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

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Global Equity Strategy: Stick With Reflation & Reopening Theme

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

In mid-December 2020, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> launched a lowball Tender Offer for its 51% subsidiary <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>. It was not the right bid, and I discussed this before the stock started trading the next business day in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>. 
<div class="content-highlight">
There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.
</div>
There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/190/849/original/Screenshot+2021-02-25+at+5.45.44+PM.png?1614246378" class="editor-image img-responsive" data-smartkarma-image-id="190849"></figure>

</section>
Coverage of this deal was presented in the insights listed below.
<table class="table table-striped">
<tbody>
<tr>
<td colspan="2" style="width: 723.636px;">
<h2>List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)</h2>
</td>
</tr>
<tr>
<td style="width: 130px;">Date Published</td>
<td style="width: 572.727px;">
Title / Explanation
</td>
</tr>
<tr>
<td style="width: 130px;">16 Dec 2020</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Discussion of the nature of the asset, why it is the wrong price. </td>
</tr>
<tr>
<td style="width: 130px;">13 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-update-looks-bumpity" target="_blank" data-smartkarma-citation="insights:46996" rel="noopener">Toa Oil (5008) Tender Offer Update - Looks Bumpity.</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> </td>
</tr>
<tr>
<td style="width: 130px;">31 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-updated-update-still-looks-bumpity" target="_blank" data-smartkarma-citation="insights:47625" rel="noopener">Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Shares climbing, profits soaring. </td>
</tr>
<tr>
<td style="width: 130px;">12 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-has-the-dog-caught-the-car" target="_blank" data-smartkarma-citation="insights:48018" rel="noopener">Toa Oil (5008) Tender - Has the Dog Caught the Car?</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise</td>
</tr>
<tr>
<td style="width: 130px;">17 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-the-dog-has-caught-the-car-but-beware-mangalores" target="_blank" data-smartkarma-citation="insights:48228" rel="noopener">Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.</td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;"></td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;">
<h3>Background</h3>
</td>
</tr>
<tr>
<td style="width: 130px;">2 Jan 2016</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/japan-refiner-mergers-antitrust-approvals-grouped-together" target="_blank" rel="noopener">Japan Refiner Mergers:  Antitrust Approvals Grouped Together</a></td>
</tr>
</tbody>
</table>
Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The <a href="https://www.nikkei.com/article/DGXZQOGD17D3H0X10C21A2000000/?unlock=1" target="_blank" rel="noopener">article/op-ed</a> was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

In mid-December 2020, Idemitsu Kosan (5019 JP) launched a lowball Tender Offer for its 51% subsidiary Toa Oil Co Ltd (5008 JP). It was not the right bid, and I discussed this before the stock started trading the next business day in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008). 

There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.

There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.




Coverage of this deal was presented in the insights listed below.




List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)



Date Published

Title / Explanation



16 Dec 2020
Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008) 



Discussion of the nature of the asset, why it is the wrong price. 


13 Jan 2021
Toa Oil (5008) Tender Offer Update - Looks Bumpity. 



Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving ENEOS Holdings (5020 JP) 


31 Jan 2021
Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity 



Shares climbing, profits soaring. 


12 Feb 2021
Toa Oil (5008) Tender - Has the Dog Caught the Car? 



Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise


17 Feb 2021
Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores 



The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.






Background



2 Jan 2016
Japan Refiner Mergers:  Antitrust Approvals Grouped Together



Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The article/op-ed was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

Toa Oil (5008) - Idemitsu Looking To The Next Attempt?

Event-Driven

True to the sentiment expressed by the <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did not change the price on its ¥2450/share Tender Offer for <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>.Yesterday, the Tender Offer closed without fanfare. Today Idemitsu announced the results (<a href="https://ssl4.eir-parts.net/doc/5019/ir_material9/154414/00.pdf" target="_blank" rel="noopener">English</a>, <a href="https://www.idss.co.jp/content/100034505.pdf" target="_blank" rel="noopener">Japanese</a>). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. In my first insight <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>, I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). They did not even get that much. Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. This was an enormous failure for Idemitsu. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/093/original/Screenshot+2021-02-16+at+8.26.07+PM.png?1613478380" class="editor-image img-responsive" data-smartkarma-image-id="189093"></figure></section>What next? Read on.

True to the sentiment expressed by the Idemitsu Kosan (5019 JP) Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did not change the price on its ¥2450/share Tender Offer for Toa Oil Co Ltd (5008 JP).Yesterday, the Tender Offer closed without fanfare. Today Idemitsu announced the results (English, Japanese). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. In my first insight Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008), I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). They did not even get that much. Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. This was an enormous failure for Idemitsu. What next? Read on.

Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores

At the end of January 2021 when <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a> announced its Q3 results and very big full-year forecast revision (discussed in <a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-updated-update-still-looks-bumpity" target="_blank" data-smartkarma-citation="insights:47625" rel="noopener">Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity</a>), the share price of Toa Oil was trading at ¥2800 which was just off a two-plus year high, and lead shareholder Cornwall Capital had reported upping their stake to 22.98% the day before. The change in annual forecast required a change in the Opinion Statement of the Target Company and that required a change in the Tender Offer Registration statement by Idemitsu, which required them to extend the Tender Offer Closing Date by 8 days to 15 February. In my last piece, I mooted the possibility that Idemitsu could announce a change in price at the time of its earnings on 9 February. It did not. I also put forth the problem of The Dog Catching The Car. If the dog chases the car, it's all fun. If the car stops and the driver gets out, the dog has to figure out what to do.Thinking Dogs can read on.

At the end of January 2021 when Toa Oil Co Ltd (5008 JP) announced its Q3 results and very big full-year forecast revision (discussed in Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity), the share price of Toa Oil was trading at ¥2800 which was just off a two-plus year high, and lead shareholder Cornwall Capital had reported upping their stake to 22.98% the day before. The change in annual forecast required a change in the Opinion Statement of the Target Company and that required a change in the Tender Offer Registration statement by Idemitsu, which required them to extend the Tender Offer Closing Date by 8 days to 15 February. In my last piece, I mooted the possibility that Idemitsu could announce a change in price at the time of its earnings on 9 February. It did not. I also put forth the problem of The Dog Catching The Car. If the dog chases the car, it's all fun. If the car stops and the driver gets out, the dog has to figure out what to do.Thinking Dogs can read on.

Toa Oil (5008) Tender - Has the Dog Caught the Car?

David Blennerhassett

<div>
Last Week in Event SPACE ...
</div>
<div>
<ul>
<li>Reportedly <a href="https://www.smartkarma.com/entities/faw-car-company-limited-a" target="_blank" data-smartkarma-citation="entities:6497:1" rel="noopener">Faw Car Company Limited A (000800 CH)</a> is allegedly jostling to take a turn at the wheel of <a href="https://www.smartkarma.com/entities/brilliance-china-automotive" target="_blank" data-smartkarma-citation="entities:469:1" rel="noopener">Brilliance China Automotive (1114 HK)</a>.</li>
<li>
<a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a> is now an overpriced stock with a supply overhang. The hope of a <a href="https://www.smartkarma.com/entities/nabtesco-corp" target="_blank" data-smartkarma-citation="entities:13176:1" rel="noopener">Nabtesco Corp (6268 JP)</a> event is now gone.</li>
<li>Whoever takes control of <a href="https://www.smartkarma.com/entities/sawada-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:7311:1" rel="noopener">Sawada Holdings (8699 JP)</a> is going to see the bulk of its major asset liquidated. Buy this stock with both hands at ¥760/share.</li>
<li>
Murakami-affiliated bidder City Index Eleventh has launched an overbid for <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> at ¥1,210/share. The explanation is an eye-opener, and the strategy is very well done.
</li>
<li>Ahead of the three-year anniversary lock-up expiring next month, enabling <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>/<a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> to sell more shares of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>,  Naspers' look-thru discount of 55% compares with 34% at the time of the Prosus spin-off in September 2019. </li>
</ul>
</div>
<div>
<ul>
<li>Plus, other events, CCASS movements and Mood Spins.</li>
</ul>
</div>
(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)


Last Week in Event SPACE ...



Reportedly Faw Car Company Limited A (000800 CH) is allegedly jostling to take a turn at the wheel of Brilliance China Automotive (1114 HK).

Harmonic Drive Systems (6324 JP) is now an overpriced stock with a supply overhang. The hope of a Nabtesco Corp (6268 JP) event is now gone.
Whoever takes control of Sawada Holdings (8699 JP) is going to see the bulk of its major asset liquidated. Buy this stock with both hands at ¥760/share.

Murakami-affiliated bidder City Index Eleventh has launched an overbid for Japan Asia (3751 JP) at ¥1,210/share. The explanation is an eye-opener, and the strategy is very well done.

Ahead of the three-year anniversary lock-up expiring next month, enabling Prosus (PRX NA)/Naspers (NPN SJ) to sell more shares of Tencent Holdings (700 HK),  Naspers' look-thru discount of 55% compares with 34% at the time of the Prosus spin-off in September 2019. 




Plus, other events, CCASS movements and Mood Spins.


(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

Last Week in Event SPACE: Brilliance China, Harmonic Drive, Sawada, Japan Asia, Naspers/Tencent

Japan

ENEOS Holdings, Inc. operates refining and marketing businesses. The Company refines and distributes petroleum and petroleum chemical products. ENEOS Holdings also provides non ferrous metals, electronic materials, and other products.

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ENEOS Holdings (5020 JP)

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Toa Oil (5008) - Idemitsu Looking To The Next Attempt?

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Idemitsu has big restructuring goals, and Toa Oil plays a part, but is faced with a big bump to get their Toa deal done. If The Dog Catches The...

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Last Week in Event SPACE: Brilliance China, Harmonic Drive, Sawada, Japan Asia, Naspers/Tencent

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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