Fundamental Short Selling Research

Eric Fernandez, CFA

TwoRiversAnalytics

Equity Bottom-Up

National Vision Holdings / Equity Bottom-Up

<ul>
<li>Sales have fallen for four quarters. Comp store sales growth fell -8% last quarter due to customer weakness, the declining macro environment and constraints on exam capacity (optometrists).</li>
<li>Optometrists are supply constrained, which pressure margins from rising compensation. Investor-owned optometry service providers are at a disadvantage competing with professional practices that don’t share fees with investors.</li>
<li>National Vision is neither large and vertically integrated like Essilor Luxottica, nor niche focused like Warby Parker is on ecommerce. Their low-price strategy is easily replicable by competitors.</li>
</ul>


Sales have fallen for four quarters. Comp store sales growth fell -8% last quarter due to customer weakness, the declining macro environment and constraints on exam capacity (optometrists).
Optometrists are supply constrained, which pressure margins from rising compensation. Investor-owned optometry service providers are at a disadvantage competing with professional practices that don’t share fees with investors.
National Vision is neither large and vertically integrated like Essilor Luxottica, nor niche focused like Warby Parker is on ecommerce. Their low-price strategy is easily replicable by competitors.


National Vision Holdings, Inc. (EYE) Recommendation: Sell Short

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The various Shareholder and Scheme Meetings overwhelmingly supported unification of BHP Group and Limited on Thursday. The deal is done. Now for the BIG FLOWS.</li>
<li>There should be US$40bn (two way) of index-related flows on Friday across the major indices, half in funding/reverse-funding flows. Replacements are mostly decided.</li>
<li>This insight looks at the expected breakdown of flows per index, the replacements, and provides a spreadsheet for all the flows. </li>
</ul>


The various Shareholder and Scheme Meetings overwhelmingly supported unification of BHP Group and Limited on Thursday. The deal is done. Now for the BIG FLOWS.
There should be US$40bn (two way) of index-related flows on Friday across the major indices, half in funding/reverse-funding flows. Replacements are mostly decided.
This insight looks at the expected breakdown of flows per index, the replacements, and provides a spreadsheet for all the flows. 


BHP Unification A Done Deal - Now for the BIG FLOWS

European Event-Driven Analyst

Jesus Rodriguez Aguilar

On 21 June, a Dutch arbitration court ruled that <a href="https://www.smartkarma.com/entities/grandvision-nv" target="_blank" data-smartkarma-citation="entities:21114:1" rel="noopener">GrandVision NV (GVNV NA)</a> had breached its obligations under a €7