Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Interesting Strategic Move: On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and*But A Pricey Deal: While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny.

*Interesting Strategic Move: On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and*But A Pricey Deal: While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny. 

*Crackdown Begins: The State Administration for Market Regulations (SAMR) or better know as mainland China’s antitrust regulator fined China Literature (772.HK), Tencent Holdings (700.HK) [Tencent] subsidiary CNY 500,000 for failing to gain certain acquisition or buyout approvals – thereby violating the country’s anti-monopoly laws; and *Small Fine, But Implications Large: The current Tencent fine is relatively small compared to the size of the company, however, it does serve as a wake-up call to halt M&amp;A activity without the requisite regulatory sign off. SAMR is also looking into a recent deal between Huya (HUYA.US) and Douyu (DOYU.US) where Tencent would have 68% of voting shares in the combined entity.

*Crackdown Begins: The State Administration for Market Regulations (SAMR) or better know as mainland China’s antitrust regulator fined China Literature (772.HK), Tencent Holdings (700.HK) [Tencent] subsidiary CNY 500,000 for failing to gain certain acquisition or buyout approvals – thereby violating the country’s anti-monopoly laws; and *Small Fine, But Implications Large: The current Tencent fine is relatively small compared to the size of the company, however, it does serve as a wake-up call to halt M&amp;A activity without the requisite regulatory sign off. SAMR is also looking into a recent deal between Huya (HUYA.US) and Douyu (DOYU.US) where Tencent would have 68% of voting shares in the combined entity.

Tencent Holdings – Slap On The Wrist For Now

*Near-Term Pain: The Australian Prudential Regulatory Authority (APRA) completed its review of WestPac’s risk governance program and Westpac is now likely to enter into enforcement action and remediation. In addition, APRA has also announced that it had taken action against Westpac New Zealand due to the subsidiary’s breach of liquidity requirements; and*Small Gain: Management announced the widely anticipated sale of its general insurance business to Allianz (ALV.GR) in addition to an exclusive 20-year agreement to distribute general insurance products to Westpac customers for AUD 725 mn.

*Near-Term Pain: The Australian Prudential Regulatory Authority (APRA) completed its review of WestPac’s risk governance program and Westpac is now likely to enter into enforcement action and remediation. In addition, APRA has also announced that it had taken action against Westpac New Zealand due to the subsidiary’s breach of liquidity requirements; and*Small Gain: Management announced the widely anticipated sale of its general insurance business to Allianz (ALV.GR) in addition to an exclusive 20-year agreement to distribute general insurance products to Westpac customers for AUD 725 mn.

WestPac Banking – One Step Forward, Two Steps Back

*Strong APT FY 1Q21 Results: Afterpay released a strong quarterly update with momentum across the entire business with further integrations with large retailer contracts ahead of the holiday shopping season. GMV of AUD 4.1 bn during the quarter; active customers are 11.2 mn, up from 9.9m at end of June – ahead of our expectations; and Australia in-store sales are recovering, representing close to 20% of total sales;*Earning Their Stripe: Afterpay had also announced that it had entered into a strategic partnership with Stripe Payments,  a major global payments company with over 100,000 SMBs, to allow its users to offer Afterpay their customers which should allow it to expand its reach among online shoppers; and  *Sprinkling More Fairy Dust: Tencent Holdings (700.HK) [Tencent] continues to hit it out of the park with its Afterpay Touch (APT.AU) [Afterpay] stake. In addition to a superb return on investment of 358% over the past five months since the stake announcement, this alliance with Australia’s premier financial technology buy-now, pay later (BNPL) company is paying dividends to Tencent in numerous other ways.

*Strong APT FY 1Q21 Results: Afterpay released a strong quarterly update with momentum across the entire business with further integrations with large retailer contracts ahead of the holiday shopping season. GMV of AUD 4.1 bn during the quarter; active customers are 11.2 mn, up from 9.9m at end of June – ahead of our expectations; and Australia in-store sales are recovering, representing close to 20% of total sales;*Earning Their Stripe: Afterpay had also announced that it had entered into a strategic partnership with Stripe Payments,  a major global payments company with over 100,000 SMBs, to allow its users to offer Afterpay their customers which should allow it to expand its reach among online shoppers; and  *Sprinkling More Fairy Dust: Tencent Holdings (700.HK) [Tencent] continues to hit it out of the park with its Afterpay Touch (APT.AU) [Afterpay] stake. In addition to a superb return on investment of 358% over the past five months since the stake announcement, this alliance with Australia’s premier financial technology buy-now, pay later (BNPL) company is paying dividends to Tencent in numerous other ways.

Tencent Holdings - It Keeps Getting Better

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<div><a href="https://www.smartkarma.com/entities/lufax-holdings" target="_blank" data-smartkarma-citation="entities:29690:1" rel="noopener">Lufax Holdings (LU US)</a> is a leading personal financial services platform in China with a focus on retail borrowing and wealth management. Lufax has launched its IPO at a price range of $11.50-13.50 per ADS to raise net proceeds of $2,109 million at the mid-point of the IPO price range. At the mid-point of the IPO price range, Lufax will command a market cap of $30.5 billion which is around 20% lower than the 2018 Series C round valuation of $39 billion. </div><div><div><div class="content-highlight">In <a href="https://www.smartkarma.com/insights/lufax-ipo-initiation-lost-in-transition" target="_blank" rel="noopener">our initiation note</a>, we stated that while Lufax has several attractive attributes, it is a business in transition which magnifies the risk profile. Overall, our valuation analysis suggests that the IPO price range is unattractive and we would be inclined to give the IPO a pass.</div></div></div>

Lufax Holdings (LU US) is a leading personal financial services platform in China with a focus on retail borrowing and wealth management. Lufax has launched its IPO at a price range of $11.50-13.50 per ADS to raise net proceeds of $2,109 million at the mid-point of the IPO price range. At the mid-point of the IPO price range, Lufax will command a market cap of $30.5 billion which is around 20% lower than the 2018 Series C round valuation of $39 billion. In our initiation note, we stated that while Lufax has several attractive attributes, it is a business in transition which magnifies the risk profile. Overall, our valuation analysis suggests that the IPO price range is unattractive and we would be inclined to give the IPO a pass.

Australia

Afterpay Limited provides financial solutions. The Company offers payment platform that allow users to maintain financial wellness and control, by splitting payments in four, for both online and in-store purchases. Afterpay serves customers globally.

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Afterpay (APT AU)

Challenger - Big Opportunity

CHALLENGER LTD: Challenger announced its intention to acquire MyLifeMyFinance . This deal, while small, was not cheap - but no doubt will be...

Thomas J. Monaco

Tencent Holdings – Slap On The Wrist For Now

TENCENT HOLDINGS: SAMR fined Tencent's subsidiary CNY 500,000 for failing to gain certain acquisition or buyout approvals. The fine is small but...

Thomas J. Monaco

WestPac Banking – One Step Forward, Two Steps Back

WESTPAC BANKING: APRA Hits Westpac With Remediation For Risk Governance And New Zealand Liquidity Charges, While Allianz Buys Insurance Unit.

Thomas J. Monaco

Tencent Holdings - It Keeps Getting Better

TENCENT HOLDINGS: Tencent Keeps hitting The Ball Out of The Park With Afterpay, Who Reported Solid FY 1Q21 Results and Another Partnership

Thomas J. Monaco

Lufax IPO: Valuation Insights

Our valuation analysis suggests that the IPO price range is unattractive and we would be inclined to give the IPO a pass.

Arun George

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