We initiate coverage of PRM with a BUY rating, based on a target price of Bt7.70, derived from a PEG ratio of 0.9x, which is the average for the Asia ex-japan transportation sector, implying 22.0x PE’19E.
The story:
Secured revenue from domestic trading business
IMO 2020 implementation to propel floating storage demand
Recovery in T/C rate should prompt international trading turnaround
Risks: Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations
Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
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Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
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Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
Investors who have bought CSE Global on dips since my last note would have profited ~18%.
The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Our proprietary corporate governance scoring system now covers over 1,800 stocks including 70 Electricity, Alternative Energy, Distribution, Water and Utilities companies in Emerging Markets.
This report includes the Energy and Utilities names currently under coverage. The lowest score in this group is Korea Gas (44/100).
We have found that scores below 50/100 indicate poor corporate governance and higher risk of fraud.
Korean companies often have lower scores as a result of a lack of board independence and convoluted corporate structure.
Of the groupings presented here Alternative Energy has the highest average score at 64/100. We welcome requests from clients of names they want to see added to the universe.
By transferring his presidential powers to the Senate Speaker, President Nursultan Nazarbayev has not retired from politics. He has remained an official “Leader of the Nation” and retained a tight grip of Kazakhstan’s foreign and domestic policy. His recent announcements have signalled a tilt towards increased social spending. The reshuffle at the helm of the NBK signals that the regulator is far from achieving full independence. Furthermore, there are signs of increasing pressure on the central bank to provide long-term funding to the economy, which we find worrying.
Oil remains in a tug-of-war between fundamentals and a fickle sentiment in the global financial markets.
Brent and WTI futures settled at fresh four-month-highs of $68.50/barrel and $59.98/barrel mid-week, but had erased all the gains — and some more — by Friday’s close. However, technicals point to a pivot point in crude futures, with the 50-day moving average crossing over the 100 DMA last week. That’s typically a buy signal, but a sustained rally from the current levels is hard to see in the near-term.
Meanwhile, there were some interesting and unexpected outcomes from a high-profile OPEC/non-OPEC monitoring committee meeting in Baku on March 18. Among them were signs of a divergence in the views of Saudi Arabia and Russia, de facto leaders of the 24-producer alliance curbing supply to rebalance the market.
What explains Saudi Energy Minister Khalid al-Falih’s new hawkish stance and is the OPEC and non-OPEC partnership under some strain? Our short answer: No. We lay out our perspective of the evolving dynamics in the producers’ alliance, which is important to understanding the likely path of their collaboration.
We think that Kosmos Energy (KOS US) offers everything that is required from an internationally focused E&P company. It has a highly rated management team, strong balance sheet and free cash flow generation from its existing producing assets, low risk / high value near field exploration potential, selective high risk / reward frontier exploration in which it has a proven track record, it has done recent value accretive acquisitions with room for more, it has demonstrated the ability to farm-down its assets on multiple occasions and is currently in the process of a major asset sell down, which could surprise the market to the upside. Despite this the stock trades on a significant discount to risked NAV, making it a potential acquisition target and has plenty of catalysts coming up this year to close the valuation gap.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
Investors who have bought CSE Global on dips since my last note would have profited ~18%.
The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).
Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.
We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.
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By transferring his presidential powers to the Senate Speaker, President Nursultan Nazarbayev has not retired from politics. He has remained an official “Leader of the Nation” and retained a tight grip of Kazakhstan’s foreign and domestic policy. His recent announcements have signalled a tilt towards increased social spending. The reshuffle at the helm of the NBK signals that the regulator is far from achieving full independence. Furthermore, there are signs of increasing pressure on the central bank to provide long-term funding to the economy, which we find worrying.
Oil remains in a tug-of-war between fundamentals and a fickle sentiment in the global financial markets.
Brent and WTI futures settled at fresh four-month-highs of $68.50/barrel and $59.98/barrel mid-week, but had erased all the gains — and some more — by Friday’s close. However, technicals point to a pivot point in crude futures, with the 50-day moving average crossing over the 100 DMA last week. That’s typically a buy signal, but a sustained rally from the current levels is hard to see in the near-term.
