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

iShares MSCI ACWI ETF / Technical Analysis

<ul>
<li>There continues to be little traction above $93 on MSCI ACWI (ACWI-US), which remains the top-end of our anticipated 2023 trading range. Important downside targets are $86, $84, and $75-77.</li>
<li>Additionally, the EURO STOXX 50 remains below 2-year resistance at 4400-4415.</li>
<li>We remain overweight Europe, Japan, and India, and we prefer to only add exposure on a pullback -- especially in Japan where indexes are bullish yet extended.</li>
</ul>


There continues to be little traction above $93 on MSCI ACWI (ACWI-US), which remains the top-end of our anticipated 2023 trading range. Important downside targets are $86, $84, and $75-77.
Additionally, the EURO STOXX 50 remains below 2-year resistance at 4400-4415.
We remain overweight Europe, Japan, and India, and we prefer to only add exposure on a pullback -- especially in Japan where indexes are bullish yet extended.


No Traction Above $93 on ACWI-US or 4400-4415 on EURO STOXX 50. Buys in Defensives/Japan/EM

<ul>
<li>Our 2023 outlook, initially discussed in our January 6th 2023 Int'l Compass, was for $93 to cap upside on the MSCI ACWI (ACWI-US); this has again proven prescient.</li>
<li>Since late-January/early-February we have recommended shifting to defensives, and MSCI ACWI defensive Sectors including Health Care (IXJ-US), Utilities (JXI-US), and Consumer Staples (KXI-US) are now hitting 3-4-month RS highs.</li>
<li>With the ACWI-US just now starting to turn down after testing $93, we continue to recommend a tactical overweight to the aforementioned defensive Sectors, and also to gold miners (GDX-US).</li>
</ul>


Our 2023 outlook, initially discussed in our January 6th 2023 Int'l Compass, was for $93 to cap upside on the MSCI ACWI (ACWI-US); this has again proven prescient.
Since late-January/early-February we have recommended shifting to defensives, and MSCI ACWI defensive Sectors including Health Care (IXJ-US), Utilities (JXI-US), and Consumer Staples (KXI-US) are now hitting 3-4-month RS highs.
With the ACWI-US just now starting to turn down after testing $93, we continue to recommend a tactical overweight to the aforementioned defensive Sectors, and also to gold miners (GDX-US).


Stay Tactically Overweight Defensives; Remain Overweight Europe, Japan, & EAFE. Buys in Defensives

iShares Global Healthcare ETF / Technical Analysis

<ul>
<li>As recently as last week and throughout February/March we have recommended shifting to defensives due to our belief that $93 will cap upside on the $ACWI in 2023.</li>
<li>MSCI ACWI defensive Sectors including Health Care, Utilities, and Consumer Staples are hitting 2+ month RS highs, and are staging bullish price and RS reversals, as are gold miners (GDX-US).</li>
<li>This confirms our belief that now is the time to be tactically overweight defensives. We highlight buys in Health Care, Gold Miners, and Utilities, with the vast majority from Europe</li>
</ul>


As recently as last week and throughout February/March we have recommended shifting to defensives due to our belief that $93 will cap upside on the $ACWI in 2023.
MSCI ACWI defensive Sectors including Health Care, Utilities, and Consumer Staples are hitting 2+ month RS highs, and are staging bullish price and RS reversals, as are gold miners (GDX-US).
This confirms our belief that now is the time to be tactically overweight defensives. We highlight buys in Health Care, Gold Miners, and Utilities, with the vast majority from Europe


Defensives Worthy of a Tactical Overweight; Buys in Global Health Care, Gold Miners, and Utilities

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

The bid was saved at the eleventh hour. As per the <a href="https://www.naturgy.com/files/14102021_IP_resultado_OPA_EN.pdf" target="_blank" rel="noopener">CNMV release</a>, IFM achieves 10.83% of the capital of <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> in the takeover bid. The fund waives the minimum requirement of 17% and complete the deal. There is no apportionment.From the bid announcement, IFM was confident that the partial takeover bid would succeed with at least 17% of the share capital tendered, but IFM reserved one last wild card, lowering the threshold to 10% (imposed by the banks' syndicate as the minimum to grant the financing). Thus ends one of the most controversial deals in Spain in recent years. The interesting question is what is IFM seeking in Naturgy. To obtain a paltry 10.8% it would have been much cheaper buying the shares in the market.Naturgy reduces its weight in the Ibex-35 as a result of the offer. After reducing the free float, the Technical Advisory Committee (CAT) of the index decided yesterday that it will take 20% ​​of Naturgy's capital as a reference for calculating the weighting, instead of the current 40%. Naturgy ended the session yesterday in 14th place on the Ibex, with a weight of 1.90%, according to the report by Bolsas y Mercados Españoles (BME).The adjustment will take place today Friday 15 October, at the close of the session with effect next Monday, 18 October.The loss of weight of Naturgy in the Ibex-35 may cause some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.After the takeover results were announced, Naturgy's shares soared and closed at €24, 4.62% more than on the prior session, possibly due to the accelerated repurchase of shares by hedge funds short the stock. Meanwhile, La Caixa is likely to continue buying shares to strengthen its position (up to 29.9%).Sell on strength.<ul>
<li>I do not see potential for meaningful gains at the current prices. The shares closed on 15 October at €23 (with c. €88 mn traded), exceeding Capital IQ consensus TP of € 22.25;</li>
<li>Lower liquidity after the takeover bid, given that the free-float is reduced from the current 27% to 16%. Its weight in the Ibex-35 will be reduced from 1.9% nowadays to approximately 1%. Some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.</li>
<li>Dividend yield at current prices remains below 5%. There are other options in the sector with greater potential for revaluation, higher liquidity and higher dividend yield (such as <a href="https://www.smartkarma.com/entities/red-electrica-corp-sa" target="_blank" data-smartkarma-citation="entities:21291:1" rel="noopener">Red Electrica Corp SA (REE SM)</a> and <a href="https://www.smartkarma.com/entities/enagas-sa" target="_blank" data-smartkarma-citation="entities:21266:1" rel="noopener">Enagas SA (ENG SM)</a>).</li>
</ul>

