Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In a strategic review back in August, downstream fuel supplier and convenience operator <a href="https://www.smartkarma.com/entities/caltex-australia-ltd" target="_blank" data-smartkarma-citation="entities:345:1" rel="noopener">Caltex Australia (CTX AU)</a> <a href="https://www.asx.com.au/asxpdf/20190827/pdf/447wg6297n33s0.pdf" target="_blank" rel="noopener">identified</a> 500 sites it considered would match its convenience retail strategy; with a further 50 sites to be divested.
Yesterday, <a href="https://www.smartkarma.com/entities/caltex-australia-ltd" target="_blank" data-smartkarma-citation="entities:345:1" rel="noopener">Caltex Australia (CTX AU)</a> <a href="https://www.asx.com.au/asxpdf/20191125/pdf/44bwq8x7xg0cdh.pdf" target="_blank" rel="noopener">announced</a> plans for a property IPO involving 250 freehold sites of those 500 core sites previously flagged. The intention was/is to spin-off 49%, with Caltex retaining a majority interest, and entering into long-term lease agreements over each site, making annual rental payments of A$80-100mn, or a possible market cap of A$1.8bn, if using the mid-way of the rent figures and 5% yield. The transaction was/is expected to be completed in the first half of 2020. 
It turns out there were significantly more developments taking place behind the scenes. Caltex has now <a href="https://www.asx.com.au/asxpdf/20191126/pdf/44bylc73fnjmbn.pdf" target="_blank" rel="noopener">announced</a> the receipt of a US$5.8bn non-binding, indicative conditional proposal from convenience-store operator <a href="https://www.smartkarma.com/entities/alimentation-couche-tard-inc" target="_blank" data-smartkarma-citation="entities:25103:1" rel="noopener">Alimentation Couche-Tard (ATD/A CN)</a> at A$34.50/share, in cash, by way of a Scheme, less any dividends declared by Caltex.
This proposal followed an earlier indicative bid from Couche-Tard at A$32, which was rejected on the basis the price was inadequate.
Couche-Tard's Offer is subject to a number of conditions, including due diligence, securing necessary financing, MACs, FIRB and unanimous support from Caltex's board. Caltex said the IPO was not related to Couche-Tard's proposal.
The proposal is at a preliminary stage and there can be no guarantee ongoing discussion will lead to a firm Offer, but I think Caltex needs to engage here. 
As always, more below the fold.
<hr>
For more about the particulars of Australian M&amp;A, please see the <a href="https://www.smartkarma.com/insights/quiddity-australia-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:30118" rel="noopener">Quiddity Australia M&amp;A Guide 2019</a>.

In a strategic review back in August, downstream fuel supplier and convenience operator Caltex Australia (CTX AU) identified 500 sites it considered would match its convenience retail strategy; with a further 50 sites to be divested.
Yesterday, Caltex Australia (CTX AU) announced plans for a property IPO involving 250 freehold sites of those 500 core sites previously flagged. The intention was/is to spin-off 49%, with Caltex retaining a majority interest, and entering into long-term lease agreements over each site, making annual rental payments of A$80-100mn, or a possible market cap of A$1.8bn, if using the mid-way of the rent figures and 5% yield. The transaction was/is expected to be completed in the first half of 2020. 
It turns out there were significantly more developments taking place behind the scenes. Caltex has now announced the receipt of a US$5.8bn non-binding, indicative conditional proposal from convenience-store operator Alimentation Couche-Tard (ATD/A CN) at A$34.50/share, in cash, by way of a Scheme, less any dividends declared by Caltex.
This proposal followed an earlier indicative bid from Couche-Tard at A$32, which was rejected on the basis the price was inadequate.
Couche-Tard's Offer is subject to a number of conditions, including due diligence, securing necessary financing, MACs, FIRB and unanimous support from Caltex's board. Caltex said the IPO was not related to Couche-Tard's proposal.
The proposal is at a preliminary stage and there can be no guarantee ongoing discussion will lead to a firm Offer, but I think Caltex needs to engage here. 
As always, more below the fold.