Meanwhile, there were some interesting and unexpected outcomes from a high-profile OPEC/non-OPEC monitoring committee meeting in Baku on March 18. Among them were signs of a divergence in the views of Saudi Arabia and Russia, de facto leaders of the 24-producer alliance curbing supply to rebalance the market.
What explains Saudi Energy Minister Khalid al-Falih’s new hawkish stance and is the OPEC and non-OPEC partnership under some strain? Our short answer: No. We lay out our perspective of the evolving dynamics in the producers’ alliance, which is important to understanding the likely path of their collaboration.
We think that Kosmos Energy (KOS US) offers everything that is required from an internationally focused E&P company. It has a highly rated management team, strong balance sheet and free cash flow generation from its existing producing assets, low risk / high value near field exploration potential, selective high risk / reward frontier exploration in which it has a proven track record, it has done recent value accretive acquisitions with room for more, it has demonstrated the ability to farm-down its assets on multiple occasions and is currently in the process of a major asset sell down, which could surprise the market to the upside. Despite this the stock trades on a significant discount to risked NAV, making it a potential acquisition target and has plenty of catalysts coming up this year to close the valuation gap.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
Tightening supply fundamentals are starting to take centre-stage in the oil market, and briefly sent crude to a four-month high last week. But just as Brent crossed $68 during intraday trading and market watchers began to wonder if it was going to breach $70, the benchmark slipped down a few notches.
Crude’s jagged ascent has become a feature since the start of this year, making every upward surge feel tentative. The selling pressure that seized the crude market in the fourth quarter of last year is not yet done. Every rally seems to have plenty of skeptics waiting to sell into it.
Aside from OPEC’s output curbs, which surpassed 100% compliance in February, production from at least two producers not bound by quotas is under threat. Crude output in Venezuela, crippled by a major power outage for more than a week now, has plummeted, while the US says it wants to force Iranian crude exports to below 1 million b/d when the current batch of sanctions waivers expire at the start of May.
A US-China trade deal looks certain, even though the signing may be pushed back to April…or maybe June. However, economic worries elsewhere continue to weigh on oil market sentiment and demand growth expectations.
OPEC appears determined to stay the course with its production cuts in conjunction with its non-OPEC allies. But it sees non-OPEC supply growth this year dwarfing demand growth by nearly 1.1 million b/d, and is feeling the burden of rebalancing the market once again on its shoulders.
This week, we also discuss:
What jumped out at us in the IEA’s annual report
US EIA lowering its production forecasts
WTI Houston’s emergence as US crude benchmark
We note the controversial decision by Norway’s sovereign wealth fund to unwind its holdings in the upstream oil and gas sector, a topic we will be tackling in the next edition of Weekly Oil Views.
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Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
Investors who have bought CSE Global on dips since my last note would have profited ~18%.
The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).
Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.
We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
Investors who have bought CSE Global on dips since my last note would have profited ~18%.
The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).
Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.
We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.
An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.
A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK)made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).
So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.
This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.
After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier – alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.
Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU)announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Issuance of the new shares and common stock to be delisted from the Tokyo Stock Exchange
C
Japan
Descente
Off-Mkt
14-Mar
Tender Offer Close Date
C
Japan
JIEC
Off-Mkt
18-Mar
Tender Offer Close Date
C
Japan
Veriserve
Off-Mkt
18-Mar
Tender Offer Close Date
C
Japan
ND Software
Off-Mkt
25-Mar
Tender Offer Close Date
C
Japan
Showa Shell
Scheme
1-Apr
Close of merger
E
Japan
U-Shin
Off-Market
17-Apr
Tender Offer Close Date
C
NZ
Trade Me Group
Scheme
5-Mar
First Court Date
C
Singapore
Courts Asia Limited
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
4-Mar
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Taiwan
Yungtay Engineering
Off Mkt
17-Mar
Closing date of offer
C
Thailand
Delta Electronics
Off Mkt
26-Feb
Tender Offer Open
C
Finland
Amer Sports
Off Mkt
7-Mar
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina Welttransport
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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Oil remains in a tug-of-war between fundamentals and a fickle sentiment in the global financial markets.
