Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>About eight weeks ago, immediately after the Reverse Book Build Auction for the Delisting Exit Offer for <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> failed and then about 10 days after the failure I wrote a pair of insights looking at what might happen next. </p><p>In the first - <em><a href="https://www.smartkarma.com/insights/vedl-delisting-fail-day1-reading-between-the-lines-of-the-trading-data" target="_blank" data-smartkarma-citation="insights:44103" rel="noopener">VEDL Delisting Fail Day1 - Reading Between the Lines of the Trading Data</a></em> on 12 October, I pointed out six possible reactions by VEDL and VEDR (Vedanta Resources). My preferred choice was that VEDL would use the money it had raised recently to conduct an Open Offer Buyback to reduce "leakage" of the benefits of share ownership to outside parties (principally, the pass-through dividends from <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a> and the 30% payout ratio of the other non-HZ businesses which are part of the Dividend Distribution Policy), using the excuse that a large percentage of the ownership had shown that they wanted to sell at INR 135-140/share.</p><p>VEDL was cheap even at the forecast depressed earnings level, and it "owed" cash to its shareholders.</p><p><em>The stock was cheap (the close that day was INR 96.95), so it was a buy. </em></p><p>Eight days later in <a href="https://www.smartkarma.com/insights/vedanta-limited-caught-in-economic-purgatory-but-governance-hell" target="_blank" data-smartkarma-citation="insights:44350" rel="noopener">Vedanta Limited - Caught in Economic Purgatory but Governance Hell?</a> I discussed the issue of VEDL having "fallen" in Dante's Inferno but might have walked itself back up through the maze to Purgatory economically, while its lending of funds to its parent Vedanta Resources represented ongoing governance faults.</p><p>Hindustan Zinc had just announced an INR 21.3/share dividend which meant VEDL "owed" INR 25+/share to its own shareholders this fiscal year as the pass-through, and while its global peers had seen both share prices and forward multiples bounce, VEDL was at its cheapest level against peers in many, many years, with ongoing desire by the VEDR parent to fix its leakage problem.</p><p><em>Governance was clearly a problem, but the stock was cheap, so it was a buy.</em></p><p>Eight weeks later, as I write, the stock is at INR 142.00. Including the INR 9.5/share dividend paid, the value to shareholders from that 12 October post-RBB failure is +56%. Including the dividend, the stock is INR 10/share higher than it got in the runup to the Reverse Book Build, </p><p>Then we got a dividend announcement from VEDL, H1 earnings, amended forecasts, an activist/complaining shareholder, and more news of funding issues and corporate action potential at the parent. </p><p>The stock is now, as I write is INR 143.55. Including INR 9.5 dividend paid, the value to shareholders from that 12 October post-RBB failure is +57% in eight weeks. </p><p>Including the previous dividend, VEDL is up single digits year-to-date. A Basket of Peers is +41% ytd. This insight discusses where we stand. </p>

