocks are rising on the news of Allkem’s merger with Livent.

• Allkem (ASX:AKE) is itself up 15%
• Lake Resources (ASX:LKE) is up 13.5%
• Galan Lithium (ASX:GLN) is up 12.5%
• Magnis Resources (ASX:MNS) is up 8%
• Pilbara Minerals (ASX:PLS) is up 6.5%
• Leo Lithium (ASX:LLL) is up 5.5%
• Piedmont Lithium (ASX:PLL) is up 5.5%
• Core Lithium (ASX:CXO) is up 4.5%
• Sayona Mining (ASX:SYA) is up 2.5%

 

How does the merger with Livent stack up value-wise for Allkem (ASX:AKE) shareholders?

Under the proposed merger, AKE shareholders will receive one NewCo CDI for each existing AKE share while Livent shareholders will receive 2.406 NewCo shares for each existing Livent share.

That will lead to Allkem shareholders owning 56% of NewCo.

Allkem said this ratio was based on each company’s ‘relative contribution to risk-adjusted net asset value (pre-synergies)’.

Allkem said the merger will be ‘immediately accretive’ to both firms’ shareholders ‘on a NAV per share basis’.

In a footnote, Allkem said the ownership distribution ‘implies a premium of approximately 14% to Allkem shareholders measured using volume weighted average share prices over one-month from April 10, 2023 to May 9, 2023.

Source: Allkem

Why did Livent and Allkem (ASX:AKE) agree to merger? What’s the strategic rationale?

Scale and cost-saving ‘synergies’ loom large.

The pair think a merger will increase economies of scale through the new entity’s (NewCo in their parlance) ‘geographically adjacent asset portfolios in Argentina and North America’.

NewCo thinks it can save about US$125 million pre-tax per year through ‘operating cost synergies’. What are these synergies?

‘A significant portion of the synergies are expected to be realized through removing duplicate costs, improvement of procurement, site management, transport, and logistics functions at Sal de Vida, Hombre Muerto, and Québec, and through closer integration of operations. The majority of the annual run-rate pretax operating cost synergies are expected to be realized within three years,’ said Allkem.

Source: Allkem

Wow!

Aussie lithium producer Allkem (ASX:AKE) is set to merge with US-based Livent (NASDAQ: LTHM) to form the world’s third-largest lithium chemicals producers valued at over US$10 billion.

Allkem just loves big mergers.

In late 2021, Allkem came to be via a merger between ASX-listed Galaxy Resources and Orocobre.

A few years later, Allkem is set for another transformation.

Livent and AKE expect the transaction to close by the end of 2023, with Allkem shareholders to own about 56% of the new entity and Livent shareholders about 44%.

‘Livent is a global leader in lithium processing technologies with nearly eight decades of experience producing a diverse range of lithium chemicals for energy storage and other specialty applications. Allkem brings complementary expertise in conventional brine-based lithium extraction, hard rock mining, and lithium processing. With Livent’s technical and commercial capabilities and its deep customer relationships, and Allkem’s large and diverse resource base and significant growth pipeline, NewCo will be well-positioned to capitalize on the expected growth in lithium demand from electric vehicles (“EVs”) and energy storage solutions,’ Allkem said in a statement.

Lithium producer Allkem $AKE will merge with US-based Livent $LTHM, creating a #lithium chemicals behemoth worth US$10.6 billion.

The new entity will be the world's third-largest producer. $AKE.AX pic.twitter.com/QGTXePjdtb

— Fat Tail Daily (@FatTailDaily) May 10, 2023