Alpha-Centric ESG Research

Kyle Rudden

Here it comes, the David-and-Goliath metaphor. Cliché is an understatement, but who cares – it is a most fitting allegory for the epic proxy battle between a diminutive activist investor you've never heard of and a "Big Oil" Behemoth that you know all too well... <a href="https://www.smartkarma.com/entities/exxon-mobil-corp" target="_blank" data-smartkarma-citation="entities:811:1" rel="noopener">Exxon Mobil (XOM US)</a>.Guess who won?Well, that depends on perspective. The activist hedge fund (Engine No. 1) gained three Board seats so one could certainly say that Engine won. As did the shareholders that backed Engine in its proxy (BlackRock, Vanguard, State Street, CalPERS, CalSTRS). But the biggest winner of all?Planet Earth.Engine's improbable win – in conjunction with similar (albeit less spectacular) shareholder actions at other supermajors – appears to signify a seismic shift in how Big Oil's shareholders view climate change, and could portend real change (e.g., accelerated decarbonisation and better reporting).

Here it comes, the David-and-Goliath metaphor. Cliché is an understatement, but who cares – it is a most fitting allegory for the epic proxy battle between a diminutive activist investor you've never heard of and a "Big Oil" Behemoth that you know all too well... Exxon Mobil (XOM US).Guess who won?Well, that depends on perspective. The activist hedge fund (Engine No. 1) gained three Board seats so one could certainly say that Engine won. As did the shareholders that backed Engine in its proxy (BlackRock, Vanguard, State Street, CalPERS, CalSTRS). But the biggest winner of all?Planet Earth.Engine's improbable win – in conjunction with similar (albeit less spectacular) shareholder actions at other supermajors – appears to signify a seismic shift in how Big Oil's shareholders view climate change, and could portend real change (e.g., accelerated decarbonisation and better reporting).

Engine Versus Exxon: Activist Hedge Fund's Proxy Fight Win Reverberates Through "Big Oil" Boardrooms

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

We are beginning to see rotations back into risk-on areas of the market, a bullish sign for global equities. This only adds to our constructive outlook; we are bullish and we expect higher prices in the weeks and months ahead.

We are beginning to see rotations back into risk-on areas of the market, a bullish sign for global equities. This only adds to our constructive outlook; we are bullish and we expect higher prices in the weeks and months ahead. 

Global Equity Strategy: Buy Energy & Financials; EM Improving

EURO STOXX 50 Price EUR / Technical Analysis

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Rex International Holding / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/rex-international-holding" target="_blank" data-smartkarma-citation="entities:17074:1" rel="noopener">Rex International Holding (REXI SP)</a> has been a forgotten oil stock on the SGX. Last year we tried to highlight the opportunity to investors already <a href="https://www.smartkarma.com/insights/rex-int-from-virtual-drilling-tech-play-to-pumping-oil-in-oman-overlooked-bargain-m-a-candidate" target="_blank" data-smartkarma-citation="insights:41575" rel="noopener">Rex Int: From Virtual Drilling Tech Play to Pumping Oil in Oman; Overlooked Bargain + M&amp;A Candidate</a>.As we learned with our bullish drumbeat on <a href="https://www.smartkarma.com/entities/ug-healthcare-corp-ltd" target="_blank" data-smartkarma-citation="entities:254:1" rel="noopener">UG Healthcare (UGHC SP)</a> a few years ago sometimes Mr. Market can be a bit slow. Recall, we were bullish on UGHC all of 2018/2019 highlighting its massive undervaluation, and then... it went up 1,000%+ last year. Rex reminds us of UGHC in 2019. Rex is not guaranteed to go up 1,000% but it has a pathway there (think oil at 100 USD/bbl) and should AT LEAST double in 2021. This is a high conviction idea.Below the fold, we give the math of how increased production at its Yumna field in Oman should lead to massive cash flows and earnings from 1H21 onwards. Once market participants "get it" and see the cash gush in this has to lead to a re-rating. If Mr.Market remains asleep an industry player will almost certainly come to the table and acquire Rex outright. Given the age of the main shareholders, this is more a question of "when" rather than "if".