Brent and WTI futures settled at fresh four-month-highs of $68.50/barrel and $59.98/barrel mid-week, but had erased all the gains — and some more — by Friday’s close. However, technicals point to a pivot point in crude futures, with the 50-day moving average crossing over the 100 DMA last week. That’s typically a buy signal, but a sustained rally from the current levels is hard to see in the near-term.
Meanwhile, there were some interesting and unexpected outcomes from a high-profile OPEC/non-OPEC monitoring committee meeting in Baku on March 18. Among them were signs of a divergence in the views of Saudi Arabia and Russia, de facto leaders of the 24-producer alliance curbing supply to rebalance the market.
What explains Saudi Energy Minister Khalid al-Falih’s new hawkish stance and is the OPEC and non-OPEC partnership under some strain? Our short answer: No. We lay out our perspective of the evolving dynamics in the producers’ alliance, which is important to understanding the likely path of their collaboration.
We think that Kosmos Energy (KOS US) offers everything that is required from an internationally focused E&P company. It has a highly rated management team, strong balance sheet and free cash flow generation from its existing producing assets, low risk / high value near field exploration potential, selective high risk / reward frontier exploration in which it has a proven track record, it has done recent value accretive acquisitions with room for more, it has demonstrated the ability to farm-down its assets on multiple occasions and is currently in the process of a major asset sell down, which could surprise the market to the upside. Despite this the stock trades on a significant discount to risked NAV, making it a potential acquisition target and has plenty of catalysts coming up this year to close the valuation gap.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
Tightening supply fundamentals are starting to take centre-stage in the oil market, and briefly sent crude to a four-month high last week. But just as Brent crossed $68 during intraday trading and market watchers began to wonder if it was going to breach $70, the benchmark slipped down a few notches.
Crude’s jagged ascent has become a feature since the start of this year, making every upward surge feel tentative. The selling pressure that seized the crude market in the fourth quarter of last year is not yet done. Every rally seems to have plenty of skeptics waiting to sell into it.
Aside from OPEC’s output curbs, which surpassed 100% compliance in February, production from at least two producers not bound by quotas is under threat. Crude output in Venezuela, crippled by a major power outage for more than a week now, has plummeted, while the US says it wants to force Iranian crude exports to below 1 million b/d when the current batch of sanctions waivers expire at the start of May.
A US-China trade deal looks certain, even though the signing may be pushed back to April…or maybe June. However, economic worries elsewhere continue to weigh on oil market sentiment and demand growth expectations.
OPEC appears determined to stay the course with its production cuts in conjunction with its non-OPEC allies. But it sees non-OPEC supply growth this year dwarfing demand growth by nearly 1.1 million b/d, and is feeling the burden of rebalancing the market once again on its shoulders.
This week, we also discuss:
What jumped out at us in the IEA’s annual report
US EIA lowering its production forecasts
WTI Houston’s emergence as US crude benchmark
We note the controversial decision by Norway’s sovereign wealth fund to unwind its holdings in the upstream oil and gas sector, a topic we will be tackling in the next edition of Weekly Oil Views.
Underlying profitability continues to deteriorate at Vodafone Idea (IDEA IN) (IDEA). Chris Hoare has updated his liquidity analysis, and estimates that IDEA needs prices to rise by over 50% to hit cash flow break-even in the medium term. That needs market behavior to change from Jio in particular. Bulls will point to IDEA’s current capital raising and the large capital raising planned at Bharti Airtel (BHARTI IN) as signalling a possible end to hostilities. However, the math at IDEA is such that even a $3.5bn injection gives only temporary relief. What they really need are price increases. Without them (and even with the capital increase), Chris thinks IDEA runs out of cash in about 2 years. We retain our Reduce recommendation and cut our price target to INR16.
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