Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>The lows have likely been established for this correction, but a bottoming process would likely take weeks or potentially months and could come with more tests of the lows.</li>
<li>Japan's TOPIX and Nikkei 225 are each testing their respective downtrends. The EURO STOXX 50 is testing resistance in the 4040-4090 range. Germany's DAX is testing major resistance at 14,815-14,950.</li>
<li>It is likely that this initial 2-3 week bounce has run its course; stick with cyclical value and defensives, areas we have been focused on for most of 2022.</li>
</ul>


The lows have likely been established for this correction, but a bottoming process would likely take weeks or potentially months and could come with more tests of the lows.
Japan's TOPIX and Nikkei 225 are each testing their respective downtrends. The EURO STOXX 50 is testing resistance in the 4040-4090 range. Germany's DAX is testing major resistance at 14,815-14,950.
It is likely that this initial 2-3 week bounce has run its course; stick with cyclical value and defensives, areas we have been focused on for most of 2022.


Sticking With Cyclical Value and Defensives; Adding Large-Cap Japan Technology

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

ACS, Actividades de Construcción y Servicios / Event-Driven

ACS, Actividades de Construcción y Servicios

ACS enters the bid for Autostrade with an offer of €10 bn (4.5x 2019 EBITDA), above the €9.1 offered by the CNP consortium.
<div>
<ul>
<li>Both offers are within the range considered by the market €9 bn -  €11 bn, although below the €12 bn that Atlantia believes ASPI is worth.</li>
<li>
The activist fund TCI, which has 10% of Atlantia argues that the value of ASPI ranges between €11 bn and €12 bn.
</li>
</ul>
Assuming that ACS participates in the acquisition of ASPI by contributing funds equivalent to a percentage of the value of ASPI (88%) similar to its stake in Abertis (30% though ACS and 20% through Hochtief), and assuming a €10 bn valuation (for 100%), the investment would amount to c. €4 bn (vs. c. €5 bn in cash that ACS would receive in Q4 2021 from the industrial services disposal).
<ul>
<li>Proforma net debt/EBITDA above 2x, although CF would gain in visibility and stability, assuming that ACS does not use the proceeds to reduce leverage.</li>
<li>Dividends upstreamed to ACS via a potential Abertis/ASPI would increase its FCF (and therefore its dividend payout potential). Depending on how the deal is structured, it could add c. €500 mn to ACS's FCF.</li>
</ul>
That said, details on the possible economic offer and the structure of the operation are very limited, therefore it seems difficult to evaluate the impact on TP.
ACS has a 2021e 7% dividend yield (forecasted dividend of €1.93, source Capital IQ consensus), funded by Hochtief and Abertis, so it does not seem at risk. But if the ASPI operation succeeds, ACS will become an infrastructure focused company. Pension funds would be willing to acquire its shares up to a price where dividend yield reaches around 3%, thus meaning a substantial re-rating of ACS.
From my SOTP valuation, on conservative assumptions, there is a 15% upside to ACS, with the optionality of a deal to acquire ASPI as part of a consortium. Recommendation is long ACS, TP €32.6.
</div>

ACS enters the bid for Autostrade with an offer of €10 bn (4.5x 2019 EBITDA), above the €9.1 offered by the CNP consortium.


Both offers are within the range considered by the market €9 bn -  €11 bn, although below the €12 bn that Atlantia believes ASPI is worth.

The activist fund TCI, which has 10% of Atlantia argues that the value of ASPI ranges between €11 bn and €12 bn.


Assuming that ACS participates in the acquisition of ASPI by contributing funds equivalent to a percentage of the value of ASPI (88%) similar to its stake in Abertis (30% though ACS and 20% through Hochtief), and assuming a €10 bn valuation (for 100%), the investment would amount to c. €4 bn (vs. c. €5 bn in cash that ACS would receive in Q4 2021 from the industrial services disposal).

