Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Nobody "named" having &gt;5.0% in <a href="https://www.smartkarma.com/entities/outsourcing-inc" target="_blank" data-smartkarma-citation="entities:7431:1" rel="noopener">Outsourcing (2427 JP)</a>; no public noise, the stock down; people won't be fighting for a bump unless the delay and impairment are truly meaningless.</li>
<li>Stay long <a href="https://www.smartkarma.com/entities/mgm-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:472:1" rel="noopener">MGM China Holdings (2282 HK)</a> as its FY23 top line surpasses pre-Covid levels.</li>
<li>Investors and risk arbitrageurs who are worried about the potential loss of the case to RF SUNY should simply avoid, or sell then avoid <a href="https://www.smartkarma.com/entities/jsr-corp" target="_blank" data-smartkarma-citation="entities:17620:1" rel="noopener">JSR Corp (4185 JP)</a> shares.</li>
</ul>


Nobody "named" having &gt;5.0% in Outsourcing (2427 JP); no public noise, the stock down; people won't be fighting for a bump unless the delay and impairment are truly meaningless.
Stay long MGM China Holdings (2282 HK) as its FY23 top line surpasses pre-Covid levels.
Investors and risk arbitrageurs who are worried about the potential loss of the case to RF SUNY should simply avoid, or sell then avoid JSR Corp (4185 JP) shares.


Last Week in Event SPACE: Outsourcing Ltd, MGM China, JSR Corp, Dissentient Blues

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<ul>
<li>Borsa Italiana reported a take-up in bid for Tod's of c. 48.91%. DeVa Finance and (concerted) LVMH would have controlled 86.95%, below the 90% minimum acceptance condition and pulled out.</li>
<li>The offer price seemed cheap on any measure (the shares traded above it since the offer period kicked off). A 20% share price drop means it looks good value now.</li>
<li>If the Della Valles merged Tod's with Deva Finance, they would offer c. €37/share. Either way, it should pay off to set up a long position in the stock now.</li>
</ul>


Borsa Italiana reported a take-up in bid for Tod's of c. 48.91%. DeVa Finance and (concerted) LVMH would have controlled 86.95%, below the 90% minimum acceptance condition and pulled out.
The offer price seemed cheap on any measure (the shares traded above it since the offer period kicked off). A 20% share price drop means it looks good value now.
If the Della Valles merged Tod's with Deva Finance, they would offer c. €37/share. Either way, it should pay off to set up a long position in the stock now.


<ul>
<li>The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of  float.</li>
<li>Tod's is in turnaround mode (my valuation assumes it'll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.</li>
<li>The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.</li>
</ul>


The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of  float.
Tod's is in turnaround mode (my valuation assumes it'll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.
The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.


Della Valle/Tod's: Lowball Minorities Buyout

On 22 April, after the market close, <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> issued a press release which said that Delphine SAS, a subsidiary of <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>, entered into an agreement to acquire an additional 6.8% stake in <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> from Diego Della Valle &amp; C. S.A.P.A for a total consideration of €74.5 mn.
The 22 April agreement represented at the time 2.2x EV/Fwd Sales and 14.2x EV/Fwd EBITDA,an implied equity value of €1,095 mn and an implied EV of €1,625 mn, and a 11.2% premium to the 1-month WVAP.
On 19 May, Diego Della Valle said said that if he ever decided to sell his company it would be to LVMH's boss Bernard Arnault but he added that he had no current plans to do so. He added that LVMH's recent decision to raise its stake in Tod's was a message "that we like to stay together". He reiterated that if the right opportunity arose, the two groups might "do something together". The shares increased by 3.6% and closed at €48.56. I do not think the family will sell their company that easily when there is a recovery from the pandemic in sight and a new creative director.
Shares enjoyed good momentum after LVMH increased its shareholding in Tod's from 3.2% to 10%, on expectations of an offer by LVMH, but the market seems to have run ahead of itself and the trend may have reversed in the last trading sessions.
In the insight I present a bull (acquisition by LVMH) and a bear case (on valuation grounds, more realistic in my view) for Tod's.
As a standalone entity, Tod's lacks the economies of scale that LVMH enjoys. Without scale, there is a limit as to how much can Tod's shrink its cost structure (procurement of leather and other inputs, marketing and publicity budgets, training of artisans). A best-case scenario valuation would assume an offer from LVMH at an EV 2.0x pre-Covid sales, not expected until 2023e, at least, plus a 15% control premium and some synergies factored in, say 5%, and the valuation would be around €50/share.
At current market prices, Tod's market cap and revenue are respectively &lt;0.5% and 1.5% those of LVMH, hence I do not think that acquiring Tod's is a strategic priority for LVMH in the same way as Tiffany was, nor is it a game changer, no matter how much a successful turnaround of Tod's could achieve in the mid term.
On valuation grounds, Tod's shares do not seem such good value after the recent bull run. A blended average of DCF, WACC 7.8%, terminal growth 1.5%, and 6.8x terminal EBITDA multiple, FCF and EBITDA from capital IQ consensus) and 2.0x EV/22e Sales gives €35.26/share.
<div>
Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap. His reputation is at stake and the renegotiation of the price tag for Tiffany is a case in point. Tod's does not seem a bargain right now.
Recommendation is short Tod'sTP 35.26/share, a 24% discount to the closing price on 20 May.
</div>
Read across: <a href="https://www.smartkarma.com/entities/salvatore-ferragamo-spa" target="_blank" data-smartkarma-citation="entities:21220:1" rel="noopener">Salvatore Ferragamo (SFER IM)</a> is a similar situation to that of Tod's.

