Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>S&amp;P Dow Jones Indices will announce changes to the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> as part of the December index review on 11 December and the changes will be effective after the close of trading on 18 December.</p>
<p>Today is the data cutoff to determine the list of inclusions and exclusions.</p>
<p>We see 5 potential inclusions in the December review: <a href="https://www.smartkarma.com/entities/reece-ltd" target="_blank" data-smartkarma-citation="entities:3186:1" rel="noopener">Reece Ltd (REH AU)</a>, <a href="https://www.smartkarma.com/entities/kogan-com-ltd" target="_blank" data-smartkarma-citation="entities:23575:1" rel="noopener">Kogan.com (KGN AU)</a>, <a href="https://www.smartkarma.com/entities/tyro-payments-ltd" target="_blank" data-smartkarma-citation="entities:28393:1" rel="noopener">Tyro Payments (TYR AU)</a>, <a href="https://www.smartkarma.com/entities/codan-ltd-australia" target="_blank" data-smartkarma-citation="entities:6189:1" rel="noopener">Codan Ltd (CDA AU)</a> and <a href="https://www.smartkarma.com/entities/de-grey-mining-ltd" target="_blank" data-smartkarma-citation="entities:6192:1" rel="noopener">De Grey Mining (DEG AU)</a>.</p>
<p>We see 6 potential inclusions in the December review: <a href="https://www.smartkarma.com/entities/cooper-energy-ltd" target="_blank" data-smartkarma-citation="entities:14286:1" rel="noopener">Cooper Energy (COE AU)</a>, <a href="https://www.smartkarma.com/entities/western-areas-ltd" target="_blank" data-smartkarma-citation="entities:15497:1" rel="noopener">Western Areas (WSA AU)</a>, <a href="https://www.smartkarma.com/entities/service-stream-ltd" target="_blank" data-smartkarma-citation="entities:18493:1" rel="noopener">Service Stream (SSM AU)</a>, <a href="https://www.smartkarma.com/entities/gwa-group-ltd" target="_blank" data-smartkarma-citation="entities:663:1" rel="noopener">Gwa Group Ltd (GWA AU)</a>, <a href="https://www.smartkarma.com/entities/avita-medical-ltd" target="_blank" data-smartkarma-citation="entities:14257:1" rel="noopener">Avita Medical (AVH AU)</a> and <a href="https://www.smartkarma.com/entities/unibail-rodamco-westfield" target="_blank" data-smartkarma-citation="entities:27181:1" rel="noopener">Unibail-Rodamco-Westfield (URW AU)</a>. <a href="https://www.smartkarma.com/entities/tassal-group-ltd" target="_blank" data-smartkarma-citation="entities:16234:1" rel="noopener">Tassal (TGR AU)</a> is ranked very close to <a href="https://www.smartkarma.com/entities/unibail-rodamco-westfield" target="_blank" data-smartkarma-citation="entities:27181:1" rel="noopener">Unibail-Rodamco-Westfield (URW AU)</a> and could be an alternate delete name.</p>
<p>There are more deletes than adds since the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> has 201 constituents at the moment following <a href="https://www.smartkarma.com/entities/deterra-royalties-ltd" target="_blank" data-smartkarma-citation="entities:30851:1" rel="noopener">Deterra Royalties Ltd (DRR AU)</a>'s spin-off from <a href="https://www.smartkarma.com/entities/iluka-resources-ltd" target="_blank" data-smartkarma-citation="entities:10105:1" rel="noopener">Iluka Resources (ILU AU)</a>.</p>
<p>The expected inclusions have underperformed the expected exclusions significantly over the last few weeks on the momentum unwind and switch to value stocks. There are a few expected adds and deletes with over 2 days of ADV to trade and they could outperform from here to implementation date.</p>

