European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 14 August, <a href="https://www.smartkarma.com/entities/faurecia" target="_blank" data-smartkarma-citation="entities:21451:1" rel="noopener">Faurecia (EO FP)</a> signed an agreement to acquire a 60% stake in <a href="https://www.smartkarma.com/entities/hella-gmbh-co-kgaa" target="_blank" data-smartkarma-citation="entities:21650:1" rel="noopener">Hella GmbH &amp; Co KGaA (HLE GR)</a> from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.
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Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.
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The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.
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Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.
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The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.
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I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.
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Completion is expected in early 2022.
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On 14 August, Faurecia (EO FP) signed an agreement to acquire a 60% stake in Hella GmbH &amp; Co KGaA (HLE GR) from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.

Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.

The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.


Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.

The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.

I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.

Completion is expected in early 2022.


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

Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps tell a different story and are a great source of investment ideas within the EAFE region. In today’s report we use a bottom-up approach to highlight actionable charts, sorted by market cap (all buys at current levels).

Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps tell a different story and are a great source of investment ideas within the EAFE region. In today’s report we use a bottom-up approach to highlight actionable charts, sorted by market cap (all buys at current levels).

Msci Ac Asia Pacific Index / Technical Analysis

Global equities continue to stabilize, with the MSCI ACWI’s 50-day moving average acting like a magnet as prices have oscillated above and below it. More importantly, support levels have held and long-term uptrends are intact. While we expect to see continued heightened volatility and consolidation, our long-term outlook for global equities remains bullish.  In today’s report we put a spotlight on Japan, broad Europe, Germany, and the UK, where small-caps are outperforming large-caps.

Global equities continue to stabilize, with the MSCI ACWI’s 50-day moving average acting like a magnet as prices have oscillated above and below it. More importantly, support levels have held and long-term uptrends are intact. While we expect to see continued heightened volatility and consolidation, our long-term outlook for global equities remains bullish.  In today’s report we put a spotlight on Japan, broad Europe, Germany, and the UK, where small-caps are outperforming large-caps.

Pullback opportunities are currently in limited supply. While most markets are advancing to 12+ month highs, including the U.S., Japan, and EM, Europe is still trading at its 200-day MA, as a result of its recent four-month decline. This presents an attractive entry point, especially for small-cap investors.  In this report we highlight opportunities in: steel companies, trucks/construction/farm machinery, auto parts manufacturers and energy companies.

Pullback opportunities are currently in limited supply. While most markets are advancing to 12+ month highs, including the U.S., Japan, and EM, Europe is still trading at its 200-day MA, as a result of its recent four-month decline. This presents an attractive entry point, especially for small-cap investors.  In this report we highlight opportunities in: steel companies, trucks/construction/farm machinery, auto parts manufacturers and energy companies.

Pullback Opportunities in European Small Caps

France

Plastic Omnium SA provides solutions tailored to meet the needs of worldwide carmakers and community residents.  The Company's products include automotive body modules and fuel systems as well as waste containerization products and services.  Plastic Omnium focuses on innovations which reduce car weight and fuel consumption.

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Plastic Omnium Sa (POM FP)

Faurecia/Hella

The deal has a high probability to close, due to the premium offered and friendly approach, after a competitive bidding process. HLA GR trades...

Jesus Rodriguez Aguilar

Focus on Outperforming EAFE SMID-Caps

Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps...

Vermilion Research

Global Equity Strategy

Global equities continue to stabilize, with the MSCI ACWI’s 50-day moving average acting like a magnet as prices have oscillated above and below...

Vermilion Research

Pullback Opportunities in European Small Caps

Pullback opportunities are currently in limited supply. While most markets are advancing to 12+ month highs, including the U.S., Japan, and EM,...

Vermilion Research

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