In this briefing:
- Share Classifications: Mid-December 2018 Snapshot
- Red Hat Sets January 16, 2019 Special Meeting Date to Vote on IBM Deal.
- Tencent Music IPO: Price Target Hit; Risk/Reward Now More Balanced and Key Next Steps
- Renesas: Visit Suggests Utilisation Rate Rebound Could Take Longer Than Sell-Side Expects
- Trade Me (TMZ NZ): Hellman & Friedman Could Again Counter-Bid Apax, but Modestly
1. Share Classifications: Mid-December 2018 Snapshot
This weekly share class summary is a companion insight to Travis Lundy‘s H/A Spread & Southbound Monitor – most recently discussed in H/A Spread & Southbound Monitor – Going Into Year End.
This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region, and comprises four sets of data:
1. 82 ADRs
2. 105 Korean Prefs
3. 22 Regional Dual Classes
4. 7 Foreign/Local Thai shares
The average premium/discount for each set over a one-year period is graphed below.
For a granular breakdown of each set, PDFs are attached at the bottom of this insight.
2. Red Hat Sets January 16, 2019 Special Meeting Date to Vote on IBM Deal.
As discussed in my previous research piece, Red Hat (RHT US) Files Preliminary Merger Proxy for Its Acquisition by IBM (IBM US) , the timing of the shareholder vote to approve the merger with IBM would depend on the SEC’s review of the draft merger proxy filed on November 30, 2018. Red Hat has now set a meeting date of January 16, 2018. In this update I discuss the latest implications.
3. Tencent Music IPO: Price Target Hit; Risk/Reward Now More Balanced and Key Next Steps
Tencent Music Entertainment (TME US) rallied up 14% on day one of trade to hit our PT and closed up c8% on its first day of trade. Given the skepticism/ambivalence on the story, poor macro backdrop, weak recent listings from China in the US alongside a full-sized deal and a mid-December launch, this day one performance is a solid result in our view. We outline some further thoughts and next steps for the TME story below.
A recap of the trade: We recommended buying Tencent Music at the low end of the range ($13) and we estimated a base-case fair value of 14% upside. Tencent music rallied up 14% intraday on its first day of trade and closed up c8%. We think this is a fairly good result given the skepticism/ambivalence on the name alongside a weak macro backdrop and a mid-December deal-launch.
Historical week one trade provides mixed support for further gains:
Long-term – we prefer TME to Spotify but recent events give us pause on the cautious near-term view for Spotify:
Updated DCF Valuation:
GER view:
More details below…
4. Renesas: Visit Suggests Utilisation Rate Rebound Could Take Longer Than Sell-Side Expects
We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.
5. Trade Me (TMZ NZ): Hellman & Friedman Could Again Counter-Bid Apax, but Modestly
Trade Me (TME NZ), the largest online auction platform operating in New Zealand, has entered into a scheme implementation agreement with Apax Partners. Apax Partners has upped its bid for Trade Me from NZ$6.40 to $6.45 a share, to match Hellman & Friedman’s bid.
Hellman & Friedman has until the shareholder vote scheduled for April 2019, to make a binding offer which is superior to Apax Partners, according to press reports. While Hellman & Friedman will likely have one last roll of the dice with an improved bid, we continue to believe that that the formal “winning” bid is unlikely to present a material bump.
