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Acquisitions and spin-offs put these 3 ASX shares on brokers’ “buy” list

M&A Letters merger acquisition divestment spin-off ASX shares to buy

Nothing like acquisitions and spin-offs to liven things up, and leading brokers have just slapped a “buy” on these ASX shares in the corporate action spotlight!

We can thank near-zero interest rates for the pick-up in such activities too. Cheap debt and high share prices are prompting companies to hunt for inorganic opportunities.

Brokers have picked three that they believe will outperform the S&P/ASX 200 Index (Index:^AXJO).

Cleaning up

One ASX share that is grabbing the M&A headlines is the Cleanaway Waste Management Ltd (ASX: CWY) share price.

Cleanaway intends to buy the local operations of Suez Groupe for $2.5 billion. This prompted JPMorgan to reiterated its “overweight” recommendation on the waste management business as it sees the acquisition as a “transformative transaction”.

Acquisition puts the ASX share on the buy list

“We view the transaction as compelling for CWY given Suez’s prized infrastructure assets, in particular the Sydney metro Post Collection assets which has been a material gap in CWY’s national footprint,” said the broker.

“While the transaction is ‘EPS accretive’, we believe there is meaningful valuation accretion as CWY’s overall business mix shifts further to infrastructure-like assets as well as longer duration Municipal contracts.”

However, there’s no guarantee the acquisition will be completed and there’re still questions about the capital structure of the group post the takeover.

JPMorgan’s 12-month price target on the Cleanaway share price is $2.60 a share.

Looking greener and more attractive

One ASX share that caught the eye of UBS is the South32 Ltd (ASX: S32) share price. The broker reiterated its “buy” recommendation on the miner as the sale of its coal asset (SAEC) to Seriti looks imminent.

“In our opinion, the exit of SAEC is still a positive as it makes S32 greener & leaner (removing ~40% of employees & 25% of capex),” said UBS.

“Seriti still assumes SAEC’s $875m closure liability, so the exit is NPV & earnings accretive.”

Capital return is one reason to buy the ASX share

As South32 indicated it doesn’t intend to hold on to the excess cash from the sale, UBS sees a $100 million to $200 million capital return for shareholders once the deal is completed.

Further, the broker anticipates a positive quarterly production update from South32 later this month and has lifted its 12-month price target on the South32 share price to $3.20 from $3.05 a share.

Clear buy signal

Another acquisitive ASX share that’s worth buying is the Codan Limited (ASX: CDA) share price, according to Canaccord Genuity.

The broker repeated its “buy” recommendation on the Codan share price following last week’s announcement that it was buying Zetron Inc. for US$45 million.

“We have upgraded our target price to $17.10 per share ($16.60 previously),” said the broker.

“This is based on an 18.0x FY22e EBIT multiple, which is a 15% premium to the XSO average. We believe a premium is warranted given the above-average EPS growth outlook, and upside risk to earnings.”

Zetron provides critical communications to first responders in rural and regional areas in the US.

Where to invest $1,000 right now

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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Brendon Lau owns shares of South32 Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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