Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK)

Four years ago - a year before the last block - the Naspers discount to NAV was about 25%. A few years before that and it had been closer to zero. It briefly widened to almost 40% in Q1 2018 prior to the block sale before narrowing to the mid-30s through the block sale. In the past year, the look-through discount narrowed briefly to about 45% after the covid-crash, but then steadily widened to 55% by most of August-September and closing wider than 55% at the end of October. At that time, Prosus announced a US$5bn buyback. Prosus has now launched another Tencent Offer. This was as expected, but delayed. It is the same 2.0% as before and the price is nearly 50% higher than it was last time, so now it is nearly 50% more money.

However, the SINGLE MOST IMPORTANT factor to this announcement is that Prosus has committed to not selling more Tencent shares for another three years. That is not positive for Prosus and Naspers investors.

• Originally, the selldown was noted as a way to provide more balance and invest more in the other e-commerce businesses to create a group of verticals of best-in-class internet assets. Since three years ago, there has been some effort to grow them by bolting on some acquisitions, but not a huge amount. And last year Prosus decided that buying its own shares was a better deal than buying external assets to grow inorganically.

• At this point, it would seem that the most important capital allocation decision would be to see Prosus distribute a large amount of its Tencent shares to its shareholders. That would narrow the dollar discount. Perhaps the shareholders would keep the Tencent and perhaps they would not, but the dollar value of the discount would narrow dramatically.

• But Travis' bet is that the existing control group will not decide to give up their control of a US$250bn asset for the sake of good capital management of all its investors. I expect they will simply decide to hold the assets. Even if Tencent were split up into many parts by Chinese regulators I am not sure that Prosus would look to liquidate them for cash.

• If they liquidated them for cash and ended up with $200bn of cash and $20bn of e-Commerce portfolio, they would almost be obliged to distribute most of the cash. And Travis is not sure they want to give up their hold over the portfolio that size. Simply doing nothing makes them a Very Big Global Investor. Doing something good renders them a lot smaller.

Links to:
Travis' insight: Be Careful What You Wish For REDUX - Prosus Selling US$15bn in Tencent
my insight: StubWorld: Naspers/Tencent - And Another Three Years
Brian's insight: Tencent Placement - Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

Thai Beverage (THBEV SP)

I currently see ThaiBev's discount to NAV at ~25% - around its narrowest inside a year. Following the no-objection notice from the SGX on the 4 February concerning its BeerCo IPO, ThaiBev announced that the SGX has issued its conditional eligibility-to-list letter for the potential listing.

• ThaiBev's shares have declined 7% since my last insight. I see perhaps 12% upside from here if assuming a 25% discount to NAV. Given its growth potential, investors may switch out of ThaiBev into BeerCo. That, and comparative liquidity, could push the NAV discount wider.
• Using forward EBITDA, my current value for BeerCo of S$10.6bn is 18% below the indicative figure at the time of my last report StubWorld: Double Stub Via ThaiBev's BeerCo IPO. If extrapolating out the attributable profit in the 1Q21 for the full year and apply a peer multiple of ~26x, you get ~S$8bn. Both this calculation and the material decline in the EBITDA-based value serve to highlight the risks attached to valuing the spin-off.
• ThaiBev is trading at 14x trailing EV/EBITDA, compared to its five-year average of 16.5x. The peer average is 12.5x over the same period. But ThaiBev's forward EV/EBITDA is closer to 20x if you mark the minority interest in Saigon Beer to market.
• ThaiBev still appears fully priced here. I'd still sell it.

• ¥5,000/share would be the wrong price. At recently rumored offer valuations and IPO valuations touted in the media, Kioxia shares are worth well upwards of ¥2,000/share to Toshiba. The rest of the business should earn ¥300-350bn in EBITDA according to consensus estimates for 2023-2024. 6x EBITDA would add another ¥3,600-4,400/share. 8x EBITDA for the business would add ¥5,000-5,900/share to the value of Kioxia. ¥6,000/share would probably invite competition. ¥8,000/share would be more appropriate.
• Kioxia Timing is Important: The stock price last summer just before a Kioxia IPO was not too dissimilar from the price this past week. But Kioxia is worth more now than it was then given geopolitical concerns, tightness in the chip market, proposed subsidies to capacity buildout, etc. Average FY2022-2023 EBIT and EBITDA forecasts are up slightly since then. And TOPIX investors have bought about 45 million shares and are track to buy another 15mm shares at the end of April.
• There is another TOPIX upweight likely at the end of April. This should be known. But it is now more important. It will be another 15mm shares or 3.3% of shares out. It would be more like 5.2% of Real World Float assuming one counts all the Activist Holders now looking at this situation as float.
• Travis liked this at ¥3000 in January because of the squeeze to come and the possibility for lack of overhang because of activist action on the EGM and AGM. We have that lack of overhang, and now we have another story. He likes it now at ¥4530 (at the time of his insight). He would not sell or short this at ¥4500-5000/share yet.

Links to
Travis' insight: Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interesting
Mio Kato's insights: Toshiba – CVC Capital Partners Bid Highlights Value & Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

Back on the 26 October, Australia's largest non-alcoholic beverage bottler CCL announced an indicative proposal of A$12.75/share from Coca-Cola European Partners plc (CCEP). A firm Offer was announced on the 4 November. Reports immediately surfaced that some major shareholders considered the proposal inadequate. Responding to shareholder pushback, CCEP and CCL entered into a Scheme Implementation Deed at A$13.50/share on the 15 February, a 5.9% bump to the firm Offer on the 4 November, and a 25.6% premium to the undisturbed price. The Offer was declared best and final. Independent CCL shareholders will vote on the proposal at the Scheme Meeting to be held on the 16 April. Coca-Cola Co (KO US) (TCCC) with 30.808% of shares out, will abstain from voting.