S&amp;P Dow Jones Indices will announce changes to the S&amp;P/ASX 200 (AS51 INDEX) as part of the December index review on 11 December and the changes will be effective after the close of trading on 18 December.
Today is the data cutoff to determine the list of inclusions and exclusions.
We see 5 potential inclusions in the December review: Reece Ltd (REH AU), Kogan.com (KGN AU), Tyro Payments (TYR AU), Codan Ltd (CDA AU) and De Grey Mining (DEG AU).
We see 6 potential inclusions in the December review: Cooper Energy (COE AU), Western Areas (WSA AU), Service Stream (SSM AU), Gwa Group Ltd (GWA AU), Avita Medical (AVH AU) and Unibail-Rodamco-Westfield (URW AU). Tassal (TGR AU) is ranked very close to Unibail-Rodamco-Westfield (URW AU) and could be an alternate delete name.
There are more deletes than adds since the S&amp;P/ASX 200 (AS51 INDEX) has 201 constituents at the moment following Deterra Royalties Ltd (DRR AU)'s spin-off from Iluka Resources (ILU AU).
The expected inclusions have underperformed the expected exclusions significantly over the last few weeks on the momentum unwind and switch to value stocks. There are a few expected adds and deletes with over 2 days of ADV to trade and they could outperform from here to implementation date.

ASX200 Index Rebalance Preview: Expected Inclusions Underperforming as Momentum Unwinds

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

<div class="content-highlight"><h2>Undervalued Iluka to benefit from industry supply challenges and sustained favourable prices.</h2></div><hr><p><a href="https://www.smartkarma.com/entities/10105" target="_blank" data-smartkarma-citation="entities:10105:1">Iluka Resources (ILU AU)</a>'s share price is down almost 30% since May 2018 highs above AUD 12 per share. The sell-off reflects concerns that prices of zircon and titanium dioxide feedstocks will decline and came despite a modest rise in the S&amp;P/ASX 200 Resources index. We generally see global metals and mining firms as overvalued, but not Iluka. The market is too pessimistic on the outlook for prices. Demand growth for zircon and titanium dioxide feedstocks is only likely to be steady, but supply constraints underpin our optimism. Producing mines are depleting and grades are in decline. Also, the bench of replacement deposits are generally of lower quality and prices will need to remain favourable to incentivise supply.</p><p>Cost increases and disruptions at Sierra Rutile also weigh on investor sentiment and see concerns Iluka's planned expansions in Sierra Leone will destroy value, but Iluka has a strong operational track record. It's also unreasonable to extrapolate recent issues at an ageing mine, now finished, to new capacity being built. With the shares at more than a 20% discount to our AUD 11 fair value estimate, we think shareholders are being compensated for the risk.</p><hr><h2>Key Takeaways</h2><ul>
<li>The zircon and rutile price recovery lagged other commodities and has further to go. Both are late-cycle commodities. Zircon is primarily used for tiles, ceramics, and porcelainware. About 90% of titanium feedstocks are used to make pigments for paint, plastics, and paper.</li>
<li>The market is too pessimistic on the outlook for zircon and rutile prices. Depletion of higher-grade orebodies and a weaker bench of replacements mean prices should sustain around current levels.</li>
<li>Industry dynamics are favourable and likely to support attractive returns. The three largest producers of zircon and high grade titanium dioxide feedstocks account for about 70% of supply global.</li>
<li>Iluka's medium-term developments should underpin modest volume growth. The firm's inventory of undeveloped projects and execution record means it's unlikely production will fall longer-term. The market underestimates the value of the Mining Area C iron ore royalty. It brings a stable and growing source of cash flow with no costs. <a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a> is nearly tripling output. This low-risk cash flow is worth around AUD 3 per share, more than one-quarter of our AUD 11 per share fair value estimate.</li>
</ul>