For more about the particulars of Australian M&amp;A, please see the Quiddity Australia M&amp;A Guide 2019.

Caltex's Proposed Retail IPO Triggers Revised Bid From Couche-Tard

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Saudi Aramco is the world’s largest integrated oil &amp; gas company and according to the company, it produces one in every eight barrels of crude oil globally. Aramco produces 13.6m barrels per day of oil equivalent, of which 10.3m barrels per day are crude oil including blended condensate. The company on Sunday announced its indicative price range for the IPO which gives an implied valuation of around USD1,660bn at the midpoint of the price range. The Saudi Arabian Kingdom initially sought a valuation of about USD2trn, however, the international investors have remained less interested in the IPO due to lower oil prices and geopolitical risks associated with investing in the company.This insight focuses on the company’s valuation where we have attempted to value the company using different approaches. Though the company’s Implied EV/Barrel of Proved Oil Reserve is at a steep discount to large integrated oil peers, our cashflow based valuation indicates that the stock is overvalued at the indicative target price for the IPO. Furthermore, the Government of Saudi Arabia’s recent measures to reduce the royalty rate and the tax rate on Aramco’s earnings were aimed at boosting the company’s valuation prior to its IPO and the valuation remains sensitive to changes in these measures. At the current Brent price of around USD70 per barrel, we have valued the company at USD1.27trn, which is a 23% discount to the company’s implied valuation based on midpoint of its IPO range. At an assumed Brent Price of above USD100 per barrel, the valuation hits in excess of USD2trn, however, the tax and royalty regime is structured in a way that the government will benefit the most when oil price goes up.We discuss the details below.

Saudi Aramco is the world’s largest integrated oil &amp; gas company and according to the company, it produces one in every eight barrels of crude oil globally. Aramco produces 13.6m barrels per day of oil equivalent, of which 10.3m barrels per day are crude oil including blended condensate. The company on Sunday announced its indicative price range for the IPO which gives an implied valuation of around USD1,660bn at the midpoint of the price range. The Saudi Arabian Kingdom initially sought a valuation of about USD2trn, however, the international investors have remained less interested in the IPO due to lower oil prices and geopolitical risks associated with investing in the company.This insight focuses on the company’s valuation where we have attempted to value the company using different approaches. Though the company’s Implied EV/Barrel of Proved Oil Reserve is at a steep discount to large integrated oil peers, our cashflow based valuation indicates that the stock is overvalued at the indicative target price for the IPO. Furthermore, the Government of Saudi Arabia’s recent measures to reduce the royalty rate and the tax rate on Aramco’s earnings were aimed at boosting the company’s valuation prior to its IPO and the valuation remains sensitive to changes in these measures. At the current Brent price of around USD70 per barrel, we have valued the company at USD1.27trn, which is a 23% discount to the company’s implied valuation based on midpoint of its IPO range. At an assumed Brent Price of above USD100 per barrel, the valuation hits in excess of USD2trn, however, the tax and royalty regime is structured in a way that the government will benefit the most when oil price goes up.We discuss the details below.

Saudi Aramco IPO Valuation: Overambitious Expectations Lowered, the Discount Is Still Not Sufficient

Founder & CEO. Oil markets macro-analysis., Vanda Insights

Vandana Hari

Founder & CEO. Oil markets macro-analysis.

Vanda Insights

Vanda Insights is a Singapore-based boutique provider of intelligence on the global energy markets, launched in September 2016. The venture was born out of a desire to extract the signal from the noise in the complex and often volatile oil markets. Our succinct and clear macro analysis is relied upon by thousands of readers globally, including those doing business directly or indirectly in the physical commodity and derivatives markets; wealth managers; governments, regulatory bodies and think-tanks; as well as trade organizations and educational institutions.

