In today’s briefing:
- HSI Index Rebalance: Another Small Step Towards 80 Members, But BIG Impact
- Japan Among the Latest to Break Out; Buy Ideas in Growth/Cyclicals and Consumer Staples
- Disney: Don’t Listen to Loeb
- SoCar IPO Trading – Weak Subscription Rates and Remains Overvalued
- Kraft Heinz Co: New Product Launch & Other Drivers
- Deliveroo Has £1B+ Of Dry Powder; The Stock Is Undervalued, £75M Buyback Will Reassure Investors
- Tyson Foods Inc: The Tanmiah Food Partnership & Other Drivers
HSI Index Rebalance: Another Small Step Towards 80 Members, But BIG Impact
- The inclusion of China Shenhua Energy Co H (1088 HK), Chow Tai Fook Jewellery (1929 HK), Hansoh Pharmaceutical (3692 HK) and Baidu (9888 HK) takes us to 73 index constituents.
- Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover of 5.09% and will result in a one-way trade of HK$10,562m.
- There are large shorts on Chow Tai Fook Jewellery (1929 HK) and Hansoh Pharmaceutical (3692 HK) and there could be some short covering from now to implementation.
Japan Among the Latest to Break Out; Buy Ideas in Growth/Cyclicals and Consumer Staples
- The theme we have seen over the past four weeks is an increasing number of indexes reversing 4-10-month downtrends and/or breaking above important resistance levels, with no failed breakouts.
- We continue to believe that global equities are going through a bottoming process, but the real test will come during the eventual pullback, which we believe we are now experiencing.
- We are watching to see whether these breakout levels and important moving averages (e.g., 50-day MAs) will hold.
Disney: Don’t Listen to Loeb
- This week, Thirdpoint’s Dan Loeb wrote a letter to Disney asking it to cut costs, spin ESPN, and buy in Hulu.
- We agreed with Loeb two years ago, but don’t see the strategic rationale this time around…Disney isn’t bloated, needs ESPN’s FCF, and doesn’t need to spend $9B on Hulu today.
- We do agree with Loeb’s points about not reinstating the dividend (better use of FCF on Disney + and other investments) and refreshing a (strangely weird) Board of Directors.
SoCar IPO Trading – Weak Subscription Rates and Remains Overvalued
- SOCAR (403550 KS) raised around US$78m in its South Korea IPO, after the deal was priced at 28,000 KRW/share, below the bottom end of its initial IPO price range.
- Subscription rates for SoCar have been tepid, and previous deals with similar subscription rates as that of SoCar have had poor debuts, closing -8.2% on average.
- The lack of instis opting for lockup will likely result in a selldown given its weak fundamentals and lofty valuations.
Kraft Heinz Co: New Product Launch & Other Drivers
- Kraft Heinz delivered outstanding second-quarter results.
- The company is aware of the Despite the effects of the current inflationary environment on Kraft Heinz’s business, the company delivered a solid result, surpassing Wall Street expectations in terms of both, revenues and earnings.
- Overall, we are neutral on Kraft Heinz we give them a ‘Hold’ rating with a revised target price.
Deliveroo Has £1B+ Of Dry Powder; The Stock Is Undervalued, £75M Buyback Will Reassure Investors
- The food-delivery company Deliveroo (ROO LN) initiated the stock buyback program and will purchase up to £75M worth of shares to reassure investors.
- Deliveroo (ROO LN) is down ~77% from the IPO price as Covid lockdown restrictions have ended and revenue growth slowed significantly.
- Deliveroo (ROO LN) currently trades at 0.1x EV/2022E GMV, a discount relative to its key peers that trade at an average of 0.3x EV/2022E GMV.
Tyson Foods Inc: The Tanmiah Food Partnership & Other Drivers
- Tyson Foods delivered mixed third-quarter result surpassing revenue expectations as a result of the price increases but failed to meet Wall Street expectations with respect to earnings given the inflationary pressures.
- In order to counteract the rise in the cost of goods, the company implemented pricing efforts, which resulted in an increase in sales for the entire year.
- Among major updates, Tyson entered into a joint venture agreement with the Saudi Arabian Tanmiah Food Company.
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