Daily Event-Driven: NTT Buyback Almost Done and more

In this briefing:

1. NTT Buyback Almost Done
2. The GER Weekly EVENTS Wrap: Don Quijote, M1, Healius and Upcoming M&A Catalysts
3. BGF Holdings Stub Trade: More Price Correction on Sub Is Still Ahead

1. NTT Buyback Almost Done

On November 6th, NTT (Nippon Telegraph & Telephone) (9432 JP)announced a ¥150 billion buyback program, and NTT Docomo Inc (9437 JP)announced that its very large ¥600 billion buyback program presented days before would be done through a single below-market-price Tender Offer where NTT was expected to be the only seller.  That left NTT buying shares on market and NTT Docomo buying shares off-market in the immediate future. 

The Tender Offer went through as planned (though NTT sold a tiny trifle less than expected). 

On January 7th, NTT announced it had repurchased 8.4mm shares for ¥38.8 billion, leaving only ¥15.35 billion to repurchase in this program. That is worth about 7-8 trading days of buying. The buyback is therefore almost done. 

A hint as to the future came in a Nikkei article in December. It may be many months before we see more NTT on-market buybacks. 

2. The GER Weekly EVENTS Wrap: Don Quijote, M1, Healius and Upcoming M&A Catalysts

In this week’s GER M&A wrap, we highlight the dwindling likelihood of a follow-on deal for Don Quijote Holdings (7532 JP) , which is now trading below terms. Secondly, we take a contrarian view on the M1 Ltd (M1 SP) deal and contend there is less likely to be a bidding war. Finally, we update on rejected by Healius (HLS AU) and provide a comprehensive list of upcoming catalysts for near-term M&A deals. 

The rest of our event-driven research can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

3. BGF Holdings Stub Trade: More Price Correction on Sub Is Still Ahead

• BGF Retail (282330 KS) was down 12% last week. BGF Co Ltd (027410 KS) was down only 4.5%. Finally, they are now above 20D MA. This happens for the first time since late Nov. But Holdco discount is still at 50%. Similarly, price ratio is still close to the yearly low.
• Usually, I’d close a position when I reach ±0.5~0 σ on 20D MA. In this case, Holdco discount is too harsh to do so. Sub price/price ratio has been negatively correlated. Valuation wise, Sub price correction isn’t over yet. PER on FY19e is around 20x. This is about 7% higher than GS Retail (007070 KS) even though GS Retail EBITDA margin is slightly higher.
• It also appears that sentiments on the entire retail sector won’t improve any time soon. The government is hinting a possible change on minimum wage. This is positive on Sub. But fundamentally, Korean CCSI is still on the decline. The newly implemented franchisee support measures will further worsen sentiments. I wouldn’t close this position yet.