European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

In my last insight about <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> (see <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> ), I mentioned that a bid from CD&amp;R could come at 285p. The bid came, recommended, at 285p and the shares closed at 291p on 20 August.
Now shares are trading at around 291p,  on expectations of a raised offer by Fortress and  expectations that Morrisons may enter the FTSE 100, which should support the shares and drive them higher, as per per fellow insight provider Brian Freitas (see <a href="https://www.smartkarma.com/insights/ftse100-index-rebalance-preview-takeover-names-in-focus" target="_blank" data-smartkarma-citation="insights:56622" rel="noopener">FTSE100 Index Rebalance Preview: Takeover Names in Focus</a>). Brian recommends buying the stock at 285p or slightly higher.
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Unsurprisingly, private equity has first directed its raid towards Morrisons, because it can take higher debt than competitors:
<ul>
<li>It has the highest ownership of its properties at 87% vs. c. 57% for <a href="https://www.smartkarma.com/entities/j-sainsbury-plc" target="_blank" data-smartkarma-citation="entities:22130:1" rel="noopener">J Sainsbury PLC (SBRY LN)</a>  and c. 58% for <a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a>.</li>
<li>Its FY2023e gearing of 2.3x including operating leases, is the lowest in the industry and it has a £682 million pension surplus.</li>
<li>Its 2023e FCF will reach c. £447 mn (Capital IQ consensus).</li>
</ul>
As already mentioned, the 285p counteroffer by CD&amp;R would achieve and IRR of 12%, and would rely on a high exit multiple of 8.5x (this would mean a substantial re-rating vs. the previously considered 7.9x), cutting in 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 loss of market share). Obtaining a higher IRR would involve substantial sale&amp;leaseback.
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None of the bidding parties has declared its offer as final and another bid could come from Fortress. If that happened, I believe the Panel would set up an orderly auction process. I change my recommendation to long MRW LN. Downside is limited to 2.1%.
The focus will turn now to <a href="https://www.smartkarma.com/entities/j-sainsbury-plc" target="_blank" data-smartkarma-citation="entities:22130:1" rel="noopener">J Sainsbury PLC (SBRY LN)</a>.

In my last insight about Wm Morrison Supermarkets (MRW LN) (see Fortress/Morrisons: 272p Pre-Emptive Strike ), I mentioned that a bid from CD&amp;R could come at 285p. The bid came, recommended, at 285p and the shares closed at 291p on 20 August.
Now shares are trading at around 291p,  on expectations of a raised offer by Fortress and  expectations that Morrisons may enter the FTSE 100, which should support the shares and drive them higher, as per per fellow insight provider Brian Freitas (see FTSE100 Index Rebalance Preview: Takeover Names in Focus). Brian recommends buying the stock at 285p or slightly higher.

Unsurprisingly, private equity has first directed its raid towards Morrisons, because it can take higher debt than competitors:

It has the highest ownership of its properties at 87% vs. c. 57% for J Sainsbury PLC (SBRY LN)  and c. 58% for Tesco PLC (TSCO LN).
Its FY2023e gearing of 2.3x including operating leases, is the lowest in the industry and it has a £682 million pension surplus.
Its 2023e FCF will reach c. £447 mn (Capital IQ consensus).

As already mentioned, the 285p counteroffer by CD&amp;R would achieve and IRR of 12%, and would rely on a high exit multiple of 8.5x (this would mean a substantial re-rating vs. the previously considered 7.9x), cutting in 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 loss of market share). Obtaining a higher IRR would involve substantial sale&amp;leaseback.

None of the bidding parties has declared its offer as final and another bid could come from Fortress. If that happened, I believe the Panel would set up an orderly auction process. I change my recommendation to long MRW LN. Downside is limited to 2.1%.
The focus will turn now to J Sainsbury PLC (SBRY LN).