Undervalued Iluka to benefit from industry supply challenges and sustained favourable prices.Iluka Resources (ILU AU)'s share price is down almost 30% since May 2018 highs above AUD 12 per share. The sell-off reflects concerns that prices of zircon and titanium dioxide feedstocks will decline and came despite a modest rise in the S&amp;P/ASX 200 Resources index. We generally see global metals and mining firms as overvalued, but not Iluka. The market is too pessimistic on the outlook for prices. Demand growth for zircon and titanium dioxide feedstocks is only likely to be steady, but supply constraints underpin our optimism. Producing mines are depleting and grades are in decline. Also, the bench of replacement deposits are generally of lower quality and prices will need to remain favourable to incentivise supply.Cost increases and disruptions at Sierra Rutile also weigh on investor sentiment and see concerns Iluka's planned expansions in Sierra Leone will destroy value, but Iluka has a strong operational track record. It's also unreasonable to extrapolate recent issues at an ageing mine, now finished, to new capacity being built. With the shares at more than a 20% discount to our AUD 11 fair value estimate, we think shareholders are being compensated for the risk.Key Takeaways
The zircon and rutile price recovery lagged other commodities and has further to go. Both are late-cycle commodities. Zircon is primarily used for tiles, ceramics, and porcelainware. About 90% of titanium feedstocks are used to make pigments for paint, plastics, and paper.
The market is too pessimistic on the outlook for zircon and rutile prices. Depletion of higher-grade orebodies and a weaker bench of replacements mean prices should sustain around current levels.
Industry dynamics are favourable and likely to support attractive returns. The three largest producers of zircon and high grade titanium dioxide feedstocks account for about 70% of supply global.
Iluka's medium-term developments should underpin modest volume growth. The firm's inventory of undeveloped projects and execution record means it's unlikely production will fall longer-term. The market underestimates the value of the Mining Area C iron ore royalty. It brings a stable and growing source of cash flow with no costs. Bhp Billiton (BHP AU) is nearly tripling output. This low-risk cash flow is worth around AUD 3 per share, more than one-quarter of our AUD 11 per share fair value estimate.


Tight Supply Underpins Positive Outlook for Iluka Resources

Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Thematic (Sector/Industry)

<h2>Introducing the Bucephalus Operating Return on Utilised Capital</h2><p>We created BORUC, to reveal the true operating performance of businesses because ‘traditional’ measures (ROE, ROCE etc.) are easy to manipulate. Struggling companies often resort to creative accounting to obscure their problems and hide their decline. This alters the numerator in ROE, ROCE etc. and disguises their investment and capex cycles.</p>

Introducing the Bucephalus Operating Return on Utilised CapitalWe created BORUC, to reveal the true operating performance of businesses because ‘traditional’ measures (ROE, ROCE etc.) are easy to manipulate. Struggling companies often resort to creative accounting to obscure their problems and hide their decline. This alters the numerator in ROE, ROCE etc. and disguises their investment and capex cycles.

<h2><strong>Introducing the Bucephalus Operating Return on Utilised Capital</strong></h2><p>We created BORUC, the Bucephalus Operating Return on Utilised Capital, to reveal the true operating performance of businesses because ‘traditional’ measures (ROE, ROCE etc.) are easy to manipulate. Struggling companies often resort to creative accounting to obscure their problems and hide their decline. This alters the numerator in ROE, ROCE etc. and disguises their investment and capex cycles.</p>

Introducing the Bucephalus Operating Return on Utilised CapitalWe created BORUC, the Bucephalus Operating Return on Utilised Capital, to reveal the true operating performance of businesses because ‘traditional’ measures (ROE, ROCE etc.) are easy to manipulate. Struggling companies often resort to creative accounting to obscure their problems and hide their decline. This alters the numerator in ROE, ROCE etc. and disguises their investment and capex cycles.

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

<p><a href="https://www.smartkarma.com/entities/16331" target="_blank" data-smartkarma-citation="entities:16331:1">Alliance Mineral Assets (AMS SP)</a> is a dual-listed (SGX/ASX) lithium producer in Australia. Last year the company saw its share price fall by 61% from 0.45 SGD (January 2018) to 0.17 SGD recently. </p><p><strong>Investing in lithium is all about the adoption of Electrical Vehicles (EV) going forward.</strong> While <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> has been the poster child of the EV sector thus far, the next 24 months will see an onslaught of new arrivals by various brands which should expand the EV market substantially.</p><p>The success of the EV segment largely depends on the improvements in battery technology and consumer choice. We reference from the excellent <strong>SmartKarma Originals</strong> piece <a href="https://www.smartkarma.com/insights/battery-technology-the-key-to-an-electric-vehicle-future" target="_blank" data-smartkarma-citation="insights:29025">Battery Technology- The Key To An Electric Vehicle Future</a> published earlier in April <strong>to conclude that lithium is likely to remain a key source for EV battery makers and Alliance Mineral's premium quality lithium will be in high demand.</strong> Should the market continue to ignore the asset value of Alliance Mineral it will likely become an attractive M&amp;A candidate for a larger lithium producer.</p><p>We estimate the average cost of most of the current shareholder register is 0.30+ SGD hence the pressure on management to create lasting value is intense. With the Bald Hill mine ramping up in FY20 (June Year-End) and FY21, offtake partly secured and more agreements in the offing, shares are only trading at 2x EV/EBITDA. Its closest competitors <a href="https://www.smartkarma.com/entities/13914" target="_blank" data-smartkarma-citation="entities:13914:1">Galaxy Resources (GXY AU) and </a><a href="https://www.smartkarma.com/entities/7460" target="_blank" data-smartkarma-citation="entities:7460:1">Pilbara Minerals (PLS AU)</a><a href="https://www.smartkarma.com/entities/13914" target="_blank" data-smartkarma-citation="entities:13914:1"></a> are both trading at 8x EV/EBITDA.</p><p><strong>Our estimate of Fair Value is 0.35 SGD or 106% upside from the current share price based on an extremely conservative 4x 2020 EV/EBITDA multiple.</strong></p>

