Founder & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

<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> deliveries of newly redesigned Models S &amp; X are now months overdue, and it's not saying why.Apparently, it's still tinkering with design problems now nearly two months after it claimed it would be at full production. This can happen when Tesla's gimmicky updates on aging Models S &amp; X fall flat with wary luxury buyers and may even be unsafe.

Tesla Motors (TSLA US) deliveries of newly redesigned Models S &amp; X are now months overdue, and it's not saying why.Apparently, it's still tinkering with design problems now nearly two months after it claimed it would be at full production. This can happen when Tesla's gimmicky updates on aging Models S &amp; X fall flat with wary luxury buyers and may even be unsafe. 

We're Not Surprised Tesla Has Quietly Delayed Deliveries Of "Refreshed" Models S & X

Tesla (TSLA) <a href="https://ir.tesla.com/press-release/tesla-q1-2021-vehicle-production-deliveries" target="_blank" rel="noopener">reported </a>on Friday that it hit 184,800 deliveries (up 109%) for the first quarter, an impressive beat versus market consensus of 162,000 and my own estimate for 154,000 (see <a href="https://bondangle.substack.com/p/tesla-dont-drive-angry" target="_blank" rel="noopener">Tesla: Don't Drive Angry</a> on 2/8/21). However, this was achieved via aggressive price cuts late in the quarter—likely at the expense of already strained profitability.

Tesla (TSLA) reported on Friday that it hit 184,800 deliveries (up 109%) for the first quarter, an impressive beat versus market consensus of 162,000 and my own estimate for 154,000 (see Tesla: Don't Drive Angry on 2/8/21). However, this was achieved via aggressive price cuts late in the quarter—likely at the expense of already strained profitability.

Tesla Reports Solid Beat With Strong Q121 Deliveries

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/volkswagen-ag-pref" target="_blank" data-smartkarma-citation="entities:734:1" rel="noopener">Volkswagen (Pref) (VOW3 GY)</a> shares are trading at a 27.7% discount to <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> ordinary shares, a level unseen since November 2009.
The capital stock of VW is divided into:
<ul>
<li>295,089,818 ordinary shares, voting, tightly controlled.
</li>
<li>206,205,445 preferred shares, non-voting; with a minimum preferred dividend of €0.11 per share, cumulative; a dividend excess of €0.06 with respect to the ordinary shares.</li>
</ul>
Over the last decade, VW prefs have frequently traded at a premium (the company does not seem at risk of takeover, and the main shareholder has over 50% of the voting power). Since the onset of the Covid crisis, that premium has turned into a discount.
The main reason for the widening of the discount is US retail demand. Volkswagen's plans related to EVs (double the deliveries) and battery plants have initiated a rally in the shares. VW has said it plans to build six battery cell plants in Europe.
U.S. retail investors are buying Volkswagen's ADRs (ordinary shares are tied to the ADRs, the only class of shares to which US investors have access).
<ul>
<li>
VW’s ADRs rose nearly 17% on Monday and Tuesday trading sessions.
</li>
<li>
VW's preference shares, the most liquid (but not the ones with the highest market cap, which are the ords), rose c. 9% on Monday and Tuesday trading sessions in Frankfurt.
</li>
<li>Institutional investors usually focus on the preferred shares, because of their higher liquidity (and because they are constituents of the main indexes: DAX, Euro Stoxx, etc).</li>
</ul>
The discount of Volkswagen preferred shares relative to ordinary shares has widened from an average of 5.9% in 2020. Also, the situation is unlike the mother of all short squeezes described in the Insight. I believe that the discount in Volkswagen preferred shares will ultimately move towards a 10% discount.
Once technical factors (US retail buying) fades away, I would look to establish the trade long preferred shares/short ordinary shares around this discount level. Ordinary shares are liquid and nobody seems to be cornering the market this time around, in my view.
Carry cost. Preference shares have a (marginally) higher dividend than the corresponding ordinary shares. As they trade on a discount, preferred shares have a higher yield than the ordinary shares. In a long preferred share/short ordinary share position there will be a small net positive dividend. The position absorbs cash: the annual carry cost is €3.028 (at closing prices of 18 March), 0.98% of the gross position, assuming 1% cost of stock borrow.

Volkswagen (Pref) (VOW3 GY) shares are trading at a 27.7% discount to Volkswagen (VOW GR) ordinary shares, a level unseen since November 2009.
The capital stock of VW is divided into:

295,089,818 ordinary shares, voting, tightly controlled.

206,205,445 preferred shares, non-voting; with a minimum preferred dividend of €0.11 per share, cumulative; a dividend excess of €0.06 with respect to the ordinary shares.

Over the last decade, VW prefs have frequently traded at a premium (the company does not seem at risk of takeover, and the main shareholder has over 50% of the voting power). Since the onset of the Covid crisis, that premium has turned into a discount.
The main reason for the widening of the discount is US retail demand. Volkswagen's plans related to EVs (double the deliveries) and battery plants have initiated a rally in the shares. VW has said it plans to build six battery cell plants in Europe.
U.S. retail investors are buying Volkswagen's ADRs (ordinary shares are tied to the ADRs, the only class of shares to which US investors have access).


VW’s ADRs rose nearly 17% on Monday and Tuesday trading sessions.


VW's preference shares, the most liquid (but not the ones with the highest market cap, which are the ords), rose c. 9% on Monday and Tuesday trading sessions in Frankfurt.

Institutional investors usually focus on the preferred shares, because of their higher liquidity (and because they are constituents of the main indexes: DAX, Euro Stoxx, etc).

