Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>In a cyclical and volatile commodity sector, such as lithium, profitability is key during lean times.</p>
<p>Brisbane-based <a href="https://www.smartkarma.com/entities/orocobre-ltd" target="_blank" data-smartkarma-citation="entities:3572:1" rel="noopener">Orocobre Ltd (ORE AU)</a> and Perth-based <a href="https://www.smartkarma.com/entities/galaxy-resources-ltd" target="_blank" data-smartkarma-citation="entities:13914:1" rel="noopener">Galaxy Resources (GXY AU)</a> are in effect, the poster children for Aussie-listed lithium producers.  Orocobre extracts the commodity from Argentinian brine ponds, and Galaxy from Western Australian rock. Two different lithium products in two different jurisdictions.</p>
<p>Amid a downturn in the price of the battery commodity and a reduction in tonnes exported, both Galaxy and Orocobre splashed red ink in <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02205130-6A969035?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">FY19</a> (Dec-end) and <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02273544-2A1246100?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">FY20</a> (June-end) respectively.</p>
<p>The downturn resulted in <a href="https://www.smartkarma.com/entities/alita-resources-ltd" target="_blank" data-smartkarma-citation="entities:16331:1" rel="noopener">Alita Resources (AMS SP)</a> - in which Galaxy is a shareholder - going into administration, a situation that is still working its way through the <a href="https://www.miningweekly.com/article/galaxy-joins-the-fight-for-bald-hill-2021-02-12" target="_blank" rel="noopener">sale of asset process</a>. In addition, <a href="https://www.smartkarma.com/entities/pilbara-minerals-ltd" target="_blank" data-smartkarma-citation="entities:7460:1" rel="noopener">Pilbara Minerals (PLS AU)</a> acquired <a href="https://www.smartkarma.com/entities/altura-mining-ltd" target="_blank" data-smartkarma-citation="entities:13385:1" rel="noopener">Altura Mining (AJM AU)</a> late last year after the latter entered receivership in November as the raw battery materials market nose-dived.</p>
<p>A reversal of fortunes has seen increased demand, and price, for Galaxy's spodumene concentrate, and Orocobre's Argentinian lithium bicarbonate. In its quarterly update on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02362944-2A1292351?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">13 April</a>, Orocobre said pricing was up more than 50% since the Dec-20 quarter, and nearly 90% in the last six months. </p>
<h3>The NEW News</h3>
<p>After circling each other for a couple of years, Galaxy and Orocobre entered into a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02364542-2A1293132?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">binding agreement</a> earlier this week under which the two companies will merge via a Galaxy Scheme, following which, Orocobre will hold 100% in Galaxy.</p>
<p>Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share. Upon implementation, Orocobre shareholders will own 54.2% of the enlarged entity, and Galaxy shareholders will own the remaining 45.8%.</p>
<p>The A$4bn combined entity will be the fifth-largest lithium producer - and third-largest outside of China - boasting a diversified product base via four producing assets.</p>
<p>The two companies classify this as a merger of equals, and in many respects it is. Each company will appoint four directors to the new nine-person board, and the chairman and deputy chairman’s jobs for the coming 12 months will be split down the middle until replacements are found.</p>
<p>This is an intelligent merger. Not only does it establish a foothold in South American brines and Western Australian/North American spodumene, something the world’s largest lithium producers seek to achieve, the new entity will be better positioned to weather a material correction in lithium prices.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/201/665/original/image_29076439221618885833728.png?1618885835" class="editor-image img-responsive" data-smartkarma-image-id="201665"></figure>