CD&R Leading the Bid War for Morrisons with a Recommended Offer

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

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<a href="https://www.smartkarma.com/entities/dingdong-maicia" target="_blank" data-smartkarma-citation="entities:33461:1" rel="noopener">Dingdong Maicia (DDL US) </a>(DM), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global, General Atlantic and Softbank.
Dingdong Maicai is an on-demand e-commerce company in China which provides users and households with fresh produce, meat and seafood and other daily necessities via its self-operated frontline fulfillment grid. As of 1Q21, DM had 6.9m monthly transacting users, who had placed 69.7m orders during the quarter. Its FY20 gross merchandise value was RMB13bn, representing a 10%+ market share for the on-demand ecommerce fresh groceries and daily necessities market.
</div><div>In our earlier notes, we have looked at the background and performance the company:</div><div><ul style="list-style-type: disc;">
<li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/dingdong-maicai-pre-ipo-increasing-market-share-fast-growth-but-no-signs-of-profit" target="_blank" rel="noopener">Dingdong Maicai Pre-IPO - Increasing market share, fast growth but no signs of profit</a></li>
<li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/dingdong-maicai-vs-miss-fresh-pre-ipo-one-clear-winner" target="_blank" rel="noopener">Dingdong Maicai Vs Miss Fresh Pre-IPO - One Clear Winner</a></li>
<li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/dingdong-fresh-food-competition-in-and-outside-of-frontline-warehouse" target="_blank" rel="noopener">Dingdong (叮咚买菜): Fresh Food Competition in and Outside of Frontline Warehouse</a></li>
</ul></div><div>In this note we will provide our earnings forecast and talk about valuations.</div>


Dingdong Maicia (DDL US) (DM), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global, General Atlantic and Softbank.
Dingdong Maicai is an on-demand e-commerce company in China which provides users and households with fresh produce, meat and seafood and other daily necessities via its self-operated frontline fulfillment grid. As of 1Q21, DM had 6.9m monthly transacting users, who had placed 69.7m orders during the quarter. Its FY20 gross merchandise value was RMB13bn, representing a 10%+ market share for the on-demand ecommerce fresh groceries and daily necessities market.
In our earlier notes, we have looked at the background and performance the company:
Dingdong Maicai Pre-IPO - Increasing market share, fast growth but no signs of profit
Dingdong Maicai Vs Miss Fresh Pre-IPO - One Clear Winner
Dingdong (叮咚买菜): Fresh Food Competition in and Outside of Frontline Warehouse
In this note we will provide our earnings forecast and talk about valuations.

Dingdong Maicai Pre-IPO - Thoughts on Valuation

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/monde-nissin-corp" target="_blank" data-smartkarma-citation="entities:32188:1" rel="noopener">Monde Nissin Corp (0191881D PM)</a> is a leading food manufacturer in the Philippines with flagship brands such as Lucky Me! for instant noodles and Quorn for meat alternative products. Monde Nissin ranked first in retail sales value in the Philippines with its instant noodles, biscuits, oyster sauce and yoghurt drinks in 2020, according to Nielsen. Monde Nissin will launch pre-marketing for an IPO to raise up to PHP63 billion ($1.3 billion) in April, according to press reports. <div class="content-highlight">Monde Nissin is a play on the growing demand for consumer staples in the Philippines and Thailand and the healthy food category on a global scale. Monde Nissin’s financial track record shows it has been able to combine modest top-line growth with improving margins and cash generation. Overall, we believe that Monde Nissin’s fundamentals are attractive.</div>

Monde Nissin Corp (0191881D PM) is a leading food manufacturer in the Philippines with flagship brands such as Lucky Me! for instant noodles and Quorn for meat alternative products. Monde Nissin ranked first in retail sales value in the Philippines with its instant noodles, biscuits, oyster sauce and yoghurt drinks in 2020, according to Nielsen. Monde Nissin will launch pre-marketing for an IPO to raise up to PHP63 billion ($1.3 billion) in April, according to press reports. Monde Nissin is a play on the growing demand for consumer staples in the Philippines and Thailand and the healthy food category on a global scale. Monde Nissin’s financial track record shows it has been able to combine modest top-line growth with improving margins and cash generation. Overall, we believe that Monde Nissin’s fundamentals are attractive.

