Business News has significantly overhauled the BN30 index, a proxy for the WA economy, with seven new additions, prompted by the exit of takeover targets MMA Offshore, APM and Decmil.
The BN30 index has undergone its most significant overhaul since it was established at the start of 2016, prompted by the exit of takeover targets MMA Offshore, APM Human Services International and Decmil Group.
A composite of Western Australia-focused stocks based on the philosophy of the Dow Jones Industrial Average, the BN30 has replaced seven stocks to better reflect its role as a proxy for the WA economy, including replacements for those taken over.
On top of MMA Offshore, Decmil and APM, Business News has removed Sandfire Resources, Buru Energy, BWP Trust, and Qoria. In their stead we have added newly listed Bhagwan Marine, Deterra Royalties, Good Drinks Australia, Lynas Rare Earths, NRW Holdings, PYC Therapeutics, and Strike Energy.
Bhagwan Marine was a like-for-like replacement for MMA Offshore, a founding component of the BN30, which left the ASX two working days before its successor’s arrival, making the transition almost seamless.
Another original BN30 member, Decmil, is in the process of being swallowed up by Macmahon Holdings. While the bidder is another local, it was seen as opportune to use the gap provided to introduce NRW, which has a significantly bigger market capitalisation.
While APM has yet to be removed from the ASX, its privatisation is a done deal. There was no obvious candidate to replace the stock, so we have opted to include beverage manufacturer Good Drinks which, while small, is skewed to WA in sales and represents a sector of some substance in the west.
The BN30 sits around the 230 mark, close to where it ended the financial year at 228.72, up more than 128 per cent from its founding mark of 100 based on the closing value of one share of each of the 30 companies on the day the index started eight and half years ago.
In that time, some of the companies that formed the original BN30 have changed markedly and no longer represent industry in WA. There is no suggestion that the removal of any company from the index has been due to performance.
Copper play Sandfire Resources, for instance, has become mostly focused on projects in Spain and southern Africa after the completion of mining activities at its original DeGrussa operations in central WA.
Business News has elected to swap out Sandfire for Lynas Rare Earths, a company that has a focus on an important future-facing commodity sector for WA and has invested heavily in processing capacity in the Goldfields.
Another original BN30 member, Buru, was one of the more challenging decisions. It was felt that Strike, with its presence in the Perth Basin and proximity to a key domestic gas market, was increasingly a better representative of the small end of the state’s energy production sector.
BWP was another original BN30 member. However, the national growth of retailer Bunnings, to which its property portfolio is skewed has meant it is increasingly less obvious as a WA property play with just 14 per cent of its assets here.
The correlation to Bunnings is also an overlap with the hardware group’s owner Wesfarmers, one of the major influences on BN30. Property is also well represented on the index through Cedar Woods Properties and Peet, albeit they are not commercial.
BWP’s replacement, Deterra, was established along similar lines, as the securitisation of an asset with a steady income stream.
Deterra’s difference is its focus on mining royalties, especially iron ore which, as the state’s chief earner, was somewhat underrepresented in the BN30 with Fortescue as the only ‘pure’ play from the sector, albeit Mineral Resources and various contractors are exposed to the commodity.
The most difficult decision was removing Qoria after less than three years on the index.
A very successful player in the global cyber safety market, Qoria started life as Family Zone and listed in 2016. But, despite having a Perth headquarters, it is very much an international company with revenue in WA a footnote and much of its operational cost base in terms of staff and IT development overseas.
Its replacement, PYC Therapeutics is a different sort of technology player, listed since 2005 it is similar in terms of market capitalisation.
While PYC’s markets are equally global, Business News felt that its field, medical research and biotechnology, had a far bigger base in this state. The company is one of a dozen or so similar Perth businesses listed on the ASX.
Also, WA has developed a decent ecosystem for medical research and its commercialisation, which suggests that wherever PYC sells its wares, the cost base is more likely to remain in WA, reflecting a broader economic driver.
Furthermore, around this sector there has been a big growth in funds from venture capital, funds management and government, suggesting there is more to come.
Other technology is not ignored by BN30. Imdex manufactures various drilling fluids and chemicals, as well as develops, rents, and sells down hole survey instrumentation to the resources sector. Despite being yet another resources-focused company, its tech has a significant lean towards WA, both in the cost side and where the revenue is earned.
