Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Index Rebalance

<p>It's time for the S&amp;P500 Index Rebalance. Friday night on 3 Sep ahead of the long weekend we got the <a href="https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20210903-1443045/1443045_sept2021-546-shuf-rebal.pdf" target="_blank" rel="noopener">announcement</a> from S&amp;P Dow Jones Indices. </p><p><strong>This quarter we have 3 Additions...</strong></p><ul>
<li>
<a href="https://www.smartkarma.com/entities/match-group-inc" target="_blank" data-smartkarma-citation="entities:25903:1" rel="noopener">Match Group Inc (MTCH US)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/ceridian-hcm-holding-inc" target="_blank" data-smartkarma-citation="entities:27122:1" rel="noopener">Ceridian HCM Holding Inc (CDAY US)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/brown-brown-inc" target="_blank" data-smartkarma-citation="entities:19532:1" rel="noopener">Brown &amp; Brown (BRO US)</a> </li>
</ul><p><em>Combined, the three ADDITIONS had US$6.4bn of revenue in the last 12 months, US$1.6bn of OP in that time, and they are forecast to have OP of $1.97bn in the next 12 months.</em></p><p><strong>and 3 Deletions... </strong></p><ul>
<li>
<a href="https://www.smartkarma.com/entities/perrigo-co-plc" target="_blank" data-smartkarma-citation="entities:869:1" rel="noopener">Perrigo Co Plc (PRGO US)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/unum-group" target="_blank" data-smartkarma-citation="entities:2521:1" rel="noopener">Unum Group (UNM US)</a> </li>
<li><a href="https://www.smartkarma.com/entities/national-oilwell-varco-inc" target="_blank" data-smartkarma-citation="entities:3046:1" rel="noopener">National Oilwell Varco (NOV US)</a></li>
</ul><p><em>Combined, the three DELETIONS had US$21.97bn of revenue in the last 12 months, US$1.1bn of OP in that time, and they are forecast to have $2.13bn of OP in the next 12 months.</em></p><div class="content-highlight">
<p>With 3+x the revenue and a combined OP forecast 8% higher than the ADDITIONS in the next 12 months, these three DELETIONS have a combined market cap of US$16bn as of Friday's close against the combined market cap of the ADDITIONS which are at US$75bn.</p>
<p>That may not make much sense but <em>most</em> major indices are like that - they buy what goes up, after it has gone up, and they sell what underperforms, after it has underperformed. </p>
</div><p>While these names are not really a surprise, they may prove interesting.</p><p>Much more analysis below the fold. </p>

It's time for the S&amp;P500 Index Rebalance. Friday night on 3 Sep ahead of the long weekend we got the announcement from S&amp;P Dow Jones Indices. This quarter we have 3 Additions...

Match Group Inc (MTCH US) 

Ceridian HCM Holding Inc (CDAY US) 

Brown &amp; Brown (BRO US) 
Combined, the three ADDITIONS had US$6.4bn of revenue in the last 12 months, US$1.6bn of OP in that time, and they are forecast to have OP of $1.97bn in the next 12 months.and 3 Deletions... 

Perrigo Co Plc (PRGO US) 

Unum Group (UNM US) 
National Oilwell Varco (NOV US)
Combined, the three DELETIONS had US$21.97bn of revenue in the last 12 months, US$1.1bn of OP in that time, and they are forecast to have $2.13bn of OP in the next 12 months.
With 3+x the revenue and a combined OP forecast 8% higher than the ADDITIONS in the next 12 months, these three DELETIONS have a combined market cap of US$16bn as of Friday's close against the combined market cap of the ADDITIONS which are at US$75bn.
That may not make much sense but most major indices are like that - they buy what goes up, after it has gone up, and they sell what underperforms, after it has underperformed. 
While these names are not really a surprise, they may prove interesting.Much more analysis below the fold. 

S&P500 September 2021 Rebalance:  3 OUT, 3 IN - The Deletions May Be More Interesting

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<div><p>Roblox got sued...thats great news...to us. Says the platform's power is growing. Gamestop intriguing and IAC being IAC. </p></div><div><div><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.  </p></div></div></div>

Roblox got sued...thats great news...to us. Says the platform's power is growing. Gamestop intriguing and IAC being IAC. Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.  

TMT Weekly:  3 Things that Stood Out The Week of 6/11/​​​​​​2021

We aggregate key quotes from earnings, The Transcript

The Transcript

We aggregate key quotes from earnings

Aggregate Key Quotes from Earnings

Thematic (Sector/Industry)

<p>The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of the hardest-hit industries' activity is beginning to tick back up above 2019 levels. Along with that boom, there are clear signs of inflation and concerns about overheating. Even Janet Yellen seemed concerned for a few hours last week.</p>

The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of the hardest-hit industries' activity is beginning to tick back up above 2019 levels. Along with that boom, there are clear signs of inflation and concerns about overheating. Even Janet Yellen seemed concerned for a few hours last week.

