Appen: To sell, or not to sell, that is the question

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On Thursday morning, shares in Appen soared before it entered a trading halt after receiving a non-binding takeover offer from Telus International with an indicative offer of $9.50 a share. On Wednesday Appen closed at $6.40 a share, which means Telus has offered a 48% premium to the current share price.

So, is this a good offer for the company or is it worth more and if you currently own Appen shares, what do you do now and if you don't own it, do you look to buy the stock?

Appen has been falling heavily for almost two years and prior to Thursday it was down around 85% of its all-time high price set back in August 2020, and is down more than 40% since January 1 this year. While it is reasonable to assume that the stock has been oversold in the recent tech sector meltdown, it makes sense that the board has not jumped at the offer as yet. It also requested that the trading halt remain in force until May 30, so that they can carefully consider their next steps.

asx market wrap

In my opinion, the Board should reject the offer because I believe Telus are being very opportunistic given the current market conditions with the tech sector. As such, I believe the company is worth more, particularly given that if Appen has not already bottomed, it is very close to it; therefore, it is likely that it will turn the corner and start rising in the not too distant future.

Right now, if you own Appen I would sit tight and wait for the board to make its decision. If they decide to enter into further discussions, I would wait to see if a binding offer unfolds and then consider selling your shares if the offer is accepted because you would be selling at a premium. On the flip side, if you don't own Appen, I wouldn't be looking to buy because the stock may fall heavily if the board rejects the offer but if it accepts the offer, there may be very little upside potential.

The best and worst performing sectors this week

The best performing sectors include Materials up more than 1% followed by Energy and Financials, which are both just in the green for the week. The worst performing sectors include Information Technology down more than 5% followed by Communication Services and Utilities, which are both down more than 1%.

The best performers in the S&P/ASX top 100 stocks include Tabcorp Holdings up more than 11% followed by Rio Tinto and the A2 Milk Company, which are both up more than 3%. The worst-performing stocks include Block down more than 14% followed by BHP down more than 8% given the recent demerger, while Computershare is down more than 6%.

What's next for the Australian stock market

While the market has traded higher this week, it has really lacked direction, which is not surprising given the continued volatility. Remember, as I stated previously, this doesn't necessarily mean the market will be bearish, nor does it mean it will be bullish, it just means that right now it is time to be patient.

In my last report, I indicated that I still believed most, if not all, of the fall had already occurred but that this was unconfirmed, which is still the case. The more our market rises over the next few weeks, the higher the probability it will hold above the recent low of 12 May at 7,157 points before the market turns to test the low, which it will do at some point in time. If the market does fall away over the next few weeks, it needs to hold above the low of May 12 if we are to see a bullish market into the third quarter of 2022.

While there are opportunities currently unfolding in the market, I continue to urge investors to exercise caution, as the current mood can change quickly. So, until a direction is confirmed, it is wise to sit back and wait until the dust settles.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.