On 22 April, after the market close, Tod's SpA (TOD IM) issued a press release which said that Delphine SAS, a subsidiary of Lvmh Moet Hennessy Louis Vuitton (MC FP), entered into an agreement to acquire an additional 6.8% stake in Tod's SpA (TOD IM) from Diego Della Valle &amp; C. S.A.P.A for a total consideration of €74.5 mn.
The 22 April agreement represented at the time 2.2x EV/Fwd Sales and 14.2x EV/Fwd EBITDA,an implied equity value of €1,095 mn and an implied EV of €1,625 mn, and a 11.2% premium to the 1-month WVAP.
On 19 May, Diego Della Valle said said that if he ever decided to sell his company it would be to LVMH's boss Bernard Arnault but he added that he had no current plans to do so. He added that LVMH's recent decision to raise its stake in Tod's was a message "that we like to stay together". He reiterated that if the right opportunity arose, the two groups might "do something together". The shares increased by 3.6% and closed at €48.56. I do not think the family will sell their company that easily when there is a recovery from the pandemic in sight and a new creative director.
Shares enjoyed good momentum after LVMH increased its shareholding in Tod's from 3.2% to 10%, on expectations of an offer by LVMH, but the market seems to have run ahead of itself and the trend may have reversed in the last trading sessions.
In the insight I present a bull (acquisition by LVMH) and a bear case (on valuation grounds, more realistic in my view) for Tod's.
As a standalone entity, Tod's lacks the economies of scale that LVMH enjoys. Without scale, there is a limit as to how much can Tod's shrink its cost structure (procurement of leather and other inputs, marketing and publicity budgets, training of artisans). A best-case scenario valuation would assume an offer from LVMH at an EV 2.0x pre-Covid sales, not expected until 2023e, at least, plus a 15% control premium and some synergies factored in, say 5%, and the valuation would be around €50/share.
At current market prices, Tod's market cap and revenue are respectively &lt;0.5% and 1.5% those of LVMH, hence I do not think that acquiring Tod's is a strategic priority for LVMH in the same way as Tiffany was, nor is it a game changer, no matter how much a successful turnaround of Tod's could achieve in the mid term.
On valuation grounds, Tod's shares do not seem such good value after the recent bull run. A blended average of DCF, WACC 7.8%, terminal growth 1.5%, and 6.8x terminal EBITDA multiple, FCF and EBITDA from capital IQ consensus) and 2.0x EV/22e Sales gives €35.26/share.

Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap. His reputation is at stake and the renegotiation of the price tag for Tiffany is a case in point. Tod's does not seem a bargain right now.
Recommendation is short Tod'sTP 35.26/share, a 24% discount to the closing price on 20 May.

Read across: Salvatore Ferragamo (SFER IM) is a similar situation to that of Tod's.

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

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

Italian shoe and handbag maker <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>.Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Italian shoe and handbag maker Tod's SpA (TOD IM) has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at Lvmh Moet Hennessy Louis Vuitton (MC FP).Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Italy

Tod's S.p.A. manufactures and retails men's, women's, and sports shoes.  The Company's signature shoe is a loafer with rubber spikes on the sole and heel. Brand names include Tod's, Hogan, and Fay.  The Company operates owned and franchised stores in Europe, the United States, Asia, and the Middle East.

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Tod's SpA (TOD IM)

Last Week in Event SPACE: Outsourcing Ltd, MGM China, JSR Corp, Dissentient Blues

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Lowball Offer Fell Through

In my previous insight, I noticed that the shares were trading above the offer and a sweetening may be needed: I thought that the offer price...

Jesus Rodriguez Aguilar

Della Valle/Tod's: Lowball Minorities Buyout

The Della Valles are presenting an offer to buy out the minorities at Tod's. The offer price seems cheap on any measure now that the turnaround is...

Jesus Rodriguez Aguilar

LVMH/Tod's: Unlikely Deal for Now

Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap.Tod's does not seem a bargain right now. SHORT Tod's TP...

Jesus Rodriguez Aguilar

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Tod's as a standalone company is on its last legs. Della Valle will attempt his final push to revive the brand with influences Chiara Ferragni on...

Nicolas Van Broekhoven

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