The bid was saved at the eleventh hour. As per the CNMV release, IFM achieves 10.83% of the capital of Naturgy Energy Group SA (NTGY SM) in the takeover bid. The fund waives the minimum requirement of 17% and complete the deal. There is no apportionment.From the bid announcement, IFM was confident that the partial takeover bid would succeed with at least 17% of the share capital tendered, but IFM reserved one last wild card, lowering the threshold to 10% (imposed by the banks' syndicate as the minimum to grant the financing). Thus ends one of the most controversial deals in Spain in recent years. The interesting question is what is IFM seeking in Naturgy. To obtain a paltry 10.8% it would have been much cheaper buying the shares in the market.Naturgy reduces its weight in the Ibex-35 as a result of the offer. After reducing the free float, the Technical Advisory Committee (CAT) of the index decided yesterday that it will take 20% ​​of Naturgy's capital as a reference for calculating the weighting, instead of the current 40%. Naturgy ended the session yesterday in 14th place on the Ibex, with a weight of 1.90%, according to the report by Bolsas y Mercados Españoles (BME).The adjustment will take place today Friday 15 October, at the close of the session with effect next Monday, 18 October.The loss of weight of Naturgy in the Ibex-35 may cause some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.After the takeover results were announced, Naturgy's shares soared and closed at €24, 4.62% more than on the prior session, possibly due to the accelerated repurchase of shares by hedge funds short the stock. Meanwhile, La Caixa is likely to continue buying shares to strengthen its position (up to 29.9%).Sell on strength.
I do not see potential for meaningful gains at the current prices. The shares closed on 15 October at €23 (with c. €88 mn traded), exceeding Capital IQ consensus TP of € 22.25;
Lower liquidity after the takeover bid, given that the free-float is reduced from the current 27% to 16%. Its weight in the Ibex-35 will be reduced from 1.9% nowadays to approximately 1%. Some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.
Dividend yield at current prices remains below 5%. There are other options in the sector with greater potential for revaluation, higher liquidity and higher dividend yield (such as Red Electrica Corp SA (REE SM) and Enagas SA (ENG SM)).


IFM/Naturgy: Tender Results & Ibex-35 Index Implications

On 18 February <a href="https://www.smartkarma.com/entities/acciona-sa" target="_blank" data-smartkarma-citation="entities:21248:1" rel="noopener">Acciona SA (ANA SM)</a> announced it would list 25% of its renewables subsidiary, Acciona Energías Renovables, and would retain control.
On 7 June, the Spanish Securities and Markets Commission (CNMV) approved the registration document for the IPO, exclusively aimed at institutional investors.
<ul>
<li>
The IPO consists of a secondary offering by parent company Acciona SA and will serve as a preliminary step for Acciona Energias Renovables' admission to trading on the Spanish Continuous Market.
</li>
<li>
Press sources point to a value between €10 bn and €12 bn, the largest IPO in the Spanish market since <a href="https://www.smartkarma.com/entities/aena-sa" target="_blank" data-smartkarma-citation="entities:21244:1" rel="noopener">Aena SA (AENA SM)</a> in 2015. Acciona plans to place around 25% of the capital (30% if the green shoe is added), for which it could raise between €2.5 and €3 bn.
</li>
<li>
The objective is to have the shares listed on the last week of June.
</li>
</ul>
According to Acciona, the rationale of the spin-off is:
<ul>
<li>
financing its ambitious growth plans in renewables: the IPO will allow to accelerate growth goals. The pre-IPO target was to reach 15,000MW in 2024 from 10,700MW in 2020. Now this target is improved to 20,000MW in 2025. Acciona Energías Renovables, as a pure renewables operator, will seek to maximize its growth potential, with an unrestricted balance sheet with access to a more efficient cost of capital. 
</li>
<li>
Acciona will crystallize the value in the group's fastest growing subsidiary. This subsidiary represents 75% of the group's EBITDA, but Acciona receives little recognition for its renewables business and the high proportion of profits these assets now generate.
</li>
</ul>
I calculate Acciona's fair value by using a DCF (Capital IQ consensus, WACC 5.5%, g 1.5%). I add the value of subsidiaries and apply a 15% holding discount.
Fair value is €172.4/share, 25% upside, although planned growth acceleration for Acciona Energías Renovables, should allow further upward revisions in the parent company target prices.
<ul>
<li>
Acciona's shares trade at 10.3x EV/Fwd EBITDA, below 16.1x at which <a href="https://www.smartkarma.com/entities/orsted-a-s" target="_blank" data-smartkarma-citation="entities:24765:1" rel="noopener">Orsted A/S (ORSTED DC)</a> trades.
</li>
<li>
The valuation of Acciona Energías Renovables includes some €4 bn of financial debt, over 4x EBITDA. Assuming a cautious 20% discount on Orsted, or 13.0x EBITDA, Acciona Energías Renovables would be valued at €12,000 mn euros, 87% of the current market of the entire group.
</li>
<li>
Assuming Acciona nets €3 bn, half of the IPO proceeds, €1.5 bn, together with another €1.5 bn from the syndicated loan (see background section), will significantly lower the net debt (and the WACC) of Acciona parent, thus triggering a re-rating of the shares.
</li>
</ul>
Recommendation long ANA SM, TP €172.4, with possibility of further upside.