About eight weeks ago, immediately after the Reverse Book Build Auction for the Delisting Exit Offer for Vedanta Ltd (VEDL IN) failed and then about 10 days after the failure I wrote a pair of insights looking at what might happen next. In the first - VEDL Delisting Fail Day1 - Reading Between the Lines of the Trading Data on 12 October, I pointed out six possible reactions by VEDL and VEDR (Vedanta Resources). My preferred choice was that VEDL would use the money it had raised recently to conduct an Open Offer Buyback to reduce "leakage" of the benefits of share ownership to outside parties (principally, the pass-through dividends from Hindustan Zinc (HZ IN) and the 30% payout ratio of the other non-HZ businesses which are part of the Dividend Distribution Policy), using the excuse that a large percentage of the ownership had shown that they wanted to sell at INR 135-140/share.VEDL was cheap even at the forecast depressed earnings level, and it "owed" cash to its shareholders.The stock was cheap (the close that day was INR 96.95), so it was a buy. Eight days later in Vedanta Limited - Caught in Economic Purgatory but Governance Hell? I discussed the issue of VEDL having "fallen" in Dante's Inferno but might have walked itself back up through the maze to Purgatory economically, while its lending of funds to its parent Vedanta Resources represented ongoing governance faults.Hindustan Zinc had just announced an INR 21.3/share dividend which meant VEDL "owed" INR 25+/share to its own shareholders this fiscal year as the pass-through, and while its global peers had seen both share prices and forward multiples bounce, VEDL was at its cheapest level against peers in many, many years, with ongoing desire by the VEDR parent to fix its leakage problem.Governance was clearly a problem, but the stock was cheap, so it was a buy.Eight weeks later, as I write, the stock is at INR 142.00. Including the INR 9.5/share dividend paid, the value to shareholders from that 12 October post-RBB failure is +56%. Including the dividend, the stock is INR 10/share higher than it got in the runup to the Reverse Book Build, Then we got a dividend announcement from VEDL, H1 earnings, amended forecasts, an activist/complaining shareholder, and more news of funding issues and corporate action potential at the parent. The stock is now, as I write is INR 143.55. Including INR 9.5 dividend paid, the value to shareholders from that 12 October post-RBB failure is +57% in eight weeks. Including the previous dividend, VEDL is up single digits year-to-date. A Basket of Peers is +41% ytd. This insight discusses where we stand. 

Vedanta Vaulting Near 2020 Highs On Higher Commods, Higher Forecasts, But Open Offer Remote?

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<p>We believe that iron ore prices will stay stronger for longer as <a href="https://www.smartkarma.com/entities/vale-sa" target="_blank" data-smartkarma-citation="entities:23731:1" rel="noopener">Vale SA (VALE US)</a>, in its most recent regulatory filing, guided its production volumes down to 305-310 million tons for FY20 and 315-335 million tons for FY21. </p>
<p>Most of the sell-side and the market were assuming sales of 360 million tons for FY21. Market participants will have to bring supply estimates down by 25-45 million tons for FY21. </p>
<h3><strong>Vale Output Summary </strong></h3>
<table class="table table-striped">
<tbody>
<tr>
<td style="text-align: center; width: 128.444px;">2017</td>
<td style="text-align: center; width: 128.444px;">2018</td>
<td style="text-align: center; width: 128.444px;">2019</td>
<td style="text-align: center; width: 128.444px;">2020e</td>
<td style="text-align: center; width: 126.667px;">2021e</td>
</tr>
<tr>
<td style="text-align: center; width: 128.444px;">366</td>
<td style="text-align: center; width: 128.444px;">385</td>
<td style="text-align: center; width: 128.444px;">302</td>
<td style="text-align: center; width: 128.444px;">305-310</td>
<td style="text-align: center; width: 126.667px;">315-335</td>
</tr>
</tbody>
</table>
<p><em>source: company filings and presentations</em></p>
<p>We believe this guide down in sales for 2021 is substantial and will benefit iron ore prices in the short-term as Vale's shipments are almost 16-17% of the seaborne market. </p>
<p>Based on spot prices of 120-140$/ton, <a href="https://www.smartkarma.com/entities/fortescue-metals-group-ltd" target="_blank" data-smartkarma-citation="entities:41:1" rel="noopener">Fortescue Metals (FMG AU)</a> trades at an 11-15% FCF yield.  The company pays out its cash generated as dividends.  </p>
<p>This catalyst and cheap FCF yield indicate a short term upside of at least 20-30%.</p>

We believe that iron ore prices will stay stronger for longer as Vale SA (VALE US), in its most recent regulatory filing, guided its production volumes down to 305-310 million tons for FY20 and 315-335 million tons for FY21. 
Most of the sell-side and the market were assuming sales of 360 million tons for FY21. Market participants will have to bring supply estimates down by 25-45 million tons for FY21. 
Vale Output Summary 



2017
2018
2019
2020e
2021e


366
385
302
305-310
315-335



source: company filings and presentations
We believe this guide down in sales for 2021 is substantial and will benefit iron ore prices in the short-term as Vale's shipments are almost 16-17% of the seaborne market. 
Based on spot prices of 120-140$/ton, Fortescue Metals (FMG AU) trades at an 11-15% FCF yield.  The company pays out its cash generated as dividends.  
This catalyst and cheap FCF yield indicate a short term upside of at least 20-30%.

