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

Petroleo Brasileiro  / Technical Analysis

<ul>
<li>Our neutral outlook has come down to price supports holding on the broad global indexes, including $54 on MSCI ACWIex-US (ACWX-US), $76.50 on EAFE (EFA-US), and $99 on ACWI (ACWI-US).</li>
<li>These support levels are now breaking which tilts our stance to bearish at the index level as long as the aforementioned indexes remain below their previous support levels.</li>
<li>We still see the EURO STOXX 50 and TOPIX as holding above support, while the Hang Seng and Bovespa appear to be bottoming, none of which paint a bearish picture.</li>
</ul>


Our neutral outlook has come down to price supports holding on the broad global indexes, including $54 on MSCI ACWIex-US (ACWX-US), $76.50 on EAFE (EFA-US), and $99 on ACWI (ACWI-US).
These support levels are now breaking which tilts our stance to bearish at the index level as long as the aforementioned indexes remain below their previous support levels.
We still see the EURO STOXX 50 and TOPIX as holding above support, while the Hang Seng and Bovespa appear to be bottoming, none of which paint a bearish picture.


Broad Indexes Violate Support But Bright Spots Remain; Buying Energy, Staples, and Utilities

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Total Access Communication / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/total-access-communication" target="_blank" data-smartkarma-citation="entities:948:1" rel="noopener">Total Access Communication (DTAC TB)</a> and <a href="https://www.smartkarma.com/entities/true-corp-pcl" target="_blank" data-smartkarma-citation="entities:8:1" rel="noopener">True Corp Pcl (TRUE TB)</a> are exploring a merger of equals at a swap ratio of 1:10.221. NBTC approval could be the biggest hurdle.</li>
<li>Both stocks are trading lower than their Voluntary Tender Offer prices. The spread is between 5.5-6.5% and that could close over the next couple of months.</li>
<li>We prefer a long <a href="https://www.smartkarma.com/entities/total-access-communication" target="_blank" data-smartkarma-citation="entities:948:1" rel="noopener">Total Access Communication (DTAC TB)</a> / short <a href="https://www.smartkarma.com/entities/true-corp-pcl" target="_blank" data-smartkarma-citation="entities:8:1" rel="noopener">True Corp Pcl (TRUE TB)</a> trade as the downside is protected in case of a deal break.</li>
</ul>



Total Access Communication (DTAC TB) and True Corp Pcl (TRUE TB) are exploring a merger of equals at a swap ratio of 1:10.221. NBTC approval could be the biggest hurdle.
Both stocks are trading lower than their Voluntary Tender Offer prices. The spread is between 5.5-6.5% and that could close over the next couple of months.
We prefer a long Total Access Communication (DTAC TB) / short True Corp Pcl (TRUE TB) trade as the downside is protected in case of a deal break.


DTAC/TRUE Merger: Details and Index Implications

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<p>At the awaited auction for <a href="https://www.smartkarma.com/entities/wm-morrison-supermarkets-plc" target="_blank" data-smartkarma-citation="entities:22052:1" rel="noopener">Wm Morrison Supermarkets (MRW LN)</a>, CD&amp;R increased its bid to <strong>287p</strong> against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (<a href="https://www.smartkarma.com/insights/fortress-morrisons-272p-pre-emptive-strike" target="_blank" data-smartkarma-citation="insights:55791" rel="noopener">Fortress/Morrisons: 272p Pre-Emptive Strike</a>) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for <a href="https://www.smartkarma.com/entities/vectura-group-plc" target="_blank" data-smartkarma-citation="entities:22201:1" rel="noopener">Vectura (VEC LN)</a>, but preferred to make its rival pay a bit extra.</p>
<p>The consideration represents an <strong>implied equity value</strong> of <strong>£7,032 mn</strong> and an implied EV of £10,113 mn. This also represents <strong>9.1x EV/Fwd EBITDA</strong> and <strong>20.4 Fwd P/E</strong>.</p>
<p>The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.</p>
<p>The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.</p>
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<p>According to my calculations, the winning bid should achieve an <strong>11.8% IRR by year 8</strong>. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). </p>
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<p><strong>Gross spread</strong> is <strong>0.5%</strong>. The deal will complete. Time to surrender the shares.</p>

At the awaited auction for Wm Morrison Supermarkets (MRW LN), CD&amp;R increased its bid to 287p against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (Fortress/Morrisons: 272p Pre-Emptive Strike) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for Vectura (VEC LN), but preferred to make its rival pay a bit extra.
The consideration represents an implied equity value of £7,032 mn and an implied EV of £10,113 mn. This also represents 9.1x EV/Fwd EBITDA and 20.4 Fwd P/E.
The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.
The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.






