Brief Value Investing: Angang Steel: PMI Recovery to Support Shares: Close Short and more

In this briefing:

1. Angang Steel: PMI Recovery to Support Shares: Close Short
2. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?
3. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity
4. Havells India
5. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

1. Angang Steel: PMI Recovery to Support Shares: Close Short

INVESTMENT VIEW:
The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity.  Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price. 

We close our short on Angang Steel Co Ltd (H) (347 HK) shares. 

2. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?

• Carl Icahn has built his position since February 7th to where he now controls over 28% of the stock of Caesars Entertainment Corporation.
• He has already put three members on the board and will get a fourth seat if management can’t name a new CEO by April 15th.
• Icahn’s track record in casino deals has made him over $2.5bn since 1998/ Investors who joined him have made solid returns, deal after deals.

3. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity

• Negative press “noise” on the pension reform process, with heightened friction between the Executive and the Legislature, has hit the currency and equity markets
• This reflects the Bolsonaro administration’s limited engagement with the Legislature so far on pension reform
• Finance Minister Paulo Guedes is spearheading the effort on pension reform, and has the support of Rodrigo Maia, the leader of the Chamber of Deputies
• The latest poll on pension reform voting intentions in the Chamber suggest it is heading in the right direction, but that the administration needs to accelerate support to get the legislation approved; we see 3Q19 more likely than 2Q19 for pension reform approval
• We see the equity market and currency corrections as an opportunity, and we highlight our positive view on Banco Do Brasil Sa (BBAS3 BZ)

4. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

5. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

Kazuo Hirai, architest of Sony Corp (6758 JP)‘s remarkable recovery, announced today that he would be stepping down as Sony Chairman in Jun this year.  The transition in leadership to former CFO Kenichiro Yoshida has been completed and was accomplished smoothly so we do not see any negative impact.

Recent concerns about Sony’s loss making smartphone unit also appear to be being addressed as the Nikkei reports that Sony would look to cut costs and headcount in half by Mar 2020. The English article is here and the slightly more detailed Japanese version is here.