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.

Event-Driven

<a href="https://www.smartkarma.com/entities/aventus-group" target="_blank" data-smartkarma-citation="entities:25897:1" rel="noopener">Aventus Group (AVN AU)</a> is Australia’s largest fully integrated owner, manager and developer of large format retail centres in Australia. Aventus entered a scheme implementation deed to implement a merger with <a href="https://www.smartkarma.com/entities/homeco-daily-needs-reit" target="_blank" data-smartkarma-citation="entities:33526:1" rel="noopener">HomeCo Daily Needs REIT (HDN AU)</a> and <a href="https://www.smartkarma.com/entities/home-consortium-ltd" target="_blank" data-smartkarma-citation="entities:29082:1" rel="noopener">Home Consortium Ltd (HMC AU)</a>. Aventus securityholders will be offered 2.200 HDN units for every 1 unit in Aventus Retail Property Fund (93% of transaction value) and A$0.285 cash or 0.038 HMC securities for every 1 share in Aventus Holdings Limited (7% of transaction value). The implied offer price of A$3.82 per Aventus share is a 15.3% premium to the unaffected price of A$3.31 (15 October). The offer price will not be reduced for any distributions announced by Aventus, HDN and HMC prior to the implementation. Post-merger, Aventus securityholders will own 47.1% of the merged group.The scheme is conditional on AVN securityholder approval by at least 75% of the votes cast and 50% securityholders voting. Brett Blundy Retail Capital (BBRC) and the Aventus Board which represents 22.6% and 6.7% of AVN securities, respectively, intend to vote in favour of the merger. The scheme is also conditional on HDN unitholder approval by at least 50% of votes cast (HMC cannot vote). <div class="content-highlight">We think that recommended offer is attractive both in terms of historical multiples and share prices for Aventus securityholders. The merger is also FFO and NTA accretive to Aventus securityholders. While the merger is FFO accretive, it is NTA dilutive to HDN unitholders. Nevertheless, the strong strategic rationale for the merger should gain support from HDN unitholders. At the last close prices of Aventus and HDN, Aventus’ shares are trading at 3.6% gross spread to the indicative offer.</div>

Aventus Group (AVN AU) is Australia’s largest fully integrated owner, manager and developer of large format retail centres in Australia. Aventus entered a scheme implementation deed to implement a merger with HomeCo Daily Needs REIT (HDN AU) and Home Consortium Ltd (HMC AU). Aventus securityholders will be offered 2.200 HDN units for every 1 unit in Aventus Retail Property Fund (93% of transaction value) and A$0.285 cash or 0.038 HMC securities for every 1 share in Aventus Holdings Limited (7% of transaction value). The implied offer price of A$3.82 per Aventus share is a 15.3% premium to the unaffected price of A$3.31 (15 October). The offer price will not be reduced for any distributions announced by Aventus, HDN and HMC prior to the implementation. Post-merger, Aventus securityholders will own 47.1% of the merged group.The scheme is conditional on AVN securityholder approval by at least 75% of the votes cast and 50% securityholders voting. Brett Blundy Retail Capital (BBRC) and the Aventus Board which represents 22.6% and 6.7% of AVN securities, respectively, intend to vote in favour of the merger. The scheme is also conditional on HDN unitholder approval by at least 50% of votes cast (HMC cannot vote). We think that recommended offer is attractive both in terms of historical multiples and share prices for Aventus securityholders. The merger is also FFO and NTA accretive to Aventus securityholders. While the merger is FFO accretive, it is NTA dilutive to HDN unitholders. Nevertheless, the strong strategic rationale for the merger should gain support from HDN unitholders. At the last close prices of Aventus and HDN, Aventus’ shares are trading at 3.6% gross spread to the indicative offer.

Aventus Recommended Merger with HomeCo Daily Needs REIT

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

<ul><li>Following a strong start in its first live month, Evidente's model portfolio under-performed in the month of August, falling by -3.0%, well below the ASX200 return of -1.6%.  Since inception on 1 July, the portfolio has generated an accumulated return of +4.2%, lower than the ASX200 return of +4.6%.</li><li>RIO and WES are on close watch due to growing risks of a pull-back in China's residential property markets, while significant restructuring costs and asset impairments at WES reflect poor earnings quality and poor capital allocation decisions by senior management.</li><li>Retail discretionary remains the portfolio's key cyclical overweight bet based on the prospect that there remains plenty of scope for discretionary spending to catch up to food retailing, while household sector balance sheets remain in good shape.  The model portfolio retains a strong  defensive tilt, with overweight bets in telcos, utilities and listed infrastructure stocks being funded by under-weights in financials and materials.</li></ul>

Following a strong start in its first live month, Evidente's model portfolio under-performed in the month of August, falling by -3.0%, well below the ASX200 return of -1.6%.  Since inception on 1 July, the portfolio has generated an accumulated return of +4.2%, lower than the ASX200 return of +4.6%.RIO and WES are on close watch due to growing risks of a pull-back in China's residential property markets, while significant restructuring costs and asset impairments at WES reflect poor earnings quality and poor capital allocation decisions by senior management.Retail discretionary remains the portfolio's key cyclical overweight bet based on the prospect that there remains plenty of scope for discretionary spending to catch up to food retailing, while household sector balance sheets remain in good shape.  The model portfolio retains a strong  defensive tilt, with overweight bets in telcos, utilities and listed infrastructure stocks being funded by under-weights in financials and materials.

Model Portfolio Monthly Update - Retain Strong Defensive Bias

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Capital Markets

Viva Energy REIT plans to raise US$682 (A$911m) through its IPO in order to fund its purchase of 425 service stations from its parent Viva Energy.The deal offers exposure to a different asset class, along with a long lease and steady built-in growth. In comparison to other retail REITs, it is seemingly being offered at reasonable valuations. Although the properties already seem to be under some pressure and longer-term prospects aren't as certain.

