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

Shanghai Stock Exchange Composite Index / Technical Analysis

Shanghai Stock Exchange Composite Index (SHCOMP INDEX)

Geopolitical concerns aside, a weakening US dollar (DXY) continues to be a major tailwind for both EM equities and the commodity Sectors. Improving price and RS trends for these risk-on areas of the market are among the many characteristics consistent with historical bull markets. Therefore, we continue to label this a bull market and we believe global equities are still in the early innings of a broad-based advance. Commodity Sectors make up a majority of our EM-focused recommendations in this report.

Geopolitical concerns aside, a weakening US dollar (DXY) continues to be a major tailwind for both EM equities and the commodity Sectors. Improving price and RS trends for these risk-on areas of the market are among the many characteristics consistent with historical bull markets. Therefore, we continue to label this a bull market and we believe global equities are still in the early innings of a broad-based advance. Commodity Sectors make up a majority of our EM-focused recommendations in this report.

EM Remains In Favor; Shanghai Comp Breaking Out

MSCI Emerging Markets Index / Technical Analysis

We continue to believe the weight of the evidence points to a new leg higher for global equities, a viewpoint that is supported by the several international markets that are breaking out to new highs or making bullish inflections since our previous Int’l Compass (10/31/19). While developments continue to lean bullish, global equities have rallied substantially since the start of October, making it perfectly reasonable to expect some consolidation of recent gains which would allow for a more meaningful move higher.

We continue to believe the weight of the evidence points to a new leg higher for global equities, a viewpoint that is supported by the several international markets that are breaking out to new highs or making bullish inflections since our previous Int’l Compass (10/31/19). While developments continue to lean bullish, global equities have rallied substantially since the start of October, making it perfectly reasonable to expect some consolidation of recent gains which would allow for a more meaningful move higher.

Global Equity Strategy: The Pause that Refreshes?

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/elementis-plc" target="_blank" data-smartkarma-citation="entities:21916:1" rel="noopener">Elementis PLC (ELM LN)</a> has rejected three approaches from <a href="https://www.smartkarma.com/entities/minerals-technologies-inc" target="_blank" data-smartkarma-citation="entities:6088:1" rel="noopener">Minerals Technologies (MTX US)</a>, at 107p, 117p and 130p (10.3x EV/Fwd EBITDA and 20.3x P/Fwd EPS, Capital IQ consensus).
<ul>
<li>All were unanimously <a href="https://www.elementis.com/sites/default/files/2020-12/201206%20Rejection%20of%20Minerals%20Technologies%27%20proposal.pdf" target="_blank" rel="noopener">rejected by the Board of Elementis</a>, which said that even the last proposal was highly opportunistic, coming at a low point of earnings and value, and significantly undervalues Elementis and its future prospects (it has a point). It is signaling that a bid could be considered at c. 200p.</li>
<li>On 6 December, Minerals Technologies cancelled the acquisition of Elementis.</li>
<li>On 8 December, shareholder J.O. Hambro (4.25% stake) told Elementis to engage with Minerals Technologies to seek an improved bid.</li>
</ul>
Elementis trades at a 20% discount to Diversifieds' peers. Coronavirus pandemic second wave restrictions cloud the outlook, as the Board says, especially for Personal Care and Talc. Nevertheless Elementis is on only a recovered NTM PE of 20.3x for 2021e and trading below Diversifieds' median PE of 25x. This appears low, in spite of higher financial leverage (7.9x total debt/EBITDA which results in a 5-year beta of 2.28 vs. 0.96 median of peers), given lower price cyclicality.
<div>
Valuation is 169p per share (average of NTM EBITDA median implied equity value and NTM P/E), a 30% upside to Minerals Technologies last offer.
<ul>
<li>The last approach by Minerals Technologies (130p) should act as support for the share price of Elementis in the short term.</li>
<li>
Capital IQ complied consensus has a median target price of 142p, also above Minerals Technologies offer.</li>
</ul>
</div>
Recommendation is LONG Elementis, TP 169p.

Elementis PLC (ELM LN) has rejected three approaches from Minerals Technologies (MTX US), at 107p, 117p and 130p (10.3x EV/Fwd EBITDA and 20.3x P/Fwd EPS, Capital IQ consensus).

All were unanimously rejected by the Board of Elementis, which said that even the last proposal was highly opportunistic, coming at a low point of earnings and value, and significantly undervalues Elementis and its future prospects (it has a point). It is signaling that a bid could be considered at c. 200p.
On 6 December, Minerals Technologies cancelled the acquisition of Elementis.
On 8 December, shareholder J.O. Hambro (4.25% stake) told Elementis to engage with Minerals Technologies to seek an improved bid.

Elementis trades at a 20% discount to Diversifieds' peers. Coronavirus pandemic second wave restrictions cloud the outlook, as the Board says, especially for Personal Care and Talc. Nevertheless Elementis is on only a recovered NTM PE of 20.3x for 2021e and trading below Diversifieds' median PE of 25x. This appears low, in spite of higher financial leverage (7.9x total debt/EBITDA which results in a 5-year beta of 2.28 vs. 0.96 median of peers), given lower price cyclicality.

Valuation is 169p per share (average of NTM EBITDA median implied equity value and NTM P/E), a 30% upside to Minerals Technologies last offer.

The last approach by Minerals Technologies (130p) should act as support for the share price of Elementis in the short term.

Capital IQ complied consensus has a median target price of 142p, also above Minerals Technologies offer.


Recommendation is LONG Elementis, TP 169p.

United Kingdom

Elementis is a global specialty chemicals company that provides performance-driven additives and solutions for consumer and industrial applications. The company operates in two main business segments: Personal Care and Coatings. Elementis was founded in 1844 and is headquartered in London, UK.

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Elementis (ELM LN)

EM Remains In Favor; Shanghai Comp Breaking Out

Geopolitical concerns aside, a weakening US dollar (DXY) continues to be a major tailwind for both EM equities and the commodity Sectors. Improving...

Vermilion Research

Global Equity Strategy: The Pause that Refreshes?

We continue to believe the weight of the evidence points to a new leg higher for global equities, a viewpoint that is supported by the several...

Vermilion Research

Lowball Offers by Minerals Technologies

Elementis trades at a 20% discount to Diversifieds' peers. Recommendation is LONG TP 169p (average of NTM EBITDA median implied equity value and...

Jesus Rodriguez Aguilar

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