<p>The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

The 2Q21 guidance is overly conservative…growth inline with 1Q21 despite a far easier comp (500bps revenue growth decel…17% comp in Q1 vs. 12% in Q2) and an EBITDA guidance calling for a 300bps EBITDA margin contraction…which seems massively unlikely given all the ARPU supportive commentary. Management is being cautious to set a low bar given the huge disruptions currently in India, Latin America , and Japan, its key global growth markets. Keep the eye on the ball… Match is still driven by the biggest US urban centers…and these markets are reopening fastest. We’ve said the past two quarters that Match is rarity in midcap internet properties – a wildly profitable platform quasi-monopolist which trades for a rightfully high EBITDA multiple and offers few entry points – much like Adobe in software. The fact that the company’s EV/EBITDA multiple is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive acceleration in the business means Match is really much cheaper than it appears and investors have a great entry point.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Match 1Q21 Earnings: Looking for an Opening

<p>Post 3Q20, we closed out our note saying, “We think COVID will result in more headwinds then tailwinds, which will provide a headwind to guidance, and what we think will be an entry point come February when 2021 guidance is given. By then we will be 3 months closer to vaccines and 3 months closer to last years’ Q2 which was horrendous due to the initial restrictions and gives a great setup for an explosive 2Q21 quarter.”</p><p>Match  pulled back 8% on earnings and is down 11% in two weeks. At 36x forward EV/EBITDA, we are at the same valuation Match was after 2Q and 3Q…except we are now one quarter away from entering a period of accelerating EBITDA growth. Guidance does not contemplate a full return to “normal” by the back half of 2021…which means guidance is likely too conservative. Entry points on one of the great business models in TMT are few and far between. Its time to buy Match.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Post 3Q20, we closed out our note saying, “We think COVID will result in more headwinds then tailwinds, which will provide a headwind to guidance, and what we think will be an entry point come February when 2021 guidance is given. By then we will be 3 months closer to vaccines and 3 months closer to last years’ Q2 which was horrendous due to the initial restrictions and gives a great setup for an explosive 2Q21 quarter.”Match  pulled back 8% on earnings and is down 11% in two weeks. At 36x forward EV/EBITDA, we are at the same valuation Match was after 2Q and 3Q…except we are now one quarter away from entering a period of accelerating EBITDA growth. Guidance does not contemplate a full return to “normal” by the back half of 2021…which means guidance is likely too conservative. Entry points on one of the great business models in TMT are few and far between. Its time to buy Match.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

United States

IAC Inc operates as a holding company. The Company, through its subsidiaries, provides media and Internet services. IAC serves customers worldwide.

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IAC (IAC US)

S&P500 September 2021 Rebalance: 3 OUT, 3 IN - The Deletions May Be More Interesting

The S&P500 Quarterly Review is here. 3 in and 3 out. $14bn a side as of now. I expect the DELETIONS are more interesting though the headlines will...

Travis Lundy

TMT Weekly: 3 Things that Stood Out The Week of 6/11/2021

Three items that stood out last week to us in TMT...the most interesting was a lawsuit by music publishers against Roblox, signaling the importance...

Aaron Gabin

The Transcript 05.10.21: Pent-up Demand

The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of...

The Transcript

Match 1Q21 Earnings: Looking for an Opening

Match's EV/EBITDA is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive...

Aaron Gabin

Match 4Q20 Earnings: Hook It Up

Match has sold off on 4Q20 earnings based on overly conservative 2021 guidance. We would be buyers on this selloff as 2021 sets up for a strong...

Aaron Gabin

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S&P500 September 2021 Rebalance: 3 OUT, 3 IN - The Deletions May Be More Interesting

The S&P500 Quarterly Review is here. 3 in and 3 out. $14bn a side as of now. I expect the DELETIONS are more interesting though the headlines will...

Travis Lundy

TMT Weekly: 3 Things that Stood Out The Week of 6/11/​​​​​​2021

Three items that stood out last week to us in TMT...the most interesting was a lawsuit by music publishers against Roblox, signaling the importance...

Aaron Gabin

The Transcript 05.10.21: Pent-up Demand

The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of...

The Transcript

Match 1Q21 Earnings: Looking for an Opening

Match's EV/EBITDA is lower today (36x) then it was 6 months ago (42x) and we are 6 months closer to not just a normalization, but likely massive...

Aaron Gabin

Match 4Q20 Earnings: Hook It Up

Match has sold off on 4Q20 earnings based on overly conservative 2021 guidance. We would be buyers on this selloff as 2021 sets up for a strong...

Aaron Gabin

TMT Weekly: 3 Things that Stood Out The Week of 6/11/2021