According to my calculations, the winning bid should achieve an 11.8% IRR by year 8. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). 






Gross spread is 0.5%. The deal will complete. Time to surrender the shares.

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/metro-ag" target="_blank" data-smartkarma-citation="entities:21673:1" rel="noopener">METRO AG (MEO GR)</a> will close its Japan operations at the end of October. It follows <a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a>, <a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a> and <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US)</a> as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. </p>

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

<p>Allocations in Consumer Staples stocks are at decade-long lows.  Average fund weights among active Global managers stand at 7.65% following an aggressive slump after the onset of COVID-19 in early 2020.</p><p>The spread between Consumer Discretionary weights and Consumer Staples weights in active Global portfolios is close to it's all-time wides, but is turning lower after peaking in April this this year.</p><p>What stands out in our data is the cutting back of Consumer Staples allocations by Growth investors, with a number of high profile stocks cut from Aggressive Growth portfolios since last 2019 (<a href="https://www.smartkarma.com/entities/reckitt-benckiser-group-plc" target="_blank" data-smartkarma-citation="entities:22105:1" rel="noopener">Reckitt Benckiser (RB/ LN)</a>, <a href="https://www.smartkarma.com/entities/colgate-palmolive-co" target="_blank" data-smartkarma-citation="entities:15093:1" rel="noopener">Colgate Palmolive Co (CL US),</a><a href="https://www.smartkarma.com/entities/anheuser-busch-inbev-sa-nv" target="_blank" data-smartkarma-citation="entities:865:1" rel="noopener">Anheuser Busch Inbev Sa/Nv (ABI BB)</a> )</p><p>For the Consumer Staples sector to see a turnaround, perhaps growth, or at least the perception of growth needs to return for these investors.</p>

Allocations in Consumer Staples stocks are at decade-long lows.  Average fund weights among active Global managers stand at 7.65% following an aggressive slump after the onset of COVID-19 in early 2020.The spread between Consumer Discretionary weights and Consumer Staples weights in active Global portfolios is close to it's all-time wides, but is turning lower after peaking in April this this year.What stands out in our data is the cutting back of Consumer Staples allocations by Growth investors, with a number of high profile stocks cut from Aggressive Growth portfolios since last 2019 (Reckitt Benckiser (RB/ LN), Colgate Palmolive Co (CL US),Anheuser Busch Inbev Sa/Nv (ABI BB) )For the Consumer Staples sector to see a turnaround, perhaps growth, or at least the perception of growth needs to return for these investors.

Global Consumer Staples: Allocations at Rock Bottom as Growth Investors Flee

United Kingdom

Tesco plc is a food retailer.  The Group operates stores in the United Kingdom, Republic of Ireland, Czech Republic, Hungary, Poland, Slovakia, Turkey, Japan, Malaysia, South Korea, China, Thailand, and the United States.

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Tesco PLC (TSCO LN)

Broad Indexes Violate Support But Bright Spots Remain; Buying Energy, Staples, and Utilities

We are highlighting Energy again because it is easily our favorite Sector. Additionally, defensive Sectors including Staples and Utilities display...

Vermilion Research

DTAC/TRUE Merger: Details and Index Implications

DTAC and TRUE are exploring a merger of equals. The biggest hurdle could be regulatory approval since the merged entity would have a market share >...

Brian Freitas

CD&R/Morrisons: Final Offer and Spread

The winning bid should achieve an 11.8% IRR by year 8 (leverage of 4.1x net debt/EBITDA). Gross spread is 0.5%. The deal will complete. Time to...

Jesus Rodriguez Aguilar

Metro Cash and Carry to Exit Japan

One of the few foreign players in Japan's food market has confirmed it will quit the market. Only Costco remains although Amazon is expanding its...

Michael Causton

Global Consumer Staples: Allocations at Rock Bottom as Growth Investors Flee

Allocations in Consumer Staples stocks are at decade-long lows. Average fund weights among active Global managers stand at 7.65% following an...

Steven Holden

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