Proforma net debt/EBITDA above 2x, although CF would gain in visibility and stability, assuming that ACS does not use the proceeds to reduce leverage.
Dividends upstreamed to ACS via a potential Abertis/ASPI would increase its FCF (and therefore its dividend payout potential). Depending on how the deal is structured, it could add c. €500 mn to ACS's FCF.

That said, details on the possible economic offer and the structure of the operation are very limited, therefore it seems difficult to evaluate the impact on TP.
ACS has a 2021e 7% dividend yield (forecasted dividend of €1.93, source Capital IQ consensus), funded by Hochtief and Abertis, so it does not seem at risk. But if the ASPI operation succeeds, ACS will become an infrastructure focused company. Pension funds would be willing to acquire its shares up to a price where dividend yield reaches around 3%, thus meaning a substantial re-rating of ACS.
From my SOTP valuation, on conservative assumptions, there is a 15% upside to ACS, with the optionality of a deal to acquire ASPI as part of a consortium. Recommendation is long ACS, TP €32.6.


Atlantia - CDP - ACS: Moving Parts in the Acquisition of ASPI

Florentino Pérez is known for its deal-making prowess (both as head of Real Madrid and chairman of ACS).
<ul>
<li>On 2 October ACS announced negotiations to sell its Industrial Services division to Vinci for €5.2 bn (now undergoing due diligence). </li>
<li>On October 19, ACS announced that CIMIC (subsidiary of Hochtief) had entered a sale agreement with Elliot for 50% of subsidiary Thiess.</li>
</ul>
Both transactions would add cash to the group, and all three companies, ACS, Hochtief and CIMIC could end 2020 debt-free. This is in contrast with ACS traditionally being high leveraged, which would reduce the risk profile of the group.
With the extraordinary income from the sale of Industrial services, ACS could increase the size of its concession area where the flagship is Abertis (shared with <a href="https://www.smartkarma.com/entities/atlantia-spa" target="_blank" data-smartkarma-citation="entities:21157:1" rel="noopener">Atlantia SpA (ATL IM)</a>, currently a distressed seller), or it could increase its stake in Hochtief, even could do a bit of both.
<div>
ACS has been affected by the global crisis, and its value is well below the potential of its assets: its market cap is just 22% higher that what Vinci is willing to pay for half the business.
I see solid upside in ACS (and higher dividends), thus I recommend LONG ACS, target price €28.5 per share (applying a conservative 15% discount to my SOTP valuation), a 25% upside.
</div>

Florentino Pérez is known for its deal-making prowess (both as head of Real Madrid and chairman of ACS).

On 2 October ACS announced negotiations to sell its Industrial Services division to Vinci for €5.2 bn (now undergoing due diligence). 
On October 19, ACS announced that CIMIC (subsidiary of Hochtief) had entered a sale agreement with Elliot for 50% of subsidiary Thiess.

Both transactions would add cash to the group, and all three companies, ACS, Hochtief and CIMIC could end 2020 debt-free. This is in contrast with ACS traditionally being high leveraged, which would reduce the risk profile of the group.
With the extraordinary income from the sale of Industrial services, ACS could increase the size of its concession area where the flagship is Abertis (shared with Atlantia SpA (ATL IM), currently a distressed seller), or it could increase its stake in Hochtief, even could do a bit of both.

ACS has been affected by the global crisis, and its value is well below the potential of its assets: its market cap is just 22% higher that what Vinci is willing to pay for half the business.
I see solid upside in ACS (and higher dividends), thus I recommend LONG ACS, target price €28.5 per share (applying a conservative 15% discount to my SOTP valuation), a 25% upside.


