Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE:  Afterpay, SPH, ESR Cayman, Prosus/Naspers, Kingsoft, Milton, SOHO China

Travis Lundy

<a href="https://www.smartkarma.com/entities/gca-savvian-corp" target="_blank" data-smartkarma-citation="entities:3841:1" rel="noopener">Gca Savvian (2174 JP)</a> was a business formed in 2004 and listed in Tokyo on the MOTHERS exchange in October 2006. In March 2008 it merged with US M&amp;A boutique, and remained listed in Tokyo. In July 2016, the company absorbed Europe-based Altium Corporate Finance Group and in April 2020 acquired Stella EOC in Northern Europe. Over time, the business has grown so Japan is now but a third of revenues, and in the past 12 months, the firm has booked JPY 34.2bn in revenues. The company has grown and grown and while 2020 was a trying year, 2021 is bouncing back. Re-booming in fact. Today, the company reported <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166089/00.pdf" target="_blank" rel="noopener">Q2</a> and <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166088/00.pdf" target="_blank" rel="noopener">H1 results</a>, and an <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166091/00.pdf" target="_blank" rel="noopener">increase in forecast</a> from the last time a forecast was released (just two months ago on 2 June). Full year revenues are expected 14.7% higher than originally and nearly double last year. Full year OP is expected 17% higher than the previous forecast and more than double last year. Net Profit is forecast at 17.2% higher than the last forecast and 117% higher than last year, all on a non-GAAP basis. On an IFRS basis, all those gains are a percent or two higher.The other news was that US niche investment bank <a href="https://www.smartkarma.com/entities/houlihan-lokey-inc" target="_blank" data-smartkarma-citation="entities:1744:1" rel="noopener">Houlihan Lokey (HLI US)</a> announced a <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166093/00.pdf" target="_blank" rel="noopener">deal</a> to take GCA private in a Tender Offer - a friendly deal <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166092/00.pdf" target="_blank" rel="noopener">recommended</a> by management - at ¥1380/share. This is at a decent premium to recent price, but at ¥1380/share it is just ¥1000/share after one converts the options and deducts the net cash (cash minus other current liabilities, which are far larger than debt). That is 12x 2021 company forecast EPS. That may not be that generous if there are synergies to be had. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/948/original/Screenshot+2021-08-03+at+7.23.23+PM.png?1627989828" class="editor-image img-responsive" data-smartkarma-image-id="221948"></figure></section>Of course, the investment banking and advisory business is not unlike the advertising business (and I am sure many of the readers here will agree from their own perspective. There are not a lot of hard assets in investment banking and as the principals will tell you, the best assets walk out the door at the end of every day. So assigning earnings multiples is something of a hit and miss situation. That said, concluding that a growing business (with a low cost base, high variable cost ratio, and minimal capital needs) in a growing market is worth only 12x earnings, on an un-levered basis, including control premium strikes me as aggressive, and the bump described on p9 of the <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166092/00.pdf" target="_blank" rel="noopener">Opinion</a> tells you that Houlihan Lokey is looking for a deal, and GCA was too - they asked for a bump given upgraded forecasts (which themselves are a bit light for H2) and HLI paid 2.5x the marginal improvement per share. The other issue is that we don't know what deals that a purchasing investment bank could make with its future employees which could allow the purchasing employees to be favourable to such an acquisition. Critics could suggest we are closer to the top of the cycle than the bottom for investment bank earnings, but downturns create their own opportunities when you are not a capital provider, and HLI and GCA have financial restructuring teams.More below the fold.

