Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Equity Bottom-Up

<ul>
<li>Although lesser-known, this Swedish company dominates one of the most lucrative segments of the global casino industry.</li>
<li>In our view, it is probably the only investable casino company, and despite its size, still has a massive growth runway ahead.</li>
<li>Our DCF model implies a 15%-20% total return for the company's long-term shareholders.</li>
</ul>


Although lesser-known, this Swedish company dominates one of the most lucrative segments of the global casino industry.
In our view, it is probably the only investable casino company, and despite its size, still has a massive growth runway ahead.
Our DCF model implies a 15%-20% total return for the company's long-term shareholders.


Evolution Gaming: The World's Largest Casino, Which You Probably Never Heard Of

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

<p>Market conditions have started to improve, and the bottom line is that all Sectors and major indexes remain above critical supports. The absence of breakdowns continues to support our overall constructive outlook, and we are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based rally is upon us.</p>

Market conditions have started to improve, and the bottom line is that all Sectors and major indexes remain above critical supports. The absence of breakdowns continues to support our overall constructive outlook, and we are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based rally is upon us.

U.S. Equity Strategy: Conditions Improving; Watching Cyclicals, 10-Yr Yield. Buying Casinos, Semis

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> that will be effective after the close of trading on 19 March.</p><p>There are 4 additions - <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a>, <a href="https://www.smartkarma.com/entities/penn-national-gaming-inc" target="_blank" data-smartkarma-citation="entities:5588:1" rel="noopener">Penn National Gaming (PENN US)</a>, <a href="https://www.smartkarma.com/entities/generac-holdings-inc" target="_blank" data-smartkarma-citation="entities:16223:1" rel="noopener">Generac Holdings (GNRC US)</a> and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a>. To balance that out, there are 4 deletions - <a href="https://www.smartkarma.com/entities/flowserve-corp" target="_blank" data-smartkarma-citation="entities:20555:1" rel="noopener">Flowserve Corp (FLS US)</a>, <a href="https://www.smartkarma.com/entities/sl-green-realty-corp" target="_blank" data-smartkarma-citation="entities:1548:1" rel="noopener">Sl Green Realty (SLG US)</a>, <a href="https://www.smartkarma.com/entities/xerox-holdings-corp" target="_blank" data-smartkarma-citation="entities:17585:1" rel="noopener">Xerox Corp (XRX US)</a> and <a href="https://www.smartkarma.com/entities/vontier-corp" target="_blank" data-smartkarma-citation="entities:28857:1" rel="noopener">Vontier Corp (VNT US)</a>.</p><p>We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.</p><p>The biggest impact of the changes will be on <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a> where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> and the S&amp;P Mid Cap 400 indices.</p>

On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the S&amp;P 500 (SPX INDEX) that will be effective after the close of trading on 19 March.There are 4 additions - Nxp Semiconductors Nv (NXPI US), Penn National Gaming (PENN US), Generac Holdings (GNRC US) and Caesars Entertainment (CZR US). To balance that out, there are 4 deletions - Flowserve Corp (FLS US), Sl Green Realty (SLG US), Xerox Corp (XRX US) and Vontier Corp (VNT US).We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.The biggest impact of the changes will be on Nxp Semiconductors Nv (NXPI US) where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the S&amp;P 500 (SPX INDEX) and the S&amp;P Mid Cap 400 indices.