The discount of Volkswagen preferred shares relative to ordinary shares has widened from an average of 5.9% in 2020. Also, the situation is unlike the mother of all short squeezes described in the Insight. I believe that the discount in Volkswagen preferred shares will ultimately move towards a 10% discount.
Once technical factors (US retail buying) fades away, I would look to establish the trade long preferred shares/short ordinary shares around this discount level. Ordinary shares are liquid and nobody seems to be cornering the market this time around, in my view.
Carry cost. Preference shares have a (marginally) higher dividend than the corresponding ordinary shares. As they trade on a discount, preferred shares have a higher yield than the ordinary shares. In a long preferred share/short ordinary share position there will be a small net positive dividend. The position absorbs cash: the annual carry cost is €3.028 (at closing prices of 18 March), 0.98% of the gross position, assuming 1% cost of stock borrow.

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
Discounts have generally tightened alongside index gains across the European space.
</div>
<div>
<div>
<h3>Recommended trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares are trading at a 12.5% discount (16.6% by mid-February) vs. the A shares (with 10 voting rights per share). Maintain LONG B shares/short A shares on.
</li>
<li>
<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> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.7% (vs. 25.2% by mid-December). Maintain long BMW prefs, short common shares on, with a target of a 15% discount.
</li>
<li>
<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 seems to vary within a range, which is probably liquidity related. It is 19.6% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs on, with a 10% target.
</li>
<li>
<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> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.9%. Maintain the trade short prefs/long common shares with a 10% premium target.
</li>
<li>
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>. Prefs discount was widened to erstwhile levels: 17.6 (vs. 10.7% by mid-February and 4.9% discount in November). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason. The only news that might be related is that Volkswagen is considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg.
</li>
</ul>
</div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.5% and 5.9%. It is currently 2.44%. Long Danieli ords/short Danieli savings shares. Volume was unusually high on 12 March.</li>
<li>
<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares are trading at a 7.6% premium to ordinary shares (vs. a 10.7% premium by mid-February). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.</li>
</ul>
<div>
<ul style="list-style-type: disc;">
<li>
<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 33.6% discount (vs. 39.7% by mid-February), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” 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.
</li>
<li>
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 14.8% (vs. 14.1% by mid-February). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.
</li>
<li>
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 to 4.7% (vs. 11% by mid-February). Maintain the trade Long B shares/short A shares on, with a 3% discount target.
</li>
<li>
Other than Industrivärden, the other major shareholder of <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> is Solidium Oy (State of Finland). The reversal on the discount from June 2018 has no obvious explanation. The discount has tightened to 7.8% (vs. 9.1% by mid-February and 13% by mid-January). I would short B shares and go long A shares.
</li>
<li>
The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has widened to 3.9% (vs. 2.7% by mid-February). Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.
</li>
<li>
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> reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 30.6% (vs. 34.1% by mid-February), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.
Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.
</li>
</ul>
</div>
<div>
Please read on for table and charts.
</div>



Trends



Discounts have generally tightened alongside index gains across the European space.



Recommended trades





Carlsberg A/S (CARLB DC) B shares are trading at a 12.5% discount (16.6% by mid-February) vs. the A shares (with 10 voting rights per share). Maintain LONG B shares/short A shares on.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.7% (vs. 25.2% by mid-December). Maintain long BMW prefs, short common shares on, with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium seems to vary within a range, which is probably liquidity related. It is 19.6% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.9%. Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount was widened to erstwhile levels: 17.6 (vs. 10.7% by mid-February and 4.9% discount in November). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason. The only news that might be related is that Volkswagen is considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg.





Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.5% and 5.9%. It is currently 2.44%. Long Danieli ords/short Danieli savings shares. Volume was unusually high on 12 March.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 7.6% premium to ordinary shares (vs. a 10.7% premium by mid-February). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.




Grifols SA (GRF SM) B shares are trading at a 33.6% discount (vs. 39.7% by mid-February), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” 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 14.8% (vs. 14.1% by mid-February). Although there is no catalyst in sight, 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 to 4.7% (vs. 11% by mid-February). Maintain the trade Long B shares/short A shares on, with a 3% discount target.


Other than Industrivärden, the other major shareholder of SSAB AB (SSABA SS) is Solidium Oy (State of Finland). The reversal on the discount from June 2018 has no obvious explanation. The discount has tightened to 7.8% (vs. 9.1% by mid-February and 13% by mid-January). I would short B shares and go long A shares.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 3.9% (vs. 2.7% by mid-February). Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.


The discount in Schroders PLC (SDR LN) reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 30.6% (vs. 34.1% by mid-February), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.
Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: March 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

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

Global Equity Strategy: Constructive Pullback; Overweight Value

Germany

Volkswagen AG manufactures and sells vehicles. The Company offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles. Volkswagen serves customers worldwide.

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Volkswagen (Pref) (VOW3 GR)

We're Not Surprised Tesla Has Quietly Delayed Deliveries Of "Refreshed" Models S & X

Months after they were promised, Tesla still hasn't delivered any newly redesigned Model S/X—and may not until summer. Gimmicky updates may have...

Vicki Bryan

Tesla Reports Solid Beat With Strong Q121 Deliveries

Aggressive price cuts boosted late quarter sales to record levels—likely at the expense of already strained profitability.

Vicki Bryan

VW Spread: Not 2008 All over Again

Once technical factors (US retail buying) fades away, I would set up long preferred shares/short ordinary shares at the current discount. Ords are...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: March Report

Discounts have generally tightened across the European space. Interesting situations are: BMW, Fuchs Petrolub, Henkel, Volkswagen, Danieli, Telecom...

Jesus Rodriguez Aguilar

Global Equity Strategy: Constructive Pullback; Overweight Value

As long as the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we...

Vermilion Research

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