In a cyclical and volatile commodity sector, such as lithium, profitability is key during lean times.
Brisbane-based Orocobre Ltd (ORE AU) and Perth-based Galaxy Resources (GXY AU) are in effect, the poster children for Aussie-listed lithium producers.  Orocobre extracts the commodity from Argentinian brine ponds, and Galaxy from Western Australian rock. Two different lithium products in two different jurisdictions.
Amid a downturn in the price of the battery commodity and a reduction in tonnes exported, both Galaxy and Orocobre splashed red ink in FY19 (Dec-end) and FY20 (June-end) respectively.
The downturn resulted in Alita Resources (AMS SP) - in which Galaxy is a shareholder - going into administration, a situation that is still working its way through the sale of asset process. In addition, Pilbara Minerals (PLS AU) acquired Altura Mining (AJM AU) late last year after the latter entered receivership in November as the raw battery materials market nose-dived.
A reversal of fortunes has seen increased demand, and price, for Galaxy's spodumene concentrate, and Orocobre's Argentinian lithium bicarbonate. In its quarterly update on the 13 April, Orocobre said pricing was up more than 50% since the Dec-20 quarter, and nearly 90% in the last six months. 
The NEW News
After circling each other for a couple of years, Galaxy and Orocobre entered into a binding agreement earlier this week under which the two companies will merge via a Galaxy Scheme, following which, Orocobre will hold 100% in Galaxy.
Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share. Upon implementation, Orocobre shareholders will own 54.2% of the enlarged entity, and Galaxy shareholders will own the remaining 45.8%.
The A$4bn combined entity will be the fifth-largest lithium producer - and third-largest outside of China - boasting a diversified product base via four producing assets.
The two companies classify this as a merger of equals, and in many respects it is. Each company will appoint four directors to the new nine-person board, and the chairman and deputy chairman’s jobs for the coming 12 months will be split down the middle until replacements are found.
This is an intelligent merger. Not only does it establish a foothold in South American brines and Western Australian/North American spodumene, something the world’s largest lithium producers seek to achieve, the new entity will be better positioned to weather a material correction in lithium prices.


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

Seven Group Holdings / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/seven-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:803:1" rel="noopener">Seven Group Holdings (SVW AU)</a> aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide more financing flexibility. </p><p>The stock has done well over the past few years but is now trading close to its all time highs. </p>

Seven Group Holdings (SVW AU) aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide more financing flexibility. The stock has done well over the past few years but is now trading close to its all time highs. 

Seven Group Holdings Placement - Good Track Record but Still a Large Deal to Digest

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Groupe Bruxelles Lambert Sa / Event-Driven

<div><p>Discounts to NAV for our selected European holdcos and DLCs have generally tightened in March. The report incorporates the results for GBL, and several SOTP valuations.</p></div><div><ul style="list-style-type: disc;">
<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> at close of March was 19.5% (vs. 24.6% as of 31 December and 19.5% as of the end of February), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.</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 46% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a>, one of its portfolio main assets, is being the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.</li>
<li>The discount 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> has tightened to 31.7% as of end of March (vs. 34.2% as of 26 February). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).</li>
<li>The discount in Heineken Holdings relative to Heineken has tightened to 12.6% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.</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 3.3% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.</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 14.4% (vs. 17.1% at the end of February). Long Investor B, short main assets.</li>
<li>From my SOTP valuation, <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 c. 7% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.</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 closed March in New York at a discount of  6.1% (vs. 4.4% as of 31 December and 5.2% as of end of February) 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. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.</li>
</ul></div>

Discounts to NAV for our selected European holdcos and DLCs have generally tightened in March. The report incorporates the results for GBL, and several SOTP valuations.
The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) at close of March was 19.5% (vs. 24.6% as of 31 December and 19.5% as of the end of February), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.

Corp Financiera Alba Sa (ALB SM) is trading at a 46% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. Naturgy Energy Group SA (NTGY SM), one of its portfolio main assets, is being the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.
The discount of Groupe Bruxelles Lambert Sa (GBLB BB) has tightened to 31.7% as of end of March (vs. 34.2% as of 26 February). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).
The discount in Heineken Holdings relative to Heineken has tightened to 12.6% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.

Industrivarden AB (INDUA SS) C shares are trading at a 3.3% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 14.4% (vs. 17.1% at the end of February). Long Investor B, short main assets.
From my SOTP valuation, Investment Ab Kinnevik (KINVB SS) B shares are trading at a c. 7% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.

Royal Dutch Shell PLC (RDS/B US) “B” shares closed March in New York at a discount of  6.1% (vs. 4.4% as of 31 December and 5.2% as of end of February) with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.