S&P500 Index Rebalance: NXPI Is the One to Watch

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>On Friday, the S&amp;P Dow Jones Global Index team <a href="https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20210312-1336360/1336360_march2021-5146-shuf-pr.pdf" target="_blank" rel="noopener">announced</a> changes to the S&amp;P500 Index. </p><div><div><div><blockquote>
<p>NEW YORK, March 12, 2021: S&amp;P Dow Jones Indices will make the following index adjustments to the S&amp;P 500, S&amp;P 100, S&amp;P MidCap 400 and S&amp;P SmallCap 600 to ensure each index is more representative of its market capitalization range. The changes will be effective prior to the open of trading on Monday, March 22, 2021 to coincide with the quarterly rebalance:</p>
<p>NXP Semiconductors NV (NASD:NXPI) will replace Flowserve Corp. (NYSE:FLS) in the S&amp;P 500, Flowserve will replace Edgewell Personal Care Co. (NYSE:EPC) in the S&amp;P MidCap 400, and Edgewell Personal Care will replace Exterran Corp. (NYSE:EXTN) in the S&amp;P SmallCap 600. Exterran is no longer representative of the small-cap market space.</p>
<p>S&amp;P MidCap 400 constituents Penn National Gaming Inc. (NASD:PENN), Generac Holdings Inc. (NYSE:GNRC) and Caesars Entertainment Inc. (NASD:CZR) will all move to the S&amp;P 500, replacing SL Green Realty Corp. (NYSE:SLG), Xerox Holdings Corp. (NYSE:XRX) and Vontier Corp (NYSE:VNT), all of which will move to the S&amp;P MidCap 400.</p>
<p>S&amp;P 500 constituents Broadcom Inc. (NASD:AVGO), T-Mobile US Inc. (NASD:TMUS) and Linde plc (NYSE:LIN) will replace Allstate Corp. (NYSE:ALL), Kinder Morgan Inc. (NYSE:KMI) and Schlumberger NV (NYSE:SLB) in the S&amp;P 100. Allstate, Kinder Morgan, and Schlumberger will remain in the S&amp;P 500.</p>
</blockquote></div></div></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/535/original/Screenshot+2021-03-15+at+9.22.00+PM.png?1615814543" class="editor-image img-responsive" data-smartkarma-image-id="194535"></figure></section><hr><p>This should lead to US$17.7-21.3bn to buy of the four names based on prices at Friday's close, and US$3.2-3.9bn to sell of the outgoing names. Some of this will be crossed off internally, but a bunch of it will have to trade on the market. </p><p>There are five trading days to get this done, and the average buy is 11-13 days of ADV. The sells are slightly higher. Quiddity estimates are below.</p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/537/original/Screenshot+2021-03-15+at+9.29.12+PM.png?1615815053" class="editor-image img-responsive" data-smartkarma-image-id="194537"></figure></section><p><a href="https://www.smartkarma.com/entities/penn-national-gaming-inc" target="_blank" data-smartkarma-citation="entities:5588:1" rel="noopener">Penn National Gaming (PENN US)</a> looks like it is the least-impacted by this move at only 4.3-5.1 days of ADV but I remind observers that passive funds will need to own the same percentage of the Voting Rights Float (i.e. if there are 100 shares out and there are 20 shares shorted, there would also be 20 shares additionally purchased on the long side, but the 97.6% float on PENN is 97.6% of 100, not of 120) for all companies in the basket. </p>
<p>PENN's impact in terms of ADV is low because average daily volume is a much higher percentage of float shares than the other companies. </p>
<p>PENN and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a> may end up seeing some non-negligible impact, and substantially higher-than-normal trading volume because of their recent history as speculative vehicles.</p>
<p>Both PENN and CZR trade at somewhat lofty multiples based on last year's EBITDA, but both get to the low to mid teens by two years from now.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/539/original/20210312+SP500+Inclusion+PENN+CompTable+4.png?1615815530" class="editor-image img-responsive" data-smartkarma-image-id="194539"></figure></section><section class="figure"><p>PENN has tracked an index (equal-weighted, daily-rebalanced) of the above-listed peers reasonably well over the past 12 months, but the 5-year log chart tells you that there have been moments of sustained underperformance. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/550/original/20210312+SP500+Inclusion+PENN+Price+1.png?1615815938" class="editor-image img-responsive" data-smartkarma-image-id="194550"></figure></section><p>It is easier to see this on a chart of the ratio, as below, which suggests that to revisit recent highs against its Peer Basket Index, the shares would have to gain a bit more than 10%.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/552/original/20210312+SP500+Inclusion+PENN+Ratio+2.png?1615816061" class="editor-image img-responsive" data-smartkarma-image-id="194552"></figure></section><p></p>
<p>Looking forward for the next few years, PENN trades at a slightly higher-than-Peer Basket average EV/EBIT ratio (using current EV and the average of FY+2 and FY+3 consensus EBIT).*</p>
<div class="content-remarks"><p>* Note that the two lines - green and light blue - represent different ways of looking at the same data. The light blue line is the average EV/EBIT ratio across the 10-name basket. The light green line is the average of the sum of the EVs and the sum of the EBITs, averaged over the two years. These two methods are shown because extreme numbers can cause dramatic changes in ratios ($50bn of EV and $100mm of EBIT is a multiple of 500. Move the EBIT to $10mm (a small move in the grand scheme of things) and the ratio moves to EV/EBIT of 5,000x which will impact a ratio of only 10-20 inputs.  </p></div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/555/original/20210312+SP500+Inclusion+PENN+EVEBIT+3.png?1615816220" class="editor-image img-responsive" data-smartkarma-image-id="194555"></figure></section><p>Is this outperformance due to improving forecasts since last summer?  Not really. Kind of middle of the pack. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/575/original/Screenshot+2021-03-15+at+10.16.39+PM.png?1615817831" class="editor-image img-responsive" data-smartkarma-image-id="194575"></figure></section><p>If one uses the S&amp;P guidance as to tracking funds and the quantity to buy using the pre-announcement price of <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a>, there should be $3.2bn of PENN to buy using Friday's closing price. I expect it is more than that.</p>
<p>The options positioning does not seem to be substantial enough to drive a short gamma squeeze but keen observers know, that can change. Existing shorts across the four names could be covered out of care, but it is not clear that will be a big driver either, though the short on PENN is reasonably substantial as a portion of the inclusion buy quantity. There will be considerable crossing within shops as funds trade out of S&amp;P Midcap 400 and into S&amp;P500.</p>
<p>All in all, there are some interesting things to look at in this event. </p>
<p>Conclusions are below the fold.</p>
<p></p></section>