Global Energy Markets

Commodities

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  
The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.
It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude's rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters -- the EIA, OPEC and IEA -- in their latest monthly reports last week.
The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  
The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.
It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude's rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters -- the EIA, OPEC and IEA -- in their latest monthly reports last week.
The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

Weekly Oil Views: Barry Didn't Chase the Bears Away

Equity Analyst - Asia Consumer Sector, Investory

Devi Subhakesan

Equity Analyst - Asia Consumer Sector

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

Thematic (Sector/Industry)

On Friday, March 15th, an estimated 1.6 million students in over 120 countries <a href="http://time.com/tag/climate-change/" target="_blank">(source: Time magazine)</a> walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors - sovereign funds, pension funds, insurance companies - have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions - primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.
Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on 'climate action' - it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of <a href="http://www.climateaction100.org/" target="_blank">Climate Action 100+</a>, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil &amp; Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact - by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.
In the detailed note below we
<ul>
<li>
discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors -Coal, Oil &amp; Gas, Automobiles/Aviation, Consumer goods -  that are associated with carbon emissions. </li>
<li>
analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.</li>
<li>
highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.</li>
<li>
present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. </li>
</ul>
<div class="content-highlight">
However, the report does NOT discuss potential risks to businesses from the aftermath of Climate change. Unlike our recently released report <a href="https://www.smartkarma.com/insights/fast-fashion-in-asia-trendy-clothing-s-toxic-trails-investors-beware" target="_blank" data-smartkarma-citation="insights:27669">Fast Fashion in Asia: Trendy Clothing’s Toxic Trails - Investors Beware</a> that looked into sector's environmental violations and attempted to estimate potential earnings/growth/valuation downside as leading textile players adopt sustainable practices, we believe the impact of unpredictable climate change poses a threat that is not easy to identify or quantify.  
</div>

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors - sovereign funds, pension funds, insurance companies - have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions - primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.
Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on 'climate action' - it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil &amp; Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact - by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.
In the detailed note below we


discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors -Coal, Oil &amp; Gas, Automobiles/Aviation, Consumer goods -  that are associated with carbon emissions. 

analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.

highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.

present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 


However, the report does NOT discuss potential risks to businesses from the aftermath of Climate change. Unlike our recently released report Fast Fashion in Asia: Trendy Clothing’s Toxic Trails - Investors Beware that looked into sector's environmental violations and attempted to estimate potential earnings/growth/valuation downside as leading textile players adopt sustainable practices, we believe the impact of unpredictable climate change poses a threat that is not easy to identify or quantify.  


Climate Action - School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  
<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/949/original/Capture%201.PNG?1552520300" class="editor-image img-responsive" data-smartkarma-image-id="81949"></figure>
<div class="content-caption">S&amp;P Capital IQ</div>
</div>

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  


S&amp;P Capital IQ


United Kingdom

BP plc is an oil and petrochemicals company.  The Company explores for and produces oil and natural gas, refines, markets, and supplies petroleum products, generates solar energy, and manufactures and markets chemicals.  BP's chemicals include terephthalic acid, acetic acid, acrylonitrile, ethylene and polyethylene.

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BP PLC (BP/ LN)

Caltex's Proposed Retail IPO Triggers Revised Bid From Couche-Tard

In a strategic review back in August, downstream fuel supplier and convenience operator Caltex Australia (CTX AU) identified 500 sites it...

David Blennerhassett

Saudi Aramco IPO Valuation: Overambitious Expectations Lowered, the Discount Is Still Not Sufficient

Saudi Aramco is the world’s largest integrated oil & gas company and according to the company, it produces one in every eight barrels of crude...

Shifara Samsudeen, FCMA, CGMA

Weekly Oil Views: Barry Didn't Chase the Bears Away

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities...

Vandana Hari

Climate Action - School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets...

Devi Subhakesan

FTSE 100 Long/Short: Beginner's Luck

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be...

Boost Research

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