Gca Savvian (2174 JP) was a business formed in 2004 and listed in Tokyo on the MOTHERS exchange in October 2006. In March 2008 it merged with US M&amp;A boutique, and remained listed in Tokyo. In July 2016, the company absorbed Europe-based Altium Corporate Finance Group and in April 2020 acquired Stella EOC in Northern Europe. Over time, the business has grown so Japan is now but a third of revenues, and in the past 12 months, the firm has booked JPY 34.2bn in revenues. The company has grown and grown and while 2020 was a trying year, 2021 is bouncing back. Re-booming in fact. Today, the company reported Q2 and H1 results, and an increase in forecast from the last time a forecast was released (just two months ago on 2 June). Full year revenues are expected 14.7% higher than originally and nearly double last year. Full year OP is expected 17% higher than the previous forecast and more than double last year. Net Profit is forecast at 17.2% higher than the last forecast and 117% higher than last year, all on a non-GAAP basis. On an IFRS basis, all those gains are a percent or two higher.The other news was that US niche investment bank Houlihan Lokey (HLI US) announced a deal to take GCA private in a Tender Offer - a friendly deal recommended by management - at ¥1380/share. This is at a decent premium to recent price, but at ¥1380/share it is just ¥1000/share after one converts the options and deducts the net cash (cash minus other current liabilities, which are far larger than debt). That is 12x 2021 company forecast EPS. That may not be that generous if there are synergies to be had. Of course, the investment banking and advisory business is not unlike the advertising business (and I am sure many of the readers here will agree from their own perspective. There are not a lot of hard assets in investment banking and as the principals will tell you, the best assets walk out the door at the end of every day. So assigning earnings multiples is something of a hit and miss situation. That said, concluding that a growing business (with a low cost base, high variable cost ratio, and minimal capital needs) in a growing market is worth only 12x earnings, on an un-levered basis, including control premium strikes me as aggressive, and the bump described on p9 of the Opinion tells you that Houlihan Lokey is looking for a deal, and GCA was too - they asked for a bump given upgraded forecasts (which themselves are a bit light for H2) and HLI paid 2.5x the marginal improvement per share. The other issue is that we don't know what deals that a purchasing investment bank could make with its future employees which could allow the purchasing employees to be favourable to such an acquisition. Critics could suggest we are closer to the top of the cycle than the bottom for investment bank earnings, but downturns create their own opportunities when you are not a capital provider, and HLI and GCA have financial restructuring teams.More below the fold.

Houlihan Lokey To Take Out GCA :  Light But Likely Done

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

And just like that, the S&amp;P 500, Nasdaq, and the Dow have reclaimed new highs despite ongoing coronavirus concerns, as a buy the dip strategy has paid off. Primarily responsible for new highs in these indexes is Technology (esp. software and semis/semi suppliers) and FAANG stocks. While these areas all remain bullish, we still have some reservations due to the massive disparity in performance between them and the Materials (XLB, XME) and Energy (RYE) Sectors, and also small-caps (IWM) which continue to hit new RS lows. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary and Financials: Homebuilding, Large-Cap, Casinos &amp; Gaming, Small-Cap, Asset Management &amp; Custody Banks, Large-Cap, and Investment Banking &amp; Brokerage, Small-Cap.

And just like that, the S&amp;P 500, Nasdaq, and the Dow have reclaimed new highs despite ongoing coronavirus concerns, as a buy the dip strategy has paid off. Primarily responsible for new highs in these indexes is Technology (esp. software and semis/semi suppliers) and FAANG stocks. While these areas all remain bullish, we still have some reservations due to the massive disparity in performance between them and the Materials (XLB, XME) and Energy (RYE) Sectors, and also small-caps (IWM) which continue to hit new RS lows. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary and Financials: Homebuilding, Large-Cap, Casinos &amp; Gaming, Small-Cap, Asset Management &amp; Custody Banks, Large-Cap, and Investment Banking &amp; Brokerage, Small-Cap.

U.S. Equities: Still Bullish, With Reservations

The primary trend in U.S. equity markets remains bullish, and the usual suspects continue to lead: growth (Tech and FANG), homebuilders, industrials, etc.  Yet unusually bullish price patterns continue to develop in long-term laggards like energy (esp. E&amp;Ps), retail (XRT), and engineering &amp; construction (JEC).  We view this stabilization, or participation, in weak segments as a boost to the market’s breadth, a point of contention in recent months for some, who have pointed out that fewer stocks are trading above their 200-day moving averages.  Attractive entry points are also visible in many cyclical Groups, especially Casinos and Investment Banks.  In today’s report we highlight actionable charts in both Groups... see pages 8-24]

The primary trend in U.S. equity markets remains bullish, and the usual suspects continue to lead: growth (Tech and FANG), homebuilders, industrials, etc.  Yet unusually bullish price patterns continue to develop in long-term laggards like energy (esp. E&amp;Ps), retail (XRT), and engineering &amp; construction (JEC).  We view this stabilization, or participation, in weak segments as a boost to the market’s breadth, a point of contention in recent months for some, who have pointed out that fewer stocks are trading above their 200-day moving averages.  Attractive entry points are also visible in many cyclical Groups, especially Casinos and Investment Banks.  In today’s report we highlight actionable charts in both Groups... see pages 8-24]

U.S. Equity Weekly: Actionable Ideas in Casinos, Investment Banks

United States

MarketAxess Holdings, Inc. operates an electronic, multi-dealer to client platform for U.S. and European high-grade corporate and emerging markets bond trading.  The Company's technology delivers price discovery and trade execution services to institutional and broker-dealer clients.

Evercore Partners Inc. is an investment banking boutique. The firm provides advisory services to multinational corporations on mergers, acquisitions, divestitures, restructurings and other corporate transactions. Evercore also manages private equity funds for institutional investors.