• The board declared a full-franked dividend of A$0.18/share. The ex-date/record date is the 16 April/19 April, with payment on the 30 April. The Scheme consideration will be adjusted for this dividend.
• CCEP has now advised CCL that it has elected to purchase all the remaining shares held by TCCC at the implementation of the Scheme, for cash. TCCC will subsequently cease to be a shareholder of CCL.

• Trading tight at a gross/annualised spread of ~0.5%/4%. That's not particularly attractive, although the franking credits attached to the final dividend will represent additional value to those shareholders who are able to realise a tax benefit from those franking credits. Buy on any dips.

Invesco Office J Reit (3298 JP) (Mkt Cap: $1.6bn; Liquidity: $9mn)

links to Travis' insights:
Starwood Targets Japan's First Hostile REIT Full TOB for Invesco Office J-REIT
Starwood Hostile REIT Tender Launched

Think Childcare (TNK AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

(link to Janaghan's insight: Think Childcare (TNK AU): Busy Bees Delivers a Knock-Out Bid)

TAH merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated. Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value. The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials.

• A demerger, in Entain’s view, does not address the challenges facing the wagering ops, which needs to recast its agreements with state racing authorities, increase its investment in technology, and introduce innovative products, as it still lags online rivals. TAH's chairman was less enthusiastic with a sale, as he would prefer shareholders keep as much as they can. Complications involved in separating the lotteries and wagering businesses would also arise, such as certain tax advantages around potential capital gains tax rollover and dividend relief. A demerger would likely enjoy CGT rollover relief that a trade sale would not.
• It has been argued a demerger - which typically takes 6 to 12 months - is just too long for Tabcorp to get its house in order, and that a sale is a better-fast tacked option. Yet a sale would require approvals from racing regulatory bodies, hotels, pubs and clubs, state governments, the ACCC, and (potentially) FIRB. Changes of control provisions would also be triggered. In addition, probity and regulatory issue may have been ratcheted up in the wake of the Crown Resorts (CWN AU) saga - Crown Resorts (CWN AU): Blackstone Rolls the Dice.

• The announcement of a strategic review just three months into Gregg's tenure as chairman, suggests a sale or demerger may have legs. Especially noting recently departed CEO David Attenborough dismissed the idea of a demerger in August 2019 as "total nonsense". I'd be picking up shares around here - with 30% upside to my fair value. Currently trading at a 6% premium to its COVID-cliff.

(link to Travis' insight: Japan Activism: A Look into Wakita (8125 JP) Potential Pre-Event)

TOPIX Upweights: Big April Basket 2021 Pre-Event Was a WIN

The Singapore Exchange announced a regulatory framework for SPACs to list on the SGX and asked the market for feedback. Subsequent to the feedback phase ending on the 28 April, the framework may be finalised in the middle of this year. The SGX makes it clear SPACs are susceptible to execution risks where the SPAC is unable to identify a suitable target company or successfully consummate the business combination within the pre-determined period. But given the clear demand for such instruments, the SGX evidently sees the benefits outweigh the risks.

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier Genworth Financial Inc Cl A (GNW US) to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, Robert Sassoon asserts in SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

FTSE GEIS June Index Rebalance Preview. Stocks that could be included in the FTSE All-World index are Evergrande Property Services (6666 HK), China Resources Mixc Lifestyle Services (1209 HK), Pop Mart International Group Limited (9992 HK), Blue Moon Group Holdings (6993 HK), Remegen Co Ltd (9995 HK), Jinke Smart Services (9666 HK), Shimao Services Holdings Limited (873 HK), PTT Oil and Retail (OR TB), Big Hit Entertainment (352820 KS), SCG Packaging Public Company Limited (SCGP TB), MR D.I.Y. Group (MRDIY MK), Gland Pharma Ltd (GLAND IN) and Indian Railway Finance Corporation (IRFC IN). Stocks that could be included in the FTSE All-Country index are Yidu Tech Inc (2158 HK), Everest Medicines (1952 HK), Kerry Express Thailand (KEX TB), Converge ICT Solutions (CNVRG PM), Nanofilm Technologies International (NANO SP), and Roland Corp (7944 JP). Link to Brian's insight: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL. Read more: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL.

Global Clean Energy Index. The changes to the S&P Global Clean Energy Index have been announced. There are 52 additions to the index to take the number of index constituents up to 82. The changes are effective after the close of trading on 16 April. The 52 additions and capping changes will result in a one-way turnover of close to 55% and will require the ETFs tracking the index to trade US$12bn to rebalance their portfolios. Link to Brian's insight: Global Clean Energy Index: 52 Adds, 55% Index Turnover, US$12bn to Trade.

Straits Times Index Rebalance Preview. Jardine Strategic Holdings (JS SP) will be deleted from the MSCI and FTSE indices at the close of trading on 12 April. Strategic will also be deleted from the FTSE Straits Times Index (STI) (STI INDEX) at the close of trading on 12 April. The replacement for Strategic in the STI will be determined based on the closing prices on 8 April. Frasers Logistics & Industrial Trust (FLT SP) has a full market cap that is 10.1% higher than Suntec REIT (SUN SP) and is the most likely inclusion in the index with 2 trading days to go before the replacement is chosen. Link to Brian's insight: Straits Times Index Rebalance Preview: FLT Poised to Replace Jardine Strategic.