European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

International Consolidated Airlines Group / Event-Driven

International Consolidated Airlines Group

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.
<ul>
<li>EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.</li>
</ul>
The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.

EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.

The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

Credit

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

Founder, Riedel Research

David Riedel

Founder

Independent equity research on GEM Markets

Riedel Research

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Riedel provides research coverage of companies across the full range of market capitalization. Experienced research professionals in each market develop company reports and analysis as well as earnings models and projections. Ratings are Buy, Hold and Sell with a focus on compelling investment ideas - both long and short. Downloadable, dynamic earnings models are built to facilitate sensitivity analysis.

Please feel free to contact us for complimentary access to our written research.  We want to show you that our unique research flow can add value and help develop a long-term, high value-add relationship.

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Thematic (Sector/Industry)

<ul>
<li>Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.</li>
<li>Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.</li>
<li>South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)</li>
<li>India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.</li>
</ul>


Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.


RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

<ul>
<li>The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets.</li>
<li>The idea that the world’s fifth largest economy will abruptly crash out of the world’s largest economy (the EU bloc is larger than the US) and not roil markets is naive.</li>
<li>UK/EU trading relationship is very significant with 44% of UK exports and 53% of UK imports going to/coming form EU.</li>
<li>The market needs to consider the impact of three possible outcomes: Negotiated Departure Approved by UK Parliament, Crash Out with No Deal, Delay.</li>
<li>We believe that any three of these outcomes are a negative for markets with the worst-case being a no-deal crash out.</li>
<li>Specific names to avoid include: International Consolidated Airlines Group SA (IAG), Easyjet (EZJ), Thomas Cook (TCG), Xpo Logistics Europe SA (XPOP) and H &amp; M Hennes &amp; Mauritz AB (HM-B).</li>
</ul>


The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets.
The idea that the world’s fifth largest economy will abruptly crash out of the world’s largest economy (the EU bloc is larger than the US) and not roil markets is naive.
UK/EU trading relationship is very significant with 44% of UK exports and 53% of UK imports going to/coming form EU.
The market needs to consider the impact of three possible outcomes: Negotiated Departure Approved by UK Parliament, Crash Out with No Deal, Delay.
We believe that any three of these outcomes are a negative for markets with the worst-case being a no-deal crash out.
Specific names to avoid include: International Consolidated Airlines Group SA (IAG), Easyjet (EZJ), Thomas Cook (TCG), Xpo Logistics Europe SA (XPOP) and H &amp; M Hennes &amp; Mauritz AB (HM-B).


BREXIT Risk Not Priced In - Watch for Volatility and Weakness - Look to SARS 2003 for Parallels

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

MSCI Emerging Markets Index / Technical Analysis

Global markets have deteriorated considerably over the past couple weeks. The MSCI EM index has decisively broken down below the 60,000 major support level we identified as support, and the MSCI ACWI ETF has broken below its 200-day MA, leading us to believe additional consolidation is likely.

Global markets have deteriorated considerably over the past couple weeks. The MSCI EM index has decisively broken down below the 60,000 major support level we identified as support, and the MSCI ACWI ETF has broken below its 200-day MA, leading us to believe additional consolidation is likely. 

EM and ACWI Showing Decisive Breakdowns - Metals & Miners Still Attractive

United Kingdom

International Consolidated Airlines Group S.A. provides transportation services. The Company offers international and domestic air passenger and cargo transportation services. International Consolidated Airlines Group serves customers worldwide.

International Consolidated Airlines Group (IAG LN)

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International Consolidated Airlines Group (IAG LN)

IAG's Jumbo Rights Issue Takes Off

Largely expected, no hit 0.8% less

Jesus Rodriguez Aguilar

Spanish Issuers' Credit Opportunities

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing...

Jesus Rodriguez Aguilar

RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue. Singapore: MAS...

David Riedel

BREXIT Risk Not Priced In - Watch for Volatility and Weakness - Look to SARS 2003 for Parallels

The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets. The idea that the world’s fifth...

David Riedel

EM and ACWI Showing Decisive Breakdowns - Metals & Miners Still Attractive

Global markets have deteriorated considerably over the past couple weeks. The MSCI EM index has decisively broken down below the 60,000 major...

Vermilion Research

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