Fortescue Metals: More Upside In the Near Term

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<div>
<p>With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.</p>
</div>
<div>
<ul>
<li>The current premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a>  is 23.5% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.</li>
<li>
<a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> is trading at a 43.8% discount to NAV (down from 49% at the end of October).</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/groupe-bruxelles-lambert-sa" target="_blank" data-smartkarma-citation="entities:21332:1" rel="noopener">Groupe Bruxelles Lambert Sa (GBLB BB)</a> is 30.8%.</li>
<li>The discount in <a href="https://www.smartkarma.com/entities/heineken-holding-nv" target="_blank" data-smartkarma-citation="entities:21118:1" rel="noopener">Heineken Holding NV (HEIO NA)</a> relative to <a href="https://www.smartkarma.com/entities/heineken-nv" target="_blank" data-smartkarma-citation="entities:21117:1" rel="noopener">Heineken NV (HEIA NA)</a> is 12.3% (12.9% as of 30 October) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.</li>
<li>
<a href="https://www.smartkarma.com/entities/industrivarden-ab" target="_blank" data-smartkarma-citation="entities:22395:1" rel="noopener">Industrivarden AB (INDUA SS)</a> C shares are trading at a 6.7% discount to NAV vs. 5.9% at the end of November.</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> B shares has tightened to 15% (vs. 19% of 30 October) in line with the vaccine driven market rally.</li>
<li>
<a href="https://www.smartkarma.com/entities/kinnevik-ab" target="_blank" data-smartkarma-citation="entities:22407:1" rel="noopener">Investment Ab Kinnevik (KINVB SS)</a> B shares are trading at a <strong>11.4% premium to NAV</strong> (vs a discount of 8.3% as of 30 September).</li>
<li>
<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-98de2c77-62f2-46da-88eb-af269fb53d42" target="_blank" data-smartkarma-citation="entities:28510:1" rel="noopener">Royal Dutch Shell PLC (RDS/B US)</a> “B” shares trade in New York at a discount of approximately 4.1% with respect to the <a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-adr" target="_blank" data-smartkarma-citation="entities:792:1" rel="noopener">Royal Dutch Shell Plc (Adr) (RDS/A US)</a> “A” shares.</li>
<li>
<a href="https://www.smartkarma.com/entities/unilever-plc" target="_blank" data-smartkarma-citation="entities:22197:1" rel="noopener">Unilever PLC (ULVR LN)</a> said on 30 November that the company had completed the unification of its U.K. and Dutch listed entities.</li>
</ul>
</div>


With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN)  is 23.5% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.

Corp Financiera Alba Sa (ALB SM) is trading at a 43.8% discount to NAV (down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 30.8%.
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA) is 12.3% (12.9% as of 30 October) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.

Industrivarden AB (INDUA SS) C shares are trading at a 6.7% discount to NAV vs. 5.9% at the end of November.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 15% (vs. 19% of 30 October) in line with the vaccine driven market rally.

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 11.4% premium to NAV (vs a discount of 8.3% as of 30 September).

Royal Dutch Shell PLC (RDS/B US) “B” shares trade in New York at a discount of approximately 4.1% with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares.

Unilever PLC (ULVR LN) said on 30 November that the company had completed the unification of its U.K. and Dutch listed entities.