Viva Energy REIT plans to raise US$682 (A$911m) through its IPO in order to fund its purchase of 425 service stations from its parent Viva Energy.The deal offers exposure to a different asset class, along with a long lease and steady built-in growth. In comparison to other retail REITs, it is seemingly being offered at reasonable valuations. Although the properties already seem to be under some pressure and longer-term prospects aren't as certain.

Viva Energy REIT - Time to Fill up the Tank

<ul><li>In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year.  It is designed to be a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%.  The stock selection process represents a mix of top down and industry thematics as well as bottom-up factors.  </li><li>The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended period, thanks to the substantial reduction in the value of human capital.  The model portfolio has a defensive bias despite stretched valuations, notably overweight positions in stocks offering earnings certainty, including: listed infrastructure stocks, utilities, healthcare and REITs.  An overweight bet in discretionary retailers represents the key cyclical exposure, based on the prospect that consumer spending will remain the key driver of growth and help to ameliorate the effects of Australia's capex cliff.</li><li>The key bottom up criterion used in stock selection is a high internal rate of return (IRR), which is backed out using a dividend discount model.  Stocks that have the highest IRRs and make it into the model portfolio include: Wesfarmers, Graincorp, Bluescope Steel, Medibank Private, Caltex and Worley Parsons.   Model performance and updated constituents will be published quarterly on Smartkarma.</li></ul>

In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year.  It is designed to be a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%.  The stock selection process represents a mix of top down and industry thematics as well as bottom-up factors.  The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended period, thanks to the substantial reduction in the value of human capital.  The model portfolio has a defensive bias despite stretched valuations, notably overweight positions in stocks offering earnings certainty, including: listed infrastructure stocks, utilities, healthcare and REITs.  An overweight bet in discretionary retailers represents the key cyclical exposure, based on the prospect that consumer spending will remain the key driver of growth and help to ameliorate the effects of Australia's capex cliff.The key bottom up criterion used in stock selection is a high internal rate of return (IRR), which is backed out using a dividend discount model.  Stocks that have the highest IRRs and make it into the model portfolio include: Wesfarmers, Graincorp, Bluescope Steel, Medibank Private, Caltex and Worley Parsons.   Model performance and updated constituents will be published quarterly on Smartkarma.

Launch of Evidente's Long Only Model Portfolio (Australia)

<ul><li>In this post, Evidente extends its systematic model of earnings certainty to Australian small caps.  The out-performance from large caps with high earnings certainty evident in 2015 was also present amongst small cap stocks.  The top 10 ranked small industrials earnings certainty stocks delivered an annual return of around 8%, well above the stocks with the lowest earnings certainty (-2%).</li><li>The REIT sector dominates the updated top 10 earnings certainty stocks.  The fact that most small cap REITs are trading a significant premiums to book value precisely at a time when commercial rental yields continue to deteriorate suggests that pricing around the sector is becoming increasingly complacent.  I stop short of recommending an outright short position in the sector due to the prospect that commercial rental yields could remain lower for longer thanks to low interest rates and ample liquidity globally.</li><li>I recommend overweight bets in the remaining four top ranked stocks that are not exposed to commercial property: Auckland International Airport, Fisher &amp; Paykel, Sky City Entertainment Group and Brickworks.  These four stocks rank in the top quartile across Evidente's market sentiment signals, which incorporate price momentum and acceleration measures.</li></ul>

In this post, Evidente extends its systematic model of earnings certainty to Australian small caps.  The out-performance from large caps with high earnings certainty evident in 2015 was also present amongst small cap stocks.  The top 10 ranked small industrials earnings certainty stocks delivered an annual return of around 8%, well above the stocks with the lowest earnings certainty (-2%).The REIT sector dominates the updated top 10 earnings certainty stocks.  The fact that most small cap REITs are trading a significant premiums to book value precisely at a time when commercial rental yields continue to deteriorate suggests that pricing around the sector is becoming increasingly complacent.  I stop short of recommending an outright short position in the sector due to the prospect that commercial rental yields could remain lower for longer thanks to low interest rates and ample liquidity globally.I recommend overweight bets in the remaining four top ranked stocks that are not exposed to commercial property: Auckland International Airport, Fisher &amp; Paykel, Sky City Entertainment Group and Brickworks.  These four stocks rank in the top quartile across Evidente's market sentiment signals, which incorporate price momentum and acceleration measures.

Beware Complacency Around Australian Small Cap REITs Risk Exposures

Australia

BWP Trust operates as a real estate investment trust. The Trust invests and manages commercial properties. BWP Trust serves customers in Australia.

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Bwp Trust (BWP AU)

Aventus Recommended Merger with HomeCo Daily Needs REIT

The offer is attractive in terms of P/NTA and share prices for AVN. The merger is also FFO and NTA accretive to AVN. The strong strategic rationale...

Arun George

Model Portfolio Monthly Update - Retain Strong Defensive Bias

Following a strong start in its first live month, Evidente's model portfolio under-performed in the month of August, falling by -3.0%, well below...

Sam Ferraro

Viva Energy REIT - Time to Fill up the Tank

Viva Energy REIT plans to raise US$682 (A$911m) through its IPO in order to fund its purchase of 425 service stations from its parent Viva...

Sumeet Singh

Launch of Evidente's Long Only Model Portfolio (Australia)

In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year. It is designed to be a...

Sam Ferraro

Beware Complacency Around Australian Small Cap REITs Risk Exposures

In this post, Evidente extends its systematic model of earnings certainty to Australian small caps. The out-performance from large caps with high...

Sam Ferraro

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