European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<h3>Trends</h3>
</div>
<div>
<p>There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.</p>
</div>
<div>
<h3>Recommended trades</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener"></a>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. </p>
</li>
<li>
<p>A 35.9% discount of <a href="https://www.smartkarma.com/entities/danieli-c-officine-meccanich" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C Officine Meccanich (DAN IM)</a> savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.</p>
</li>
<li>
<p>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.</p>
</li>
<li>
<div>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.</p>
</div>
</li>
</ul>
<p>Please read on for table and charts.</p>
</div>


Trends


There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.


Recommended trades





Bayerische Motoren Werke AG (BMW GR) : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR) , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. 


A 35.9% discount of Danieli &amp; C Officine Meccanich (DAN IM) savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.


Grifols SA (GRF SM) B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.


The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.



The discount in Schroders PLC (SDR LN) is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.



Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: October Report

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>While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act well and that are offering fantastic entry points at current levels. <strong>Health Care </strong>and <strong>Technology </strong>remain our two favorite global Sectors, and they are outperforming across all major markets including the US, Europe, Japan, and China. Remain overweight/add exposure. <strong>Consumer Staples </strong>is another leadership Sector, particularly in the Asia/Pacific region. Lastly, we are also continuing to expand our recommendations to include <strong>bottom-up ideas within several other Sectors </strong>as the market goes through a bottoming process.</p>

While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act well and that are offering fantastic entry points at current levels. Health Care and Technology remain our two favorite global Sectors, and they are outperforming across all major markets including the US, Europe, Japan, and China. Remain overweight/add exposure. Consumer Staples is another leadership Sector, particularly in the Asia/Pacific region. Lastly, we are also continuing to expand our recommendations to include bottom-up ideas within several other Sectors as the market goes through a bottoming process.

<p style="text-align: justify;">The global rally appears to be losing steam as the bearish rising wedge patterns we highlighted last week in the MSCI ACWI, ACWI ex-US, EM, and EAFE indexes ended up breaking down. Additionally, the aforementioned indexes and major indexes in Europe, Japan, and Hong Kong have been unable to break above longer-term resistance. While we believe global equities remain vulnerable to a pullback, some near-term consolidation is another possibility. For now we believe some consolidation makes sense as we remain in a sort of wait-and-see period as it relates to what will happen as countries and states aim to re-open.</p>

The global rally appears to be losing steam as the bearish rising wedge patterns we highlighted last week in the MSCI ACWI, ACWI ex-US, EM, and EAFE indexes ended up breaking down. Additionally, the aforementioned indexes and major indexes in Europe, Japan, and Hong Kong have been unable to break above longer-term resistance. While we believe global equities remain vulnerable to a pullback, some near-term consolidation is another possibility. For now we believe some consolidation makes sense as we remain in a sort of wait-and-see period as it relates to what will happen as countries and states aim to re-open.

Global Equity Rally Losing Upside Momentum

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>On 16<sup>th</sup> April 2020, Bloomberg reported that Gilead Sciences is considering acquiring a significant stake in Arcus Biosciences, a cancer therapeutics company backed by Alphabet Inc. (through its venture capital arm GV). We believe that the company’s interest lies in obtaining Arcus’ anti-TIGIT treatment, AB154 which is currently in phase 2 clinical trial for treating cancer.</li>
<li>Following the news release, Arcus’ shares jumped by around 89% to US$29.5 at the end of its trading on the 16<sup>th</sup>.</li>
<li>The deal could either be an equity purchase in Arcus or some other form of collaboration between the two companies. There is however no certainty of the deal and the talks could still fall apart.</li>
<li>The global immune-oncology market is expected to grow rapidly over the next couple of years driven by shifting demand for cell/immune based treatments from conventional chemotherapy drugs/treatments.</li>
<li>The demand for personalised treatments using genomic and immunity for oncology have been growing and the big pharma giants have been increasingly investing on small biotech firms with solid product pipelines to replenish their drug pipeline and earn high-returns.</li>
</ul>


On 16th April 2020, Bloomberg reported that Gilead Sciences is considering acquiring a significant stake in Arcus Biosciences, a cancer therapeutics company backed by Alphabet Inc. (through its venture capital arm GV). We believe that the company’s interest lies in obtaining Arcus’ anti-TIGIT treatment, AB154 which is currently in phase 2 clinical trial for treating cancer.
Following the news release, Arcus’ shares jumped by around 89% to US$29.5 at the end of its trading on the 16th.
The deal could either be an equity purchase in Arcus or some other form of collaboration between the two companies. There is however no certainty of the deal and the talks could still fall apart.
The global immune-oncology market is expected to grow rapidly over the next couple of years driven by shifting demand for cell/immune based treatments from conventional chemotherapy drugs/treatments.
The demand for personalised treatments using genomic and immunity for oncology have been growing and the big pharma giants have been increasingly investing on small biotech firms with solid product pipelines to replenish their drug pipeline and earn high-returns.


