Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.In this Insight:<ol><li><a href='/entities/tata-motors-ltd' target='_blank' rel='noopener'>Tata Motors Ltd</a></li><li><a href='/entities/anton-oilfield-services-gp' target='_blank' rel='noopener'>Anton Oilfield</a></li><li><a href='/entities/china-south-city-holdings' target='_blank' rel='noopener'>China South City</a></li><li><a href='/entities/panda-green-energy-group-ltd' target='_blank' rel='noopener'>Panda Green</a></li><li><a href='/entities/gcl-new-energy-holdings-ltd' target='_blank' rel='noopener'>Gcl New Energy Holdings</a></li></ol>and more...

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.In this Insight:Tata Motors LtdAnton OilfieldChina South CityPanda GreenGcl New Energy Holdingsand more...

The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - October 2021 - Lucror Analytics

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - August 2021 - Lucror Analytics

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 14 August, <a href="https://www.smartkarma.com/entities/faurecia" target="_blank" data-smartkarma-citation="entities:21451:1" rel="noopener">Faurecia (EO FP)</a> signed an agreement to acquire a 60% stake in <a href="https://www.smartkarma.com/entities/hella-gmbh-co-kgaa" target="_blank" data-smartkarma-citation="entities:21650:1" rel="noopener">Hella GmbH &amp; Co KGaA (HLE GR)</a> from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.
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Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.
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The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.
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Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.
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The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.
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I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.
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Completion is expected in early 2022.
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On 14 August, Faurecia (EO FP) signed an agreement to acquire a 60% stake in Hella GmbH &amp; Co KGaA (HLE GR) from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.

Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.

The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.


Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.

The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.

I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.

Completion is expected in early 2022.


France

Valeo designs and manufactures automobile components. The Company offers clutches, engine cooling parts, lighting, electrical systems, windshield wipers, motors and actuators, security systems, electronics, and connective systems. Valeo serves automotive industry worldwide.

Plastic Omnium SA provides solutions tailored to meet the needs of worldwide carmakers and community residents.  The Company's products include automotive body modules and fuel systems as well as waste containerization products and services.  Plastic Omnium focuses on innovations which reduce car weight and fuel consumption.

Burelle SA, through subsidiaries, manufactures plastic products and street signage, and invests in real estate.  The Company produces plastic automobile body parts and fuel tanks, waste collection and recycling containers, playground equipment, high-performance resins, diagnostic disposables, inhalers and injection devices, and owns office buildings.

MGI Coutier designs, manufactures, and sells plastic and metal components. These products are used in building ventilation (vents and ducts), automobile bodies, carburetors, and window and door handles, and building materials.  The Company has factories and sales branches in France, Spain, Turkey, and the United States.

Eutelsat Communications is a KU-band satellite operator.  The Company offers television and radio broadcasting, video broadcasting, corporate networks, Internet access, and mobile communications.  Eutelsat serves Europe, the Middle East, Africa, Asia, eastern North America, and South America.

Metropole Television SA owns and operates the television entertainment channel M6.  The Company, through its subsidiaries, holds interests in other television stations, films, audio and video editing and distribution, teleshopping, and specialty television productions and programming.  Metropole is also involved in multimedia diversification, music, interactive TV, and the Internet.

Societe Television Francaise 1 operates the French television channel TF1.  The Company produces news, drama, documentaries, sports, and children's programs. In addition, TF1 publishes and distributes videocassettes, publishes and records music on tapes and CD's, and operates a home shopping program via television and the Internet.

Trigano S.A. manufactures recreational vehicles.  The Company produces, sells, and rents motor homes and travel and industrial trailers.  Trigano also manufactures garden equipment and accessories for motor homes and trailers.

Criteo SA is a global commerce marketing technology company. The Company helps commerce companies and brand manufacturers acquire, convert and re-engage their customers, using shopping data, predictive technology and large consumer reach. Criteo prices its offering on a cost-per-click and measures its value based on post-click sales.

Ipsos conducts market research.  The Company offers advertising, marketing, media, public opinion, and social research.  All of Ipsos's research is derived from surveys.  The Company operates in Europe, Latin America, Asia/Pacific Rim, the United States, and the Middle East.

NIFCO INC. manufactures synthetic resinous fasteners and plastic components for automobiles and home electronic appliances.  The Company has its subsidiaries in Korea, Hong Kong, Australia, Malaysia, Singapore, and the US.

Dana Incorporated engineers, manufactures, and distributes components and systems for worldwide automotive, heavy truck, off-highway, engine, and industrial markets. The Company also provides leasing services in selected markets.

NOK CORPORATION manufactures oil seals and industrial rubber products for automobiles.  The Company also produces electronic equipment used for cellular phones and PCs.  NOK has production facilities in Taiwan and Thailand.

Zhejiang Yinlun Machinery Co.,Ltd. develops, manufactures and markets steel plate oil cooler, concentric oil cooler, shell and tube oil cooler. The company's products are used in automobile engine systems and automatic transmission systems.

Zhejiang Yinlun Machinery Co,Ltd. (002126 CH)

Sumitomo Rubber Industries, Ltd. manufactures automobile and motorcycle tires, industrial rubber products and sports equipment.  The Company's products include golf balls, tennis rackets, rubber gloves, and artificial turf. Sumitomo Rubber sells its products under Dunlop brand around the world.

TS TECH CO., LTD. manufactures seats for two-wheeled and four-wheeled vehicles. The Company also produces other automobile accessories.

Minth Group Ltd. manufactures exterior automobile body parts.  The Company produces structural body parts, decorative parts, and trim.  Minth supplies multinational automobile manufacturers operating in China.

Hanon Systems manufactures a variety of automotive air control equipment.  The Company's products include air conditioners, heaters, cooling modules, compressors, radiators, fans, evaporators, and condensers. Hanon Systems distributes its products on an original equipment manufacturing (OEM) basis.

LCI Industries manufactures recreational vehicles and equipment. The Company offers toolboxes, truck caps, running boards, side-outs, mattresses, alignment systems, shock absorber, power stabilizer jacks, baggage doors, and sliders. LCI Industries markets its products worldwide.

Wanxiang Qianchao Co., Ltd. manufactures and markets a variety of auto parts. The Company's products include universal joints, car vibration absorbers, transmission systems, bearings, and other related parts.  Wanxiang also trades merchandises.

Faurecia manufactures automobile parts.  The Company produces seats, vehicle interiors, exhaust systems, and front-end body parts.  The Company's customers include Peugeot Citroen, Renault, Volkswagen, DaimlerChrysler, Fiat, General Motors, Ford, and Toyota.

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Faurecia (EO FP)

Weekly Wrap - 21 Nov 2021

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and...

Lucror Analytics

Europe HY Trade Book - October 2021 - Lucror Analytics

The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europe HY Trade Book - August 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Faurecia/Hella

The deal has a high probability to close, due to the premium offered and friendly approach, after a competitive bidding process. HLA GR trades...

Jesus Rodriguez Aguilar

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