In today’s briefing:
- Toshiba – HDD Business Risk
- Essential Metals In Limbo As MinRes Lurks
- Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion
- Dechra Pharmaceuticals (DPH LN): Best Case Scenario Offers 10% Upside Potential
- Competing Proposals
Toshiba – HDD Business Risk
- We have been tracking Toshiba’s rapidly deteriorating HDD business over the last few quarters.
- Recent trends raise further concerns about the long-term viability of the business.
- In particular, visibility remains low on a strong recovery in demand and until that occurs the possibility of a YoY deterioration remains high.
Essential Metals In Limbo As MinRes Lurks
- On the 9th Jan, lithium player Essential Metals (ESS AU) entered into a Scheme with Tianqi Lithium JV, comprising Tianqi Lithium (9696 HK) (51%) and IGO Ltd (IGO AU) (49%).
- Shortly before the 20 April Scheme Meeting, Mineral Resources (MIN AU) announced a 19.55% stake.
- A Scheme failure was expected. And 68.47% voted against the transaction. The question is – now what?
Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion
- Dongwon Industries’ float rate is less than 10% (1 – 63.15% – 27.65% = 9.20%), which makes it ineligible for KOSPI 200. KRX will reflect this in the June review.
- The passive outflow size due to K200 deletion is expected to be about 50 billion won, which will cause an impact of about 28x ADTV.
- Considering this deletion has not been sufficiently exposed in the market, the actual price impact may be even more significant and preemptive.
Dechra Pharmaceuticals (DPH LN): Best Case Scenario Offers 10% Upside Potential
- Dechra Pharmaceuticals (DPH LN) received an offer from the Swedish private equity firm EQT regarding a possible all-cash deal, where Dechra shareholders would receive £40.70 per ordinary share in cash.
- Right after the announcement, Dechra shares surged 33%. The shares are currently trading at £37.66, implying 10% upside potential.
- Without EQT offer, based on current financial performance, Dechra has a bleak outlook. Currently, Dechra has average target price of £39.39, implying a spread of just ~5%.
Competing Proposals
- Middle East and Africa leading payments processing firm Network International is in play. On 21 April, Brookfield submitted a 400p competing proposal, vs. CVC/Francisco’s earlier 387p. Network was trading cheaply.
- Exposure to underserved MEA markets should support sustainable longer-term growth. My fair value estimate is 431p. The shares trade 0.75% below Brookfield’s proposal, the market awaits a counteroffer from CVC/Francisco.
- The fact that Brookfield has raised just 3.4% above CVC/Francisco seems to signal that Brookfield will be cautious in case of an “auction”. Long.
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