On 18 February Acciona SA (ANA SM) announced it would list 25% of its renewables subsidiary, Acciona Energías Renovables, and would retain control.
On 7 June, the Spanish Securities and Markets Commission (CNMV) approved the registration document for the IPO, exclusively aimed at institutional investors.


The IPO consists of a secondary offering by parent company Acciona SA and will serve as a preliminary step for Acciona Energias Renovables' admission to trading on the Spanish Continuous Market.


Press sources point to a value between €10 bn and €12 bn, the largest IPO in the Spanish market since Aena SA (AENA SM) in 2015. Acciona plans to place around 25% of the capital (30% if the green shoe is added), for which it could raise between €2.5 and €3 bn.


The objective is to have the shares listed on the last week of June.


According to Acciona, the rationale of the spin-off is:


financing its ambitious growth plans in renewables: the IPO will allow to accelerate growth goals. The pre-IPO target was to reach 15,000MW in 2024 from 10,700MW in 2020. Now this target is improved to 20,000MW in 2025. Acciona Energías Renovables, as a pure renewables operator, will seek to maximize its growth potential, with an unrestricted balance sheet with access to a more efficient cost of capital. 


Acciona will crystallize the value in the group's fastest growing subsidiary. This subsidiary represents 75% of the group's EBITDA, but Acciona receives little recognition for its renewables business and the high proportion of profits these assets now generate.


I calculate Acciona's fair value by using a DCF (Capital IQ consensus, WACC 5.5%, g 1.5%). I add the value of subsidiaries and apply a 15% holding discount.
Fair value is €172.4/share, 25% upside, although planned growth acceleration for Acciona Energías Renovables, should allow further upward revisions in the parent company target prices.


Acciona's shares trade at 10.3x EV/Fwd EBITDA, below 16.1x at which Orsted A/S (ORSTED DC) trades.


The valuation of Acciona Energías Renovables includes some €4 bn of financial debt, over 4x EBITDA. Assuming a cautious 20% discount on Orsted, or 13.0x EBITDA, Acciona Energías Renovables would be valued at €12,000 mn euros, 87% of the current market of the entire group.


Assuming Acciona nets €3 bn, half of the IPO proceeds, €1.5 bn, together with another €1.5 bn from the syndicated loan (see background section), will significantly lower the net debt (and the WACC) of Acciona parent, thus triggering a re-rating of the shares.


Recommendation long ANA SM, TP €172.4, with possibility of further upside.

Italy

Enel SpA is a multinational power company and an integrated operator in the electricity and gas sectors, with a special focus on  Europe and Latin America. The company is active in the generation and distribution of energy from conventional and renewable sources. It also offers integrated solutions for electricity and gas products.

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Enel SpA (ENEL IM)

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Vermilion Research

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Vermilion Research

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We have recommended shifting to defensives throughout Feb/March due to our belief that $93 will cap upside on $ACWI. We highlight buys within...

Vermilion Research

IFM/Naturgy: Tender Results & Ibex-35 Index Implications

IFM achieves 10.8%. Sell on strength on less potential for meaningful gains at current prices, lower liquidity and weight in the Ibex-35 will be...

Jesus Rodriguez Aguilar

Spin-Off of Acciona Renewables

Acciona trades at 10.3x EV/Fwd EBITDA, below 16.1x for ORSTED DC. IPO should allow value to crystallize and financial debt to be repaid, thus...

Jesus Rodriguez Aguilar

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