Selected European Holdcos and DLCs: November Report

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Dalrymple Bay Infrastructure / Equity Capital Markets

<p>Dalrymple Bay Infrastructure (DBI from hereon) aims to raise around US$500m in its Australian listing. It is owned by <a href="https://www.smartkarma.com/entities/brookfield-asset-manage-cl-a-0483cfb5-71a5-4931-af80-901e5f30aace" target="_blank" data-smartkarma-citation="entities:23741:1" rel="noopener">Brookfield Asset Management (BAM US)</a>. </p><p>It holds a 99-lease for Dalrymple Bay Terminal (DBT), a coal export terminal. DBT was commissioned in 1983 and is located close to Bowen Basin, the world’s largest met coal export region, in Queensland.  </p><p>The terminal is a common-user facility providing services to a large number of mining customers. Approximately 80% of the coal shipped through DBT in 2019 was metallurgical (met) coal. It is the largest met coal terminal, handling 15% of global met coal in 2019 and 30% of Queensland coal exports. </p><p>While the current revenue for DBI is regulated and hence, fairly stable, it has been trying to change that so that it can set its own tariffs directly with clients. However, even if it manages to do that the upside might be limited.</p><p>As per my calculations, if it doesn’t manage to succeed in doing so, its revenue could drop by an amount far exceeding the projected upside. This doesn’t make DBI appear particularly attractive.</p>

Dalrymple Bay Infrastructure (DBI from hereon) aims to raise around US$500m in its Australian listing. It is owned by Brookfield Asset Management (BAM US). It holds a 99-lease for Dalrymple Bay Terminal (DBT), a coal export terminal. DBT was commissioned in 1983 and is located close to Bowen Basin, the world’s largest met coal export region, in Queensland.  The terminal is a common-user facility providing services to a large number of mining customers. Approximately 80% of the coal shipped through DBT in 2019 was metallurgical (met) coal. It is the largest met coal terminal, handling 15% of global met coal in 2019 and 30% of Queensland coal exports. While the current revenue for DBI is regulated and hence, fairly stable, it has been trying to change that so that it can set its own tariffs directly with clients. However, even if it manages to do that the upside might be limited.As per my calculations, if it doesn’t manage to succeed in doing so, its revenue could drop by an amount far exceeding the projected upside. This doesn’t make DBI appear particularly attractive.

Dalrymple Bay Infrastructure - Highly Curious Timing

<div>
<p>With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.</p>
</div>
<div>
<p>The discounts to NAV of Industrivärden and Kinnevik have considerably tightened. It is time to unwind them, and wait for the discounts to widen before setting up the trades again.</p>
</div>
<div>
<p>The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a month as a result of the share unification.</p>
</div>


With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.


The discounts to NAV of Industrivärden and Kinnevik have considerably tightened. It is time to unwind them, and wait for the discounts to widen before setting up the trades again.


The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a month as a result of the share unification.


Selected European Holdcos and DLCs: October Report

Australia

BHP Billiton Limited is an international resources company.  The Company's principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate, as well as petroleum exploration, production, and refining.  Dually-listed company with BLT LN.

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BHP Group Ltd (BHP US)

Vedanta Vaulting Near 2020 Highs On Higher Commods, Higher Forecasts, But Open Offer Remote?

Vedanta Ltd is up 55+% in eight weeks since the failed RBB. EBIT forecasts are up just as much, and a Peer Basket is now >40%ytd. An Open Offer...

Travis Lundy

Fortescue Metals: More Upside In the Near Term

Fortescue is a pure-play with a high correlation to the iron ore price. With iron ore in a 120-140$/ton range, the stock has an FCF yield of 11-15%...

Sameer Taneja

Selected European Holdcos and DLCs: November Report

Holding companies have reduced their discount to NAV during November. Kinnevik is trading at a premium to NAV. Interesting trades are GBL, and in...

Jesus Rodriguez Aguilar

Dalrymple Bay Infrastructure - Highly Curious Timing

Dalrymple Bay Infrastructure aims to raise around US$500m in its Australian IPO. DBI is owned by Brookfield Asset Management.

Sumeet Singh

Selected European Holdcos and DLCs: October Report

The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a...

Jesus Rodriguez Aguilar

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