In today’s briefing:
- HDFC/HDFC Bank Mega Merger: Index Implications as We Near Completion
- Tokyo Gas (9531 JP) Mega Buyback Announced
- HSI Market Consultation: Foreign Companies, Industry Groups, HK Companies
- STAR50 Index Rebalance Preview: Changes Depend on Minimum Listing History
- Blackmores (BKL AU) Signs SID with Kirin Holdings (2503 JP)
- Activision Blizzard – An Unsightly Mess
- SSE50 Index Rebalance Preview: Five Changes Coming Up in June
- Codan (CDA AU): Balancing Defence And Accelerated Preparedness
- Quiddity Leaderboard ES50 Sep 23: Vonovia Deletion Seems Likely; US$1.2bn Flow for Wolters Kluwer
- EQT/Dechra Pharmaceuticals: Generous Possible Offer
HDFC/HDFC Bank Mega Merger: Index Implications as We Near Completion
- Foreign shareholding has dropped in HDFC Limited and increased in HDFC Bank – the net effect is an increase in foreign room to just north of 18%.
- The merger is expected to complete in Q2/Q3 when there will be buying from MSCI trackers. There will be adhoc inclusions to the NIFTY, Nifty Next 50 and SENSEX indices.
- HDFC Limited (HDFC IN) trades 1.39% below the merger ratio with HDFC Bank (HDFCB IN) and also at a lower price to book.
Tokyo Gas (9531 JP) Mega Buyback Announced
- Five days ago, Tokyo Gas (9531 JP) announced a revision to earnings for the year to 31 March 2023. Today they reported results, and announced March 2024 guidance.
- The company also announced a buyback programme to spend up to ¥113 billion to repurchase up to 53mm shares (12.2% of TSO). ¥113 billion is a very specific number.
- With the price where it is, ¥113bn is “only” 9.6% of shares out but this is very interesting indeed.
HSI Market Consultation: Foreign Companies, Industry Groups, HK Companies
- Hang Seng Indexes has started a consultation on the eligibility of Foreign Companies in the Hang Seng Index, a review of the seven Industry Groups and number of HK constituents.
- We agree that foreign companies should be added to the index, no change needed to the Industry Groups, and the cap on the number of HK constituents should be removed.
- There are a few potential adds due to the removal of the cap on HK companies, while there are potential foreign company additions later this year or in 2024.
STAR50 Index Rebalance Preview: Changes Depend on Minimum Listing History
- The review period for the June rebalance ends 28 April. We expect the changes to be announced 26 May with the implementation taking place after the close on 9 June.
- Using a 12-month minimum listing history results in no index changes. Using a 6-month minimum listing history results in two changes – we think this is what will be used.
- The potential adds have outperformed the potential deletes but both sets of stocks have underperformed the SSE STAR50 (STAR50 INDEX) and the CSI Smallcap 500 Index – Shanghai (SH000905 INDEX).
Blackmores (BKL AU) Signs SID with Kirin Holdings (2503 JP)
- Blackmores Ltd (BKL AU) has signed a Scheme Implementation Deed with Kirin Holdings (2503 JP) for the acquisition of 100% of Blackmores by way of a scheme of arrangement.
- The A$95/share offer is a 23.7% premium to the last close and is at least a 20% premium to most other VWAPs.
- Blackmores Ltd (BKL AU) intends to pay a fully-franked special dividend of A$3.34/share. This will enable eligible shareholders to benefit from franking credits of A$1.43/share.
Activision Blizzard – An Unsightly Mess
- Last night the CMA chose to block the merger between Microsoft and Activision Blizzard in the UK on the grounds that it would harm competition in cloud gaming.
- The merits of that position are highly debatable in our view but that does not mean that the decision is bad for consumers.
- It also does not mean that the decision is bad for Microsoft in our view.
SSE50 Index Rebalance Preview: Five Changes Coming Up in June
- With 2 trading days left in the review period, we see 7 potential adds/5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
- We estimate one-way turnover of 5.58% at the June rebalance leading to a one-way trade of CNY 4.22bn. Index arb balances could increase the impact on the stocks.
- The potential adds have outperformed the potential deletes over the last couple of months and have underperformed over the last week.
Codan (CDA AU): Balancing Defence And Accelerated Preparedness
- The highly-anticipated Defence Strategic Review, released on the 24 April, clarifies the five key missions for the Australian Defence Force: maritime, land, air, space, and cyber.
- One takeaway recommended Defence balance the need for local content against its timely acquisition, suggesting increased off-the-shelf acquisitions. This may favour overseas contractors in place of the domestic industry.
- Codan (CDA AU), whose metal detectors and communications technology are used by the military, is one SME whose procurement speed may be scrutinised.
Quiddity Leaderboard ES50 Sep 23: Vonovia Deletion Seems Likely; US$1.2bn Flow for Wolters Kluwer
- The EURO STX 50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.
- Historically, these Rebalance events have had significant volume and ADV impact and they generally involve large cap names.
- In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.
EQT/Dechra Pharmaceuticals: Generous Possible Offer
- Dechra is in discussions with EQT and ADIA about a 4,070 cash possible offer (46.6% premium, 22.6x EV/NTM Fwd EBITDA and 32x Fwd P/E). PUSU deadline is 11 May.
- With the deal multiple at a slight premium (on both EV/Fwd EBITDA and Fwd P/E) over Zoetis, the market leader in animal health, the offer appears to be reasonably priced.
- My base case fair value estimate is 3,568p/share (DCF-based), 12.3% below the offer price. My TP is thus 4,070p. Gross spread is 9.1%, therefore I feel the risk/reward is balanced.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