Gilead to Acquire a Stake in Arcus Biosciences; Offer May Come at a Large Premium

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/994/original/2020-03-21_07-26-58.png?1584743238" class="editor-image img-responsive" data-smartkarma-image-id="123994"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>TAKE PROFITS</strong> - Japanese equities, as measured by the TOPIX Index, rose by 1.7% over the last week in Yen terms and fell by only 0.86% in US dollars, while <a href="https://www.smartkarma.com/entities/ishares-msci-acwi-etf" target="_blank" data-smartkarma-citation="entities:24402:1" rel="noopener">ACWI (ACWI US)</a> fell by 13.6%. The 1% gain on Thursday was aided by the Bank of Japan US$1.8 billion purchase of ETFs which represented 4.3% of the value traded in TOPIX and is 80% of the average monthly total of such purchases over the last nine years. We expect the central bank to be in the market again at a similar level of commitment on Monday. We would use such generosity to now reduce exposure to Japan.</p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we cover the outlook for a more prolonged Covid-19 bear market in Japan and suggest levels at which the market might offer some absolute value, hopefully within the next eighteen months.</p></div><blockquote><p><strong>If there is no market economy, then the stock market is in a sense largely irrelevant at this time, although we would not close it either since it does give people something to do that does generate some information and some amount of GDP and income - Andrew Hunt</strong></p></blockquote>

Source • Japan AnalyticsTAKE PROFITS - Japanese equities, as measured by the TOPIX Index, rose by 1.7% over the last week in Yen terms and fell by only 0.86% in US dollars, while ACWI (ACWI US) fell by 13.6%. The 1% gain on Thursday was aided by the Bank of Japan US$1.8 billion purchase of ETFs which represented 4.3% of the value traded in TOPIX and is 80% of the average monthly total of such purchases over the last nine years. We expect the central bank to be in the market again at a similar level of commitment on Monday. We would use such generosity to now reduce exposure to Japan.In the DETAIL section below, we cover the outlook for a more prolonged Covid-19 bear market in Japan and suggest levels at which the market might offer some absolute value, hopefully within the next eighteen months.If there is no market economy, then the stock market is in a sense largely irrelevant at this time, although we would not close it either since it does give people something to do that does generate some information and some amount of GDP and income - Andrew Hunt

🇯🇵 JAPAN MARKET UPDATE • Hit the BoJ Bid and Wait for the Absolute Value Opportunity

United States

Roche Holding AG develops and manufactures pharmaceutical and diagnostic products. The Company produces prescription drugs in the areas of cardiovascular, infectious, autoimmune, respiratory diseases, dermatology, metabolic disorders, oncology, transplantation, and the central nervous system. Roche Holding serves customers worldwide.

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Roche Holding (RO SE)

Liquid Universe of European Ordinary and Preferred Shares: October Report

No clear trend over the last three months regarding discounts. Some ords/prefs trades/situations to watch: BMW, Fuchs Petrolub, Henkel, Volkswagen,...

Jesus Rodriguez Aguilar

Global Equities: Lower Highs Forming

While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act...

Vermilion Research

Global Equity Rally Losing Upside Momentum

The global rally appears to be losing steam as the bearish rising wedge patterns we highlighted last week in the MSCI ACWI, ACWI ex-US, EM, and...

Vermilion Research

Gilead to Acquire a Stake in Arcus Biosciences; Offer May Come at a Large Premium

On 16th April 2020, Bloomberg reported that Gilead Sciences is considering acquiring a significant stake in Arcus Biosciences, a cancer...

Shifara Samsudeen, ACMA, CGMA

🇯🇵 JAPAN MARKET UPDATE • Hit the BoJ Bid and Wait for the Absolute Value Opportunity

TAKE PROFITS - Japanese equities, as measured by the TOPIX Index, rose by 1.7% over the last week in Yen terms and fell by only 0.86% in US...

Campbell Gunn

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