<a href="https://www.smartkarma.com/entities/atlantia-spa" target="_blank" data-smartkarma-citation="entities:21157:1" rel="noopener">Atlantia SpA (ATL IM)</a><a href="https://www.atlantia.it/en/press-release/-/bulletin/view/699a3ebd-81fe-4d51-b275-ded5ffb8613f" target="_blank" rel="noopener">announced</a> on 17 October that it has agreed to sell a 49% stake in Telepass to global private markets investment manager Partners Group, on behalf of its clients.
Blackstone and Macquarie want Atlantia's toll roads in Italy. The funds would join the public bank CDP to acquire 88% of the toll road subsidiary (ASPI). Atlantia shot up 9% on 13 October in the stock market due to the possible agreement that will put an end to a long litigation.
Atlantia has <a href="https://www.atlantia.it/documents/20184/87656/2020-09-24_ASPI_Dual_track.pdf/6ce235e4-bfbd-4959-86bc-daa4d0d8aa81" target="_blank" rel="noopener">released a presentation</a> about the disposal plan for Autostrade per L'Italia (ASPI).
My SOTP valuation shows a NAV per share of €19.10, vs. the last close of €14.61. This means that the implied market valuation for ASPI is low and there is upside on Atlantia.
The value of the other assets ex-ASPI is known and higher than the amount of debt at the holding level. Atlantia receives dividends from them and they could attract interest from other trade buyers or infrastructure funds (ACS is selling its industrial services division and I would not rule out that it could try to buy Atlantia's stake in Abertis, where ACS has 50% minus 1 share, or increase its stake in Hochtief, which it sold to Atlantia during the Abertis JV deal).
On the minus side, there is uncertainty related to both the impact of the Covid pandemic and the collapse of the Genoa Bridge.
So uncertainties are becoming less so, and on the basis of my calculations, I believe there is upside in Atlantia, if and when the regulatory and event related uncertainties become clearer. In spite of leverage, Atlantia's assets are worth more than the debt at holding level. Therefore I recommend LONG Atlantia, target price €19.1.

Atlantia SpA (ATL IM)announced on 17 October that it has agreed to sell a 49% stake in Telepass to global private markets investment manager Partners Group, on behalf of its clients.
Blackstone and Macquarie want Atlantia's toll roads in Italy. The funds would join the public bank CDP to acquire 88% of the toll road subsidiary (ASPI). Atlantia shot up 9% on 13 October in the stock market due to the possible agreement that will put an end to a long litigation.
Atlantia has released a presentation about the disposal plan for Autostrade per L'Italia (ASPI).
My SOTP valuation shows a NAV per share of €19.10, vs. the last close of €14.61. This means that the implied market valuation for ASPI is low and there is upside on Atlantia.
The value of the other assets ex-ASPI is known and higher than the amount of debt at the holding level. Atlantia receives dividends from them and they could attract interest from other trade buyers or infrastructure funds (ACS is selling its industrial services division and I would not rule out that it could try to buy Atlantia's stake in Abertis, where ACS has 50% minus 1 share, or increase its stake in Hochtief, which it sold to Atlantia during the Abertis JV deal).
On the minus side, there is uncertainty related to both the impact of the Covid pandemic and the collapse of the Genoa Bridge.
So uncertainties are becoming less so, and on the basis of my calculations, I believe there is upside in Atlantia, if and when the regulatory and event related uncertainties become clearer. In spite of leverage, Atlantia's assets are worth more than the debt at holding level. Therefore I recommend LONG Atlantia, target price €19.1.

CEO, Manalo LLP

Roderick Manlo

Manalo LLP

We provide event driven research services to hedge fund managers and institutional investors that cover select definitive and pre-announced M&A deals, focusing on identifying and analysing the key upside and downside risks to a particular transaction. We primarily analyse $billion+ takeovers or mergers of publicly-traded European targets, but also look at deals globally to assess when there is a key European angle or aspect that can influence the deal outcome.

