European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<p><strong>Discounts to NAV for our selected European holdcos have widened in January</strong>, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.</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 <strong>20.3%</strong> (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.</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>47.4% discount to NAV</strong> (up from 44.3% by end of December, but 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 33.2% (vs. 32.9% at the end of December).</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 15.5% (12.3% as of 30 November) 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 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).</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 15.9% (vs. 13.5% as of 30 December).</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 4.2% 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 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>
</ul>
</div>


Discounts to NAV for our selected European holdcos have widened in January, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) is 20.3% (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.

Corp Financiera Alba Sa (ALB SM) is trading at a 47.4% discount to NAV (up from 44.3% by end of December, but down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 33.2% (vs. 32.9% at the end of December).
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA)is 15.5% (12.3% as of 30 November) 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 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).
The discount to NAV of Investor AB (INVEB SS) B shares has widened to 15.9% (vs. 13.5% as of 30 December).

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 4.2% discount to NAV (vs a 5.2% premium as of 31 December).

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.



Selected European Holdcos and DLCs: January 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>The number of major country indexes showing major bullish inflections continues to grow. Broad commodities (Bloomberg Commodity index) also display a bullish reversal topside a 12.5-year downtrend. This type of evidence helps affirm our bullish outlook and suggests higher prices are ahead. Continue to add exposure on pullbacks.</p>

The number of major country indexes showing major bullish inflections continues to grow. Broad commodities (Bloomberg Commodity index) also display a bullish reversal topside a 12.5-year downtrend. This type of evidence helps affirm our bullish outlook and suggests higher prices are ahead. Continue to add exposure on pullbacks.

Long-Term Bullish Inflections For Hang Seng, DAX, MSCI EM, & Bloomberg Commodity Index

<div>
<p>2021 has been a good year to put on trades betting on discount tightening on Swedish holdcos, especially since May, and for Unilever. It has been generally mixed for other holdcos followed in these reports.</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 24.6% (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 44.3% 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 32.9%.</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 15.5% (12.3% as of 30 November) 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 4.2% discount to NAV vs. 6.7% 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 13.5% (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 5.4% premium to NAV (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>
</ul>
</div>


2021 has been a good year to put on trades betting on discount tightening on Swedish holdcos, especially since May, and for Unilever. It has been generally mixed for other holdcos followed in these reports.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN)  is 24.6% (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 44.3% discount to NAV (down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 32.9%.
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA) is 15.5% (12.3% as of 30 November) 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 4.2% discount to NAV vs. 6.7% at the end of November.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 13.5% (vs. 19% of 30 October) in line with the vaccine driven market rally.

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 5.4% 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.



Selected European Holdcos and DLCs: December Report

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<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

Australia

BHP Group Ltd operates as an international resources company. The Company offers mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel, and copper concentrate, as well as petroleum exploration, production, and refining. BHP Group serves customers worldwide.

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BHP Group Ltd (BHP AU)

Selected European Holdcos and DLCs: January Report

Discounts to NAV for our selected European holdcos have widened in January, in line with equity markets drifting lower. General recommendation:...

Jesus Rodriguez Aguilar

Long-Term Bullish Inflections For Hang Seng, DAX, MSCI EM, & Bloomberg Commodity Index

The number of major country indexes showing major bullish inflections continues to grow. Broad commodities also breaking a 12.5-year downtrend....

Vermilion Research

Selected European Holdcos and DLCs: December Report

Interesting long/short situations are: premium of BHP AU vs. BLT LN is 24.6% , HEIO NA relative HEIA NA, 15.5% discount, Investor (13.5% discount...

Jesus Rodriguez Aguilar

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

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