In today’s briefing:
- Seven & I: Founder’s Death Fuels Value Act’s Activism, Angers The Board, Reduces Short Thesis Risk
- Wesfarmer’s Non-Binding Offer For Silk
- China Catering Sector: Long Xiabuxiabu / Short Jiumaojiu
- HSCEI Stocks to Buy at a Material Discount – Targeted Buying Levels in 2319 HK / 2020 HK / 9888 HK
- L’Oréal: +13% Since Initial Note. Strong Q1 Despite a Flattish China.
- Favor Defensives as S&P 500 Tests 4165-4200; Buys in Consumer Staples & Europe/UK Telecomm
- Keepers Holdings: Q4 2022 Concall, Reiterate Positive Outlook for 2023
- CBD – When The Catalyst Is Slapping You in the Face
- YERB.U: Challenger Brand in Secular Growth Industry
Seven & I: Founder’s Death Fuels Value Act’s Activism, Angers The Board, Reduces Short Thesis Risk
- Value Act’s investor activism campaign picked up steam following the death of Seven & I Holdings (3382 JP) founder.
- The board of Seven & I may have been aggravated by Value Act’s unreasonable demands and timing, leading to their first angry response in over two years.
- The damaged relationship between Seven & I and Value Act reduces the upside risk to our short thesis from disposal of underperforming businesses.
Wesfarmer’s Non-Binding Offer For Silk
- Wesfarmers Ltd (WES AU) has made a non-binding indicative Offer, by way of a Scheme, for Silk Laser Australia (SLA AU), an operator of specialist clinic networks across Australia.
- The Offer Price of $3.15/share is a decent 30.2% premium to last close. Wilson Asset Management, with 9.3% of shares out, is supportive.
- Wesfarmers has been granted 30 days to undertake due diligence on an exclusive basis.
China Catering Sector: Long Xiabuxiabu / Short Jiumaojiu
- We believe the recovery of China consumption is “not yet solid”, but not faltering.
- China catering sector’s recovery stays on track, although Q2 has historically been a low season.
- Long Xiabuxiabu and short Jiumaojiu to play the sector’s recovery while hedging against potential macro weakness.
HSCEI Stocks to Buy at a Material Discount – Targeted Buying Levels in 2319 HK / 2020 HK / 9888 HK
- At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. 1) Response to key levels. 2) Price action. 3) Momentum confirmation.
- China Mengniu Dairy Co Ltd (2319 HK), ANTA Sports Products Ltd (2020 HK) and Baidu Inc (9888 HK) are all trading at significant discounts to 2023 highs and LT highs.
- Today we highlight targeted support levels / buying opportunities in the coming 1-2 days in 2319 HK, 1-3 weeks in 2020 HK and 1-3 months in 9888 HK).
L’Oréal: +13% Since Initial Note. Strong Q1 Despite a Flattish China.
- Q1 20223 sales exceed expectations with LFL sales growth of 13.0% versus consensus of 7.3%.
- L’Oréal is ideally positioned in all regions, across all pricing points.
- China impact post-reopening still to be seen in figures. We expect upside from China in H2
Favor Defensives as S&P 500 Tests 4165-4200; Buys in Consumer Staples & Europe/UK Telecomm
- The S&P 500 is approaching the 4165-4200 area; we continue to believe this will cap upside in 2023, but we also acknowledge that a move to 4300-4325 is possible
- Considering limited upside in both scenarios, we continue to recommend shifting to defensives, particularly Health Care (XLV), Utilities (RYU, XLU), Consumer Staples (XLP), and precious metals miners (GDX)
- 10-Year and 30-Year Treasury yields testing short-term resistance while the US dollar (DXY) tests support at $101-101.50.
Keepers Holdings: Q4 2022 Concall, Reiterate Positive Outlook for 2023
- The Keepers Holdings (KEEPR PM) reported 26% YoY revenue growth and 41% YoY profit growth for FY22. Based on our estimates, the stock trades at 7.7x/6.6x FY23e/24e PE.
- Net cash represents a healthy 21% of market capitalization, and given its strong profitability, the management seemed reasonably confident in maintaining its 50% payout ratio (5%/6% dividend yield FY24e/25e).
- The management guided a structural industry uptrend with teens growth across all its spirits for FY23e/24e. We believe a multiple of 15x is a fair multiple for this company.
CBD – When The Catalyst Is Slapping You in the Face
- I recently made my first purchase for the year, buying a core position in Brazilian holdco Companhia Brasileira de Distribuição (CBD:NYSE).
- I believe it has merely been caught up in the general market/SIVB sell-off and the price being offered is too good to pass up.
- CBD is engaged in supermarket/retailing operations and is controlled by the French giant Casino, with 41% ownership.
YERB.U: Challenger Brand in Secular Growth Industry
- Yerbaé has been posting accelerating sales growth (+124% YoY in Q1E), using its diversified and growing distribution network which covers over 10,000 retail doors across the U.S.
- CEO Todd Gibson is a beverage industry veteran, having experience at Hansen’s Energy (Monster), SoBe, FUZE Beverage, and Coca Cola
- YERB.U is trading at 3.0x 2024E sales compared to high-growth peers at 5.9x, despite having the highest sales growth and gross margins Yerbaé Brands Corp. (YERB.U:TSXV) produces energy drinks using plant-based ingredients, tailored to health-conscious active lifestyle consumers.
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