ESSO rose 61 sen to close at RM4.95 on high volume of 30,779 board lots. The buying was very aggressive as the share price broke above the 100 and 50-day SMA line at RM3.72 and RM3.91, respectively. Alas, this rally will turn out to be a bear rally plus a bull trap as the market action will probably to reverse to the downside tomorrow. The reason being the announcement of the sale of a majority stake of 65% in ESSO by ExxonMobil to San Miguel at a price of RM3.50 per share- 29% lower than the closing price today. A limit-down for ESSO is on the card tomorrow. Talk about tricky market...
Chart: ESSO's daily chart as at August 17, 2011_plotted on log scale (Source: Tradesignum)
10 comments:
Hi Alex,
what is your view on Airasia today as it dropuntil 3.68 but manage to closed up at 3.73, drop two cents. Currently,what is technical outlook for airasia for tomorrow and friday?
Thank you
Is the sale confirmed or just a proposal...?
Hi Remnant 888
It is a proposed sale at this stage. Unless something drastic happened, you may take it as confirmed. For more, go here .
Hi Leader,
You are looking intra-day guidance. I don't look into such depth. For now, the stock is undergoing some correction. It is trying to hold onto the 20-day SMA line support at RM3.74. If that failed, it may test the 50-day SMA line support at RM3.56.
Hi Alex
Would Bursa allow such deal to go through? 29% below previous closing price?
Do you think it's a conspiracy that Exxon sold Esso for USD206m, while the other two sdn bhd for USD403m? Lower price for Esso so San Miguel can offer a low mandatory offer price?
Hi JY
Bursa may query if someone complained. I am sure the seller & the buyer would not do something as suggested by you; at least not blatantly. Everything must be transparent & beyond question. After all, the retail business is only a small piece of ExxonMobil's business in Malaysia. I used to handle the accounts of a few of the companies when I was in a bank. The profit of these private companies are HUGE. ExxonMobil would not want to jeopardize these other operations for a few extra hundred millions from a one-off deal to dispose off its retails business.
Hi Alex,
Wondering why there are still buyers of this stock after the announcement, may you may offer some insights. Thanks..
Hi Alex,
In your opinion,as I am a shareholder of ESSO right now,what should I do?Does it mean that my better option would be to sell now instead of waiting and hopefully the proposal doesn't work out?And do you think it will go through?
Thank you in advance.
Hi MrKas & newbie
The buyers are hoping that the deal will be re-negotiated at better terms or pricing. Do you think that ExxonMobil & San Miguel and their teams of lawyers, accountants and bankers would go through something like that again? I doubt it.
Will the deal encounter problem? Again, I doubt it. There is no major shareholders to worry. Other than ExxonMobil, the next 98 largest shareholders hold collectively only 12.3% of its stock- with the second shareholder owning only 1.44%. There will be no opposition from minority shareholders. The last thing ExxonMobil would be concerned with is those traders who bought the stocks at high prices over the past few months.
Is RM3.50 a good price? Let's consider the following:
1) ESSO's NTA ps is about RM2.80
2) Average price from 1998 to today is about RM3.00, within a trading range of RM2.00 & RM4.00.
3) based on dividend ps of 12 sen for FY2006-2009 (ignoring the dividend of 14 sen for FY2010), the price of RM3.50 would give a reasonable yield of 3.4%.
We can't use the PE multiple to gauge the reasonableness of the price because ESSO's earning is very erratic. All in all, I think it is a fair price.
Thanks Alex for your prompt reply.Appreciate it.
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