With over 16 years’ experience in risk arbitrage and investment banking, we specialise in providing research and advisory services on all facets of risk arbitrage, with particular expertise in:

- Cross-Border M&A
- Hostile Takeovers
- Local Takeover Codes
- Antitrust & Competition
- Financial Valuation
- Shareholder Vote Analysis
- Impacts of Precedent Transactions
- Risk Arbitrage Trading Strategies

Abertis Infraestructuras Sa / Event-Driven

ACS has been successful in structuring a deal that uses Hochtief as a vehicle to acquire Abertis. Hochtief proposed a competing offer for Abertis (an all-cash offer at €18.76 per share, and a 0.1281 HOT GY share alternative, both subject to minimum acceptances) which has a larger-than-expected premium to Atlantia’s pending offer (+14%). There are some key effects resulting from the structure of this counterbid and we assess the upcoming strategies and opportunities for the companies involved.

ACS has been successful in structuring a deal that uses Hochtief as a vehicle to acquire Abertis. Hochtief proposed a competing offer for Abertis (an all-cash offer at €18.76 per share, and a 0.1281 HOT GY share alternative, both subject to minimum acceptances) which has a larger-than-expected premium to Atlantia’s pending offer (+14%). There are some key effects resulting from the structure of this counterbid and we assess the upcoming strategies and opportunities for the companies involved.

Abertis /​ Atlantia: Strategies Behind the Hochtief & ACS Counterbid

Italy

Atlantia SpA manages transport infrastructures. The Company provides electronic tolling systems, airport automation, and traffic information services. Atlantia manages toll road networks in Italy, Brazil, Chile, India and Poland as well as airports in Rome.

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Atlantia SpA (ATL IM)

Sticking With Cyclical Value and Defensives; Adding Large-Cap Japan Technology

Sticking With Cyclical Value & Defensives; Adding Large-Cap Japan Technology. 2-3 week bounce has likely run its course with $TOPIX $Nikkei 225,...

Vermilion Research

Atlantia - CDP - ACS: Moving Parts in the Acquisition of ASPI

From my SOTP valuation, on conservative assumptions, there is a 15% upside to ACS, with the optionality of a deal to acquire ASPI as part of a...

Jesus Rodriguez Aguilar

ACS: Unlocking Value Via Disposals

I see solid upside in ACS (and higher dividends), thus I recommend LONG ACS. My valuation is €28.5 per share (by applying a conservative 15%...

Jesus Rodriguez Aguilar

Atlantia, Light at the End of the Tunnel

I believe there is upside in Atlantia, if and when the regulatory and event related uncertainties become clearer. Its assets are worth more than...

Jesus Rodriguez Aguilar

Abertis / Atlantia: Strategies Behind the Hochtief & ACS Counterbid

ACS has been successful in structuring a deal that uses Hochtief as a vehicle to acquire Abertis. Hochtief proposed a competing offer for Abertis...

Roderick Manlo

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Sticking With Cyclical Value and Defensives; Adding Large-Cap Japan Technology

Sticking With Cyclical Value & Defensives; Adding Large-Cap Japan Technology. 2-3 week bounce has likely run its course with $TOPIX $Nikkei 225,...

Vermilion Research

Atlantia - CDP - ACS: Moving Parts in the Acquisition of ASPI

From my SOTP valuation, on conservative assumptions, there is a 15% upside to ACS, with the optionality of a deal to acquire ASPI as part of a...

Jesus Rodriguez Aguilar

ACS: Unlocking Value Via Disposals

I see solid upside in ACS (and higher dividends), thus I recommend LONG ACS. My valuation is €28.5 per share (by applying a conservative 15%...

Jesus Rodriguez Aguilar

Atlantia, Light at the End of the Tunnel

I believe there is upside in Atlantia, if and when the regulatory and event related uncertainties become clearer. Its assets are worth more than...

Jesus Rodriguez Aguilar

Abertis /​ Atlantia: Strategies Behind the Hochtief & ACS Counterbid

ACS has been successful in structuring a deal that uses Hochtief as a vehicle to acquire Abertis. Hochtief proposed a competing offer for Abertis...

Roderick Manlo

Abertis / Atlantia: Strategies Behind the Hochtief & ACS Counterbid