Alliance Mineral Assets (AMS SP) is a dual-listed (SGX/ASX) lithium producer in Australia. Last year the company saw its share price fall by 61% from 0.45 SGD (January 2018) to 0.17 SGD recently. Investing in lithium is all about the adoption of Electrical Vehicles (EV) going forward. While Tesla Motors (TSLA US) has been the poster child of the EV sector thus far, the next 24 months will see an onslaught of new arrivals by various brands which should expand the EV market substantially.The success of the EV segment largely depends on the improvements in battery technology and consumer choice. We reference from the excellent SmartKarma Originals piece Battery Technology- The Key To An Electric Vehicle Future published earlier in April to conclude that lithium is likely to remain a key source for EV battery makers and Alliance Mineral's premium quality lithium will be in high demand. Should the market continue to ignore the asset value of Alliance Mineral it will likely become an attractive M&amp;A candidate for a larger lithium producer.We estimate the average cost of most of the current shareholder register is 0.30+ SGD hence the pressure on management to create lasting value is intense. With the Bald Hill mine ramping up in FY20 (June Year-End) and FY21, offtake partly secured and more agreements in the offing, shares are only trading at 2x EV/EBITDA. Its closest competitors Galaxy Resources (GXY AU) and Pilbara Minerals (PLS AU) are both trading at 8x EV/EBITDA.Our estimate of Fair Value is 0.35 SGD or 106% upside from the current share price based on an extremely conservative 4x 2020 EV/EBITDA multiple.

Discover Singapore: Alliance Mineral; Supplies High Quality Lithium to EV; Buy at 2x 2020 EV/EBITDA

Australia

Iluka Resources Limited is involved in the mining, concentration and separation of mineral sands and titanium minerals. The Company also produces ilmenite and other titani-ferrous concentrates, zircon, and synthetic rutile along with the exploration of coal. Iluka's products are exported throughout the world.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Iluka Resources (ILU AU)

ASX200 Index Rebalance Preview: Expected Inclusions Underperforming as Momentum Unwinds

There could be 5 additions and 6 deletions at the upcoming ASX200 rebalance. Changes will be announced on 11 Dec and implemented at the close on 18...

Brian Freitas

Tight Supply Underpins Positive Outlook for Iluka Resources

Undervalued Iluka to benefit from industry supply challenges and sustained favourable prices.Iluka Resources (ILU AU)'s share price is down almost...

Morningstar, Inc.

Using BORUC to Pick Asian Growth Stocks

Introducing the Bucephalus Operating Return on Utilised CapitalWe created BORUC, to reveal the true operating performance of businesses because...

Bucephalus Research Partnership

Using BORUC to Pick Asian Value Stocks

Introducing the Bucephalus Operating Return on Utilised CapitalWe created BORUC, the Bucephalus Operating Return on Utilised Capital, to reveal the...

Bucephalus Research Partnership

Discover Singapore: Alliance Mineral; Supplies High Quality Lithium to EV; Buy at 2x 2020 EV/EBITDA

Alliance Mineral Assets (AMS SP) is a dual-listed (SGX/ASX) lithium producer in Australia. Last year the company saw its share price fall by 61%...

Nicolas Van Broekhoven

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)