Markets

3 stocks are set to leave ASX Indices in July – Here are their likely replacements

Fri 05 Jul 24, 11:03am (AEST)
marketsasx exchange
Source: Shutterstock

Stocks in article

alu
MktCap:
-
awc
MktCap:
-
mrm
MktCap:
-
tlx
MktCap:
-
yal
MktCap:
-
zip
MktCap:
-
sfr
MktCap:
-
apm
MktCap:
-
asb
MktCap:
-
bap
MktCap:
-
gnx
MktCap:
-
caj
MktCap:
-
psi
MktCap:
-

Share article

Key Points

  • July sees three major M&A events impacting ASX indices, with up to $6.1 billion potentially leaving the Small Ordinaries Index
  • Altium, Alumina, and MMA Offshore likely to be removed from various indices, with Telix Pharmaceuticals, Yancoal, and Zip potential replacements
  • Alcoa CDIs to replace Alumina in relevant indices, while healthcare sector weight in Small Ords may decrease and energy sector weight increase

We're looking at a busy July for M&A activity on the ASX – there are three big deals that could shake things up for the S&P/ASX Indices, especially the Small Ords.

These include (if the scheme is approved) the removal of:

  • Altium (ASX: ALU) from the ASX 100, 200 and 300 indices

  • Alumina (ASX: AWC) from the ASX 200, 300 and Small Ords

  • MMA Offshore (ASX: MRM) from the ASX 300 and Small Ords

Morgan Stanley says Telix Pharmaceuticals (ASX: TLX), Yancoal (ASX: YAL) and Zip (ASX: ZIP) are best placed to replace the three stocks across the respective indices.

Potential replacements for Altium

Telix Pharmaceuticals has been highlighted as a potential replacement for Altium in the ASX 100 Index (currently in the ASX 200)

"Telix is the highest ranked stock sitting outside of the index, with a rank of 91 (daily 6-month average float adjusted market capitalisation), and as such we have assigned its potential inclusion a higher probability," the analysts said.

The alternative to Telix is Sandfire Resources (ASX: SFR) which is ranked 92.

Joining the ASX 200

Within the ASX 200, Yancoal was flagged as a potential replacement for Altium.

Yancoal's inclusion into the ASX 200 is based on an assumption that its investable weight factor (IWF) is greater than 30. The IWF is a metric used to determine the portion of a company's shares that are available for trading on-market.

"If added, we estimate Yancoal index weight to be circa 11.9 bps based on a float-adjusted market capitalisation of $2.7 billion, with estimated value to trade of $123.4 million from index trackers that follow the 200," the report said.

This inclusion could also drive additional passive demand across the ASX 300 and Small Ords (if added to the 200) as Yancoal is currently not a member of these indices.

If the IWF assumption of 30 is wrong, then the analysts believe Zip is best-placed to make its return to the ASX 200. If added, this could see $72.8 million in passive demand.

Alcoa CDIs to replace Alumina

Alumina shareholders are due to meet on Thursday, 18 July to vote on Aloca's takeover. If approved, Alumina shareholders will receive 0.02854 new Alcoa shares (in the form of ASX-listed Alcoa CDIs) for each Alumina held.

Some of the Morgan Stanley's key points about the index impact include:

  • Aloca CDIs will trade on the ASX with the ticker code AAI

  • Aloca has a tentative listing date of 24 July 2024

  • Alumina is an ASX 200 and 300 constituent

  • Aloca will replace Alumina in all the ASX indices of which it is a constituent

  • Alcoa CDIs will be classified as a foreign-domiciled company, only the shares held in Australia will be used to calculate its float-adjusted market cap

  • Alcoa will have approximately 82.8 million shares on the ASX

  • Alcoa is estimated to have a float-adjusted market cap between $4-5 billion

Small Ords shakeup

The S&P/ASX Small Ordinaries represents the small-cap component of the Australian stock market. It includes all companies in the S&P/ASX 300, excluding those in the S&P/ASX 100.

"If Telix is added to the ASX 100, it will subsequently be removed from the Small Ordinaries Index. Telix is currently the largest constituent within the Small Ordinaries with an index weight of 2.1%," the report said.

The removal of Telix could lower the healthcare index weight from 7.4% to 5.4% within the broader Small Ords Index and lower its rank position from 6th to 9th, according to Morgan Stanley.

"The potential inclusion of Yancoal ... provides a small offset to the aggregate of those stocks removed, though we will see some further stock level rebalancing across the current constituents."

Yancoal's inclusion could drive up the Energy index weight by 82 bps to 6.2% of the index, lifting its rank position from 9th to 7th.

More to come

A wave of M&A activity has recently swept a number of local industrial, healthcare and discretionary stocks. There are a number of announced M&A events that will impact ASX indices over the upcoming quarters.

Ticker

Company

Acquirer

Notes

APM

APM Human Services

Madison Dearborn Partners

Offer at $1.40 per share

ASB

Austal

Hanwha Ocean

Offer at $2.825. Shareholder and regulatory approvals pending

BAP

Bapcor

Bain Capital

Non-binding, indicative offer at $5.40 per share

GNX

Genex Power

Electric Power Development

Offer at $0.275. Shareholder and regulatory approvals pending

CAJ

Capitol Health

Integral Diagnostics

Shareholders to receive 0.12849 IDX shares for each CAJ they hold

PSI

PSC Insurance Group

Rosedale Bidco

Offer at $6.19 per share. Deal expected to be complete in 3Q24

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free