Monde Nissin IPO Initiation: Instant Karma

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/charoen-pokphand-foods-public-company-limited" target="_blank" data-smartkarma-citation="entities:16131:1" rel="noopener">CP FOODS (CPF TB)</a> has seen a significant sell-off recently, put down to a new outbreak of COVID-19 at the Mahachai seafood market in the southwestern Thai province of Samut Sakhon, which tends to have large numbers of illegal workers from Myanmar. 
This seems misguided given the global nature of the company's business, with the majority of its sales coming from livestock and related businesses outside Thailand. It is truly a global player with operations in a total of 17 countries.  
Its recent results saw strong growth aided in large part by higher pork prices driven by an earlier outbreak of African Swine Flu in Vietnam but prices have remained stable in 4Q2020 pointing towards continuing momentum on sales.
China has also been a strong performer and the completion of a restructuring of its swine operations there should pave the way for aggressive future expansion and potentially an IPO by 2022. 
Management is confident in the outlook for 2021 with guidance for +8%-10% sales growth driven by a COVID-19 recovery in Thailand and an increase in capacity elsewhere. It also intends to introduce more value-added packaged food products, and increase efficiency through greater digitalization.
<a href="https://www.smartkarma.com/entities/charoen-pokphand-foods-public-company-limited" target="_blank" data-smartkarma-citation="entities:16131:1" rel="noopener">CP FOODS (CPF TB)</a> now trades on 10.4x FY21E PER and 9.7x FY22E PER versus its 3-year average of 17.4x making it look cheap from a historical perspective.

CP FOODS (CPF TB) has seen a significant sell-off recently, put down to a new outbreak of COVID-19 at the Mahachai seafood market in the southwestern Thai province of Samut Sakhon, which tends to have large numbers of illegal workers from Myanmar. 
This seems misguided given the global nature of the company's business, with the majority of its sales coming from livestock and related businesses outside Thailand. It is truly a global player with operations in a total of 17 countries.  
Its recent results saw strong growth aided in large part by higher pork prices driven by an earlier outbreak of African Swine Flu in Vietnam but prices have remained stable in 4Q2020 pointing towards continuing momentum on sales.
China has also been a strong performer and the completion of a restructuring of its swine operations there should pave the way for aggressive future expansion and potentially an IPO by 2022. 
Management is confident in the outlook for 2021 with guidance for +8%-10% sales growth driven by a COVID-19 recovery in Thailand and an increase in capacity elsewhere. It also intends to introduce more value-added packaged food products, and increase efficiency through greater digitalization.
CP FOODS (CPF TB) now trades on 10.4x FY21E PER and 9.7x FY22E PER versus its 3-year average of 17.4x making it look cheap from a historical perspective.

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. 

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>’s partnership with <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life Corp (8194 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>’s Lohaco, <a href="https://www.smartkarma.com/entities/oisix-ra-daichi-inc" target="_blank" data-smartkarma-citation="entities:10145:1" rel="noopener">Oisix ra daichi (3182 JP)</a>, and, at some point, <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon Co Ltd (8267 JP)/</a><a href="https://www.smartkarma.com/entities/ocado-group-plc" target="_blank" data-smartkarma-citation="entities:22067:1" rel="noopener">Ocado Group PLC (OCDO LN)</a> are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP) taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  Amazon.com Inc (AMZN US)’s partnership with Life Corp (8194 JP), Z Holdings (4689 JP)’s Lohaco, Oisix ra daichi (3182 JP), and, at some point, Aeon Co Ltd (8267 JP)/Ocado Group PLC (OCDO LN) are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

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)

CD&R Leading the Bid War for Morrisons with a Recommended Offer

None of the bidders has declared its offer final. Another bid could come from Fortress and the Panel would set up an orderly auction. Further...

Jesus Rodriguez Aguilar

Dingdong Maicai Pre-IPO - Thoughts on Valuation

Dingdong Maicia (DDL US), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global,...

Sumeet Singh

Monde Nissin IPO Initiation: Instant Karma

Monde Nissin will launch pre-marketing for an IPO to raise up to PHP63 billion ($1.3 billion) in April, according to press reports. Overall, we...

Arun George

CP Foods (CPF TB) - Global Food Provider

CP Foods (CPF TB) is a global food player with operations in 17 countries with exports to more than 30 countries. It is recognized as a world...

Angus Mackintosh

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

E-commerce has less than 3% share of Japanese food retailing. This will change dramatically in the next 3 years, led by Amazon but also by Rakuten...

Michael Causton

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