Selected European Holdcos and DLCs: March Report

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.</p>

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

Global Equity Strategy: Constructive Pullback; Overweight Value

<div>
<p>Discounts to NAV for our selected European holdcos and DLCs have generally widened in February, specially at the end of the month. The report incorporates the results for the Swedish holdcos, as well as for C.F Alba, as well as several SOTPs.</p>
</div>
<div>
<ul style="list-style-type: disc;">
<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 19.9% (vs. 24.6% as of 31 December), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.</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 <strong>47.9% discount to NAV</strong> (up from 44.3% by end of December, but down from 49% at the end of October), partly because of its low liquidity. The discount does not seem to be arbitraged lately. <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a>, one of its portfolio main assets, is being the subject of a partial takeover bid, and Euskaltel may be a candidate to be acquired in any further consolidation in the Spanish telco market. Alba has some quality assets and is fundamentally cheap, in my view.</li>
<li>The discount 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> has widened to 34.2% as of 26 February (vs. 32.9% as of 30 December). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 75% of NAV).</li>
<li>The discount in Heineken Holdings relative to Heineken has tightened to 12.9% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.</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 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November. I would wait for the discount to widen before entering the trade again.</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 widened to 17.1% (vs. 13.5% as of 30 December). Long Investor B, short main assets.</li>
<li>From my SOTP valuation, <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 3.9% discount to NAV (vs a 5.2% premium as of 31 December).</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 closed February in New York at a discount of  5.2% (4.4% as of 31 December) 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. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.</li>
</ul>
</div>


Discounts to NAV for our selected European holdcos and DLCs have generally widened in February, specially at the end of the month. The report incorporates the results for the Swedish holdcos, as well as for C.F Alba, as well as several SOTPs.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) is 19.9% (vs. 24.6% as of 31 December), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.

Corp Financiera Alba Sa (ALB SM) is trading at a 47.9% discount to NAV (up from 44.3% by end of December, but down from 49% at the end of October), partly because of its low liquidity. The discount does not seem to be arbitraged lately. Naturgy Energy Group SA (NTGY SM), one of its portfolio main assets, is being the subject of a partial takeover bid, and Euskaltel may be a candidate to be acquired in any further consolidation in the Spanish telco market. Alba has some quality assets and is fundamentally cheap, in my view.
The discount of Groupe Bruxelles Lambert Sa (GBLB BB) has widened to 34.2% as of 26 February (vs. 32.9% as of 30 December). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 75% of NAV).
The discount in Heineken Holdings relative to Heineken has tightened to 12.9% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.

Industrivarden AB (INDUA SS) C shares are trading at a 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November. I would wait for the discount to widen before entering the trade again.
The discount to NAV of Investor AB (INVEB SS) B shares has widened to 17.1% (vs. 13.5% as of 30 December). Long Investor B, short main assets.
From my SOTP valuation, Investment Ab Kinnevik (KINVB SS) B shares are trading at a 3.9% discount to NAV (vs a 5.2% premium as of 31 December).

Royal Dutch Shell PLC (RDS/B US) “B” shares closed February in New York at a discount of  5.2% (4.4% as of 31 December) with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.



Selected European Holdcos and DLCs: February 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)

Orocobre/Galaxy Resources: On A Charge

The merged entity will capture a greater market share of the lithium supply in coming years, and capitalise on mining synergies. Plus afford the...

David Blennerhassett

Seven Group Holdings Placement - Good Track Record but Still a Large Deal to Digest

Seven Group Holdings (SVW AU) aims to raise around A$500m (US$38m) via an institutional placement to primarily help reduce its gearing and provide...

Sumeet Singh

Selected European Holdcos and DLCs: March Report

Discounts to NAV for our selected European holdcos and DLCs have generally tightened in March. The report incorporates the results for GBL, and...

Jesus Rodriguez Aguilar

Global Equity Strategy: Constructive Pullback; Overweight Value

As long as the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we...

Vermilion Research

Selected European Holdcos and DLCs: February Report

Discounts to NAV for European holdcos and DLCs have generally widened in February. The report incorporates some results, as well as several SOTPs.

Jesus Rodriguez Aguilar

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