Rex International Holding (REXI SP) has been a forgotten oil stock on the SGX. Last year we tried to highlight the opportunity to investors already Rex Int: From Virtual Drilling Tech Play to Pumping Oil in Oman; Overlooked Bargain + M&amp;A Candidate.As we learned with our bullish drumbeat on UG Healthcare (UGHC SP) a few years ago sometimes Mr. Market can be a bit slow. Recall, we were bullish on UGHC all of 2018/2019 highlighting its massive undervaluation, and then... it went up 1,000%+ last year. Rex reminds us of UGHC in 2019. Rex is not guaranteed to go up 1,000% but it has a pathway there (think oil at 100 USD/bbl) and should AT LEAST double in 2021. This is a high conviction idea.Below the fold, we give the math of how increased production at its Yumna field in Oman should lead to massive cash flows and earnings from 1H21 onwards. Once market participants "get it" and see the cash gush in this has to lead to a re-rating. If Mr.Market remains asleep an industry player will almost certainly come to the table and acquire Rex outright. Given the age of the main shareholders, this is more a question of "when" rather than "if".

Rex: Oman Production Gaining Steam; Could It Really Trade at 1x 2021 Pre-Tax Profits?

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Naturgy soars c. 16%, to €22.27 at closing, after Australian fund IFM Global Infrastructure has communicated its intention to launch an unexpected partial takeover offer for 22.69% of the capital. This is an operation valued at 5,060 million euros. Specifically, the offer is aimed at 220 million shares of the energy company at a price of €23 per share, which represents a premium of more than 20% compared to yesterday's closing price, of 22.7% over the VWAP of the last three months and 28.9% of the VWAP of the last six months.
IFM, with a long-term investment outlook, has taken advantage of the weakness of Naturgy in the current conjuncture to launch its offering.
Shareholders representing 41.36% of the capital stock have agreed not to attend the operation. These shareholders are Rioja Acquisition with 20.72% of the capital stock and the GIP fund with an additional 20.64%. Rioja Acquisition is the vehicle formed by CVC and Corporación Financiera Alba when they bought the 20% held by Repsol.
<ul>
<li>In addition to retail investors, the offer is directed to Criteria Caixa, which controls 24% of the capital and is the largest shareholder in Naturgy. Moreover, Sonatrach, the Algerian company that controls the fields in the Arab country and is a historical partner of Naturgy, controls 3.85%.</li>
<li>Although it is an offer for 22.7% of the capital stock, the effective percentage is higher since Rioja Acquisition and GIP have decided not to participate in the operation.</li>
<li>Under these conditions, the effective offer is for over 39% of the shares.</li>
</ul>
IFM's takeover bid revalues ​​the 24.4% stake of Criteria Caixa in Naturgy to €5,528 mn. Criteria will play a key role in the operation, since Rioja (mainly CVC) and GIP will not sell. That said, the ultimate owner of Criteria, Fundación La Caixa relies on the dividends of its investments to fund its social and charitable work. The Fundación management will probably debate about investing in a more diversified portfolio with the proceeds of a hypothetical acceptance of IFM's bid.
At the proposed offer price, IFM would obtain a 6.6% gross dividend yield.
Taking comparable companies, the median implied share price on a 9.5x EV/Fwd EBITDA basis is €23.1 per share (vs. 8.6x for Naturgy prior to the offer announcement). On that basis, the offer looks fair.
<ul>
<li>I find it an attractive offer for minority shareholders. Moreover, the free float will be greatly reduced after this offer (below 10%).</li>
</ul>
I recommend LONG NTGY SM and tender into IFM's partial offer (gross spread is 3.7%). Failure to tender would mean keeping a share with reduced liquidity and a dividend yield (according to Factset estimates) of around 6.6% for 2021e.
A counteroffer by a rival bidder must be made no later than 15 business days of the publication of the offer prospectus, although it may be possible to announce an intention to offer after this cut off point.