Jefferies Financial Group Inc. is a global diversified financial services company focusing on investment banking and capital markets, asset management and direct investing. The Company offers a full range of investment banking, equities, fixed income, asset and wealth management products and services.

Stifel Financial Corp. is a financial services holding company whose subsidiaries serve individual and institutional clients in the U.S. and Europe. The Company's broker-dealer affiliates provide wealth management, investment banking, independent research, trading, investment advisory, and related financial services.

SEI Investments Company provides global investment solutions and business solutions.  The Company integrates technology, research, information services, financial products, and asset management advice to serve banks, mutual fund and pension plan sponsors, insurance companies, money managers, and individual investors.

Interactive Brokers Group, Inc. is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures, and foreign exchange instruments.

Franklin Resources, Inc. (d.b.a. Franklin Templeton Investments) provides investment advisory services to mutual fund, retirement, institutional/separate accounts and high net worth investors. The Company manages various asset classes including global equity, global institutional and municipal fixed income, money funds, alternative investments, and hedge funds.

Invesco, Ltd. provides investment management services. The Company offers equity, fixed income, separate accounts, exchange traded, collective, and balance mutual funds. Invesco serves customers globally.

Piper Sandler Cos operates as a financial services firm. The Company provides investment banking, mergers and acquisitions, equity and debt capital markets, private placements, restructuring, and financial advisory services to businesses, institutions, and individuals. Piper Jaffray serves customers worldwide.

Affiliated Managers Group, Inc. is a global asset management company that invests in boutique investment management firms.  The Company allows the firms in which it invests operational autonomy while providing assistance in strategic matters, marketing, distribution, product development, and operations.

Huatai Securities Co., Ltd. provides financial company. The Company provides securities brokerage services, research consulting services, investment banking and direct investment services, fixed-income services and asset management services.

ASX Ltd is a demutualized company which operates Australia's primary national stock exchange and equity derivatives market. The ASX operates markets for equities, derivatives, fixed-interest securities and capital-raising for unlisted companies using advanced computer systems for both trading and settlement.

Pershing Square Holdings Ltd is a closed-ended hedge fund vehicle incorporated in Guernsey.

Singapore Exchange Limited owns and operates Singapore's Securities and derivatives exchange and their related clearing houses.  The Company also provides ancillary securities processing and information technology services to participants in the financial sector.

Founder Securities Company Limited's major business includes securities brokerage, securities investment consulting, securities trading, financial advisory on securities investment and trading activities, proprietary trading, securities asset management, investment fund distribution, margin business, and provide intermediate agency services for Founder Futures Limited.

Daiwa Securities Group Inc. is a holding company. The Group provides a comprehensive financial services including dealing, brokerage, underwriting, and distribution of securities.  Other services are research & systems development, custody service, and asset management. Daiwa has subsidiaries in US, Europe, Asia, and Middle East.

Euronext NV is a pan-European stock exchange.  It resulted from the merger of the exchanges of Amsterdam, Brussels, Lisbon, and Paris.  Euronext is a fully integrated cross-border single currency stock, derivatives, and commodities market.


Everbright Securities Co., Ltd. provides securities brokerage, trading, custody, underwriting, asset management, and investment consulting services.

Orient Securities Company Ltd. of China (DFZQ) provides investment advisory and brokerage services. The Company maintains assets for individual and institutional investors in equity and fixed income portfolios. 

Guotai Junan Securities Co.,Ltd. provides financial services. The Company offers corporate finance, fixed income securities, asset management, risk management, and other services. Guotai Junan Securities Company serves clients throughout China.

Houlihan Lokey, Inc. operates as an investment bank. The Company offers mergers and acquisitions, financial restructuring, capital markets, strategic consulting, and financial advisory services. Houlihan Lokey serves customers worldwide.

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Houlihan Lokey (HLI US)

Last Week in Event SPACE: Afterpay, SPH, ESR Cayman, Prosus/Naspers, Kingsoft, Milton, SOHO China

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Houlihan Lokey To Take Out GCA : Light But Likely Done

Large US-based boutique IB Houlihan Lokey has offered to buy smaller Japan-listed but global boutique IB GCA Global. 57% is owned by current+former...

Travis Lundy

U.S. Equities: Still Bullish, With Reservations

And just like that, the S&P 500, Nasdaq, and the Dow have reclaimed new highs despite ongoing coronavirus concerns, as a buy the dip strategy...

Vermilion Research

U.S. Equity Weekly: Actionable Ideas in Casinos, Investment Banks

The primary trend in U.S. equity markets remains bullish, and the usual suspects continue to lead: growth (Tech and FANG), homebuilders,...

Vermilion Research

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