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

Shanghai Stock Exchange Composite Index / Technical Analysis

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

The end of a lengthy takeover battle is in sight, and I have been long Suez since the outset.
On 29 June, the board of Suez announced that it recommends the acceptance of the takeover bid.
Also on 29 June, Veolia informed the AMF of the increase of the Offer price from €18/share (cum dividend) to €20.50/share (cum dividend) and filed the <a href="https://www.veolia.com/sites/g/files/dvc4206/files/document/2021/06/Finance_Draft%20offer%20document%20on%20Veolia%20cash%20tender%20offer%20for%20Suez_06-29-2021.pdf" target="_blank" rel="noopener">Draft Offer Document</a> with the AMF.
A €0.65 dividend per share will be submitted to the vote of Suez shareholders at the next AGM of Suez (30 June). The ex-dividend date would be 6 July, and the payment date would be 8 July. If the distribution is approved, the offer price will be reduced by €0.65/share as from the ex-date. The adjusted offer price is €19.85/share.
The validity threshold of over 50% should be comfortably crossed.
Gross spread is 2.2%, with closing in about six months. Recommendation is long SEV FP.

The end of a lengthy takeover battle is in sight, and I have been long Suez since the outset.
On 29 June, the board of Suez announced that it recommends the acceptance of the takeover bid.
Also on 29 June, Veolia informed the AMF of the increase of the Offer price from €18/share (cum dividend) to €20.50/share (cum dividend) and filed the Draft Offer Document with the AMF.
A €0.65 dividend per share will be submitted to the vote of Suez shareholders at the next AGM of Suez (30 June). The ex-dividend date would be 6 July, and the payment date would be 8 July. If the distribution is approved, the offer price will be reduced by €0.65/share as from the ex-date. The adjusted offer price is €19.85/share.
The validity threshold of over 50% should be comfortably crossed.
Gross spread is 2.2%, with closing in about six months. Recommendation is long SEV FP. 

Despite a much more mixed market environment, our weight-of-the-evidence approach continues to support a constructive intermediate-term outlook. The bottom line: there is little evidence that suggests a pullback would be anything more than a buying opportunity.

Despite a much more mixed market environment, our weight-of-the-evidence approach continues to support a constructive intermediate-term outlook. The bottom line: there is little evidence that suggests a pullback would be anything more than a buying opportunity.

Defensives Are Worth A Look; Hang Seng, Shanghai Comp, Nikkei 225, STOXX 50 Support Levels Holding

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, <a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a> and <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a> publicly smoked the peace pipe by <a href="https://www.veolia.com/sites/g/files/dvc4206/files/document/2021/04/PR-Agreement-Veolia-Suez-EN.pdf" target="_blank" rel="noopener">announcing an agreement</a> on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.
<ul>
<li>
The offer price is increased from €18 per share to €20.5 per share.
</li>
<li>
Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.
</li>
<li>
Both parties have agreed to enter into definitive merger agreements by 14 May.
</li>
<li>
Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.
</li>
<li>
Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.
</li>
</ul>
The improved offer represents:
<ul>
<li>1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.</li>
<li>an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.</li>
<li>€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.</li>
</ul>
To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.
The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.
Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 
With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.
This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, Veolia Environnement SA (VIE FP) and Suez (SEV FP) publicly smoked the peace pipe by announcing an agreement on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.


The offer price is increased from €18 per share to €20.5 per share.


Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.


Both parties have agreed to enter into definitive merger agreements by 14 May.


Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.


Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.


The improved offer represents:

1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.
an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.
€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.

To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.
The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.
Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 
With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.
This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

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

Cross Asset Strategy

Across our active Global fund universe, Value managers have seen $41bn in outflows over the past 5-years, compared to $65bn of inflows in to Growth funds.With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the 63 active Value funds in our analysis.Overweights in EMEA persist against underweights in Asia and the Americas.  Financials, Materials and Industrials are the key overweights versus underweights in Information Technology.US Financials are the standout overweight, with <a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a> and <a href="https://www.smartkarma.com/entities/american-express-co" target="_blank" data-smartkarma-citation="entities:916:1" rel="noopener">American Express Co (AXP US)</a> the key positions.  The FAAMG group of stocks remain key underweight holdings, though <a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-smartkarma-citation="entities:15273:1" rel="noopener">Microsoft Corp (MSFT US)</a> is the most widely held of the group. <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> is almost totally avoided and in Asia, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> , <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> screen as 'Unloved' by global active Value managers.

Across our active Global fund universe, Value managers have seen $41bn in outflows over the past 5-years, compared to $65bn of inflows in to Growth funds.With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the 63 active Value funds in our analysis.Overweights in EMEA persist against underweights in Asia and the Americas.  Financials, Materials and Industrials are the key overweights versus underweights in Information Technology.US Financials are the standout overweight, with Citigroup Inc (C US) and American Express Co (AXP US) the key positions.  The FAAMG group of stocks remain key underweight holdings, though Microsoft Corp (MSFT US) is the most widely held of the group. Tesla Motors (TSLA US) is almost totally avoided and in Asia, Meituan (3690 HK) , JD.com Inc (ADR) (JD US) and Pinduoduo (PDD US) screen as 'Unloved' by global active Value managers.

France

Veolia Environnement SA operates utility and public transportation businesses. The Company supplies drinking water, provides waste management services, manages and maintains heating and air conditioning systems, and operates rail and road passenger transportation systems.

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Veolia Environnement SA (VIE FP)

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

Cracks are beginning to show, particularly in EM/China. Key support violations include the MSCI EM index below $52, the Shanghai Comp below 3500,...

Vermilion Research

Approval from Suez's Board

The end of a lengthy takeover battle is in sight. Validity threshold of over 50% should be comfortably crossed. Gross spread is 2.2%, with closing...

Jesus Rodriguez Aguilar

Defensives Are Worth A Look; Hang Seng, Shanghai Comp, Nikkei 225, STOXX 50 Support Levels Holding

A review of major global indexes reveals an absence of major breakdowns. We highlight opportunities within defensive Sectors (Real Estate, Consumer...

Vermilion Research

Suez - Veolia: Peace Pipe

After two offer price increases (over 32% vs initial offer), this agreement should be considered final and a rock solid trade, albeit an unexciting...

Jesus Rodriguez Aguilar

Where Are Global Value Funds Positioned?

With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the active Global Value funds...

Steven Holden

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