Naturgy soars c. 16%, to €22.27 at closing, after Australian fund IFM Global Infrastructure has communicated its intention to launch an unexpected partial takeover offer for 22.69% of the capital. This is an operation valued at 5,060 million euros. Specifically, the offer is aimed at 220 million shares of the energy company at a price of €23 per share, which represents a premium of more than 20% compared to yesterday's closing price, of 22.7% over the VWAP of the last three months and 28.9% of the VWAP of the last six months.
IFM, with a long-term investment outlook, has taken advantage of the weakness of Naturgy in the current conjuncture to launch its offering.
Shareholders representing 41.36% of the capital stock have agreed not to attend the operation. These shareholders are Rioja Acquisition with 20.72% of the capital stock and the GIP fund with an additional 20.64%. Rioja Acquisition is the vehicle formed by CVC and Corporación Financiera Alba when they bought the 20% held by Repsol.

In addition to retail investors, the offer is directed to Criteria Caixa, which controls 24% of the capital and is the largest shareholder in Naturgy. Moreover, Sonatrach, the Algerian company that controls the fields in the Arab country and is a historical partner of Naturgy, controls 3.85%.
Although it is an offer for 22.7% of the capital stock, the effective percentage is higher since Rioja Acquisition and GIP have decided not to participate in the operation.
Under these conditions, the effective offer is for over 39% of the shares.

IFM's takeover bid revalues ​​the 24.4% stake of Criteria Caixa in Naturgy to €5,528 mn. Criteria will play a key role in the operation, since Rioja (mainly CVC) and GIP will not sell. That said, the ultimate owner of Criteria, Fundación La Caixa relies on the dividends of its investments to fund its social and charitable work. The Fundación management will probably debate about investing in a more diversified portfolio with the proceeds of a hypothetical acceptance of IFM's bid.
At the proposed offer price, IFM would obtain a 6.6% gross dividend yield.
Taking comparable companies, the median implied share price on a 9.5x EV/Fwd EBITDA basis is €23.1 per share (vs. 8.6x for Naturgy prior to the offer announcement). On that basis, the offer looks fair.

I find it an attractive offer for minority shareholders. Moreover, the free float will be greatly reduced after this offer (below 10%).

I recommend LONG NTGY SM and tender into IFM's partial offer (gross spread is 3.7%). Failure to tender would mean keeping a share with reduced liquidity and a dividend yield (according to Factset estimates) of around 6.6% for 2021e.
A counteroffer by a rival bidder must be made no later than 15 business days of the publication of the offer prospectus, although it may be possible to announce an intention to offer after this cut off point.

IFM Investors to Launch a Partial Hostile Tender Offer for Naturgy

Italy

Eni SpA explores for and produces hydrocarbons in Italy, Africa, the North Sea, the Gulf of Mexico, Kazakhstan, and Australia. The Company both produces natural gas and imports it for sale in Italy and elsewhere in Europe. Eni transports natural gas in pipelines. The Company generates and trades electricity, refines oil, and operates gasoline service stations.

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Eni SpA (ENI IM)

Engine Versus Exxon: Activist Hedge Fund's Proxy Fight Win Reverberates Through "Big Oil" Boardrooms

May 26, 2021. Black Wednesday. A day that changed Big Oil forever. From Exxon's proxy fight loss to an activist fund you've never heard of, to...

Kyle Rudden

Global Equity Strategy: Buy Energy & Financials; EM Improving

We are seeing rotations back into risk-on areas of the market (Energy & Financials), a bullish sign for global equities. We are bullish and we...

Vermilion Research

Major Breakout For EURO STOXX 50

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and...

Vermilion Research

Rex: Oman Production Gaining Steam; Could It Really Trade at 1x 2021 Pre-Tax Profits?

Rex is a misunderstood oil company trading on SGX. Our calculations show the stock could be trading at +/- 1x 2021 pre-tax profits. There is wild...

Nicolas Van Broekhoven

IFM Investors to Launch a Partial Hostile Tender Offer for Naturgy

Criteria Caixa must decide whether to tender. I recommend LONG NTGY SM (gross spread 3.7%). Failure to tender would mean keeping a share with...

Jesus Rodriguez Aguilar

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