On Friday, the S&amp;P Dow Jones Global Index team announced changes to the S&amp;P500 Index. 
NEW YORK, March 12, 2021: S&amp;P Dow Jones Indices will make the following index adjustments to the S&amp;P 500, S&amp;P 100, S&amp;P MidCap 400 and S&amp;P SmallCap 600 to ensure each index is more representative of its market capitalization range. The changes will be effective prior to the open of trading on Monday, March 22, 2021 to coincide with the quarterly rebalance:
NXP Semiconductors NV (NASD:NXPI) will replace Flowserve Corp. (NYSE:FLS) in the S&amp;P 500, Flowserve will replace Edgewell Personal Care Co. (NYSE:EPC) in the S&amp;P MidCap 400, and Edgewell Personal Care will replace Exterran Corp. (NYSE:EXTN) in the S&amp;P SmallCap 600. Exterran is no longer representative of the small-cap market space.
S&amp;P MidCap 400 constituents Penn National Gaming Inc. (NASD:PENN), Generac Holdings Inc. (NYSE:GNRC) and Caesars Entertainment Inc. (NASD:CZR) will all move to the S&amp;P 500, replacing SL Green Realty Corp. (NYSE:SLG), Xerox Holdings Corp. (NYSE:XRX) and Vontier Corp (NYSE:VNT), all of which will move to the S&amp;P MidCap 400.
S&amp;P 500 constituents Broadcom Inc. (NASD:AVGO), T-Mobile US Inc. (NASD:TMUS) and Linde plc (NYSE:LIN) will replace Allstate Corp. (NYSE:ALL), Kinder Morgan Inc. (NYSE:KMI) and Schlumberger NV (NYSE:SLB) in the S&amp;P 100. Allstate, Kinder Morgan, and Schlumberger will remain in the S&amp;P 500.
This should lead to US$17.7-21.3bn to buy of the four names based on prices at Friday's close, and US$3.2-3.9bn to sell of the outgoing names. Some of this will be crossed off internally, but a bunch of it will have to trade on the market. There are five trading days to get this done, and the average buy is 11-13 days of ADV. The sells are slightly higher. Quiddity estimates are below.Penn National Gaming (PENN US) looks like it is the least-impacted by this move at only 4.3-5.1 days of ADV but I remind observers that passive funds will need to own the same percentage of the Voting Rights Float (i.e. if there are 100 shares out and there are 20 shares shorted, there would also be 20 shares additionally purchased on the long side, but the 97.6% float on PENN is 97.6% of 100, not of 120) for all companies in the basket. 
PENN's impact in terms of ADV is low because average daily volume is a much higher percentage of float shares than the other companies. 
PENN and Caesars Entertainment (CZR US) may end up seeing some non-negligible impact, and substantially higher-than-normal trading volume because of their recent history as speculative vehicles.
Both PENN and CZR trade at somewhat lofty multiples based on last year's EBITDA, but both get to the low to mid teens by two years from now.
PENN has tracked an index (equal-weighted, daily-rebalanced) of the above-listed peers reasonably well over the past 12 months, but the 5-year log chart tells you that there have been moments of sustained underperformance. 
It is easier to see this on a chart of the ratio, as below, which suggests that to revisit recent highs against its Peer Basket Index, the shares would have to gain a bit more than 10%.

Looking forward for the next few years, PENN trades at a slightly higher-than-Peer Basket average EV/EBIT ratio (using current EV and the average of FY+2 and FY+3 consensus EBIT).*
* Note that the two lines - green and light blue - represent different ways of looking at the same data. The light blue line is the average EV/EBIT ratio across the 10-name basket. The light green line is the average of the sum of the EVs and the sum of the EBITs, averaged over the two years. These two methods are shown because extreme numbers can cause dramatic changes in ratios ($50bn of EV and $100mm of EBIT is a multiple of 500. Move the EBIT to $10mm (a small move in the grand scheme of things) and the ratio moves to EV/EBIT of 5,000x which will impact a ratio of only 10-20 inputs.  
Is this outperformance due to improving forecasts since last summer?  Not really. Kind of middle of the pack. 
If one uses the S&amp;P guidance as to tracking funds and the quantity to buy using the pre-announcement price of Tesla Motors (TSLA US), there should be $3.2bn of PENN to buy using Friday's closing price. I expect it is more than that.
The options positioning does not seem to be substantial enough to drive a short gamma squeeze but keen observers know, that can change. Existing shorts across the four names could be covered out of care, but it is not clear that will be a big driver either, though the short on PENN is reasonably substantial as a portion of the inclusion buy quantity. There will be considerable crossing within shops as funds trade out of S&amp;P Midcap 400 and into S&amp;P500.
All in all, there are some interesting things to look at in this event. 
Conclusions are below the fold.


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.

<p>Last week, New York Governor pointed towards legalizing online gambling to try to plug the budget gaps that COVID has blown open. He wants to raise $500M in revenues annually. We don't think he will get there, but we do think NY is a $700M TAM.</p><p>At $52, is it time to re-engage on Draft Kings even after an 11% rally?</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>

Last week, New York Governor pointed towards legalizing online gambling to try to plug the budget gaps that COVID has blown open. He wants to raise $500M in revenues annually. We don't think he will get there, but we do think NY is a $700M TAM.At $52, is it time to re-engage on Draft Kings even after an 11% rally?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.

NY State To Legalize Gambling, Double Down on DraftKings?

United States

Penn National Gaming, Inc. owns and operates Charles Town Races in West Virginia which features slot machines, casinos in Mississippi, and a riverboat gaming facility in Louisiana.  The Company also owns racetracks and off-track wagering facilities in Pennsylvania, as well as manages a gaming facility in the Province of Ontario, Canada.

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Penn National Gaming (PENN US)

Evolution Gaming: The World's Largest Casino, Which You Probably Never Heard Of

Who is the world's largest casino? Those who try to look for the answer in Las Vegas or Macau should check out this Swedish company that dominates...

Steven Chen

U.S. Equity Strategy: Conditions Improving; Watching Cyclicals, 10-Yr Yield. Buying Casinos, Semis

We are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based...

Vermilion Research

S&P500 Index Rebalance: NXPI Is the One to Watch

There are 4 changes to the S&P500 with NXP Semiconductors the largest beneficiary of the changes. Estimated one-way turnover is US$22.4bn and there...

Brian Freitas

S&P500 March Rebalance: $18-21bn 1-Way

The S&P 500 March 2021 rebalance sees $18-21bn to buy and 20% of that to sell = a $15-20bn funding sell on Friday's close. A few hours in, I see...

Travis Lundy

NY State To Legalize Gambling, Double Down on DraftKings?

After New York's Governor signaled he would legalize gambling, we revisit our previous bullish thesis on DraftKings to see if now is the time to re...

Aaron Gabin

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