In this briefing:
1. HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco
- HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
- My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
- Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
- I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
