Daily Brief Industrials: Mitsui Matsushima, Cummins India, Chilled & Frozen Logistics Holdings, R R Kabel, International Distributions Services, Enphase Energy, Electro Optic Systems Hldg, Urban-Gro and more

• Colour me perplexed. Murakami Group ran up Mitsui Matsushima (1518 JP)‘s share price in acquiring 29%. The pattern was clear, but one assumes everyone in-group was on the same page.
• The earliest buyer was NOMURA Aya. She bought early, slowly, then aggressively, then onshore buyers bought aggressively at higher prices. But she has now sold 6 days straight.
• The pattern is confusing but it will become clearer in coming days.

• There could be 13 changes for the Nifty200 Momentum 30 Index that will be implemented at the close on 27 June.
• If all changes are on expected lines, one-way turnover is estimated at 48.8% and that will result in a one-way trade of INR 35.5bn (US$426m).
• Since January, the potential adds to the index have outperformed the potential deletes by a big margin. Watch out for the general election results on 4 June for momentum change.

• Chilled & Frozen Logistics Holdings (9099 JP) asked AZ-Com Maruwa Holdings (9090 JP) repeatedly to respond to its entreaties, and delay the start of its tender offer until end-May.  
• C&F was running a process and wanted to be transparent. When AZ-Com announced, C&F said “we have counter-bidders” and the stock went up. Then a Nikkei article propelled it higher.
• AZ-Com then asked, twice, for clarity from C&F, saying investors deserved more information. The shoe was on the other foot. Now C&F has responded. Again. 

• Impending block deals which generally create supply over-hang on the stock leads to a negative impact on the stock
• These block deals generally include selling promoters and big funds at a price discount to its current market price
• Historically, such events suggest once the block deal is done; stock reacts positively creating a Special Situation Opportunity

• On 29 May, the last day of the extended PUSU deadline, Royal Mail owner International Distributions Services (IDS LN) agreed to a £3,568 million takeover offer (73% premium) from EP Group.
• The IDS board has obtained legally binding guarantees to safeguard customers, employees, and stakeholders, including support from Labour Party (likely winner of next UK general elections).
• Investors remain uncertain about the deal’s success, given a gross spread of 9.46%, although much of this may be attributed to the anticipated delay in receiving funds. Long at 335p.

• Our bullish outlook (since early-November 2023) remains intact. Few things are more bullish than indexes (SPX, NDX) breaking out to all-time highs following a major correction we had in 2022
• Last week (5/21/24) we discussed how it is a very bullish sign that there have been three upside gaps in May on the S&P 500, with all gaps left unfilled.
• Important short-term gap supports we are watching on SPX include 5250-5263, 5127-5142, and 5073-5101; so far 5250-5263 support has held. Also downgrading Industrials (XLI) to market weight

Electro Optic Systems (EOS) is a specialist defence company leveraging its optic technology within specific military applications, primarily remote weapons systems and maritime communications. It is benefiting from growth in global defence spend and, with its latest Counter-Uncrewed Aerial Systems (C-UAS) capabilities, an increase in drone warfare. A new management team, an improved commercial focus and a broadening product portfolio should assist in winning a greater share of these markets, driving growth and profitability.

• We are reiterating our Buy rating, projections and price target for urban-gro after meeting with management at their Centennial, CO headquarters.
• After a period where the company has repositioned the business model around the commercial real estate space, urban-gro is optimistic on the prospects for a return to growth for Controlled Environment Agriculture (“CEA”), driven by the pending reclassification of cannabis by the Drug Enforcement Administration and the potential for Florida to legalize recreational cannabis in November.
• Further, management is breaking down silos between functions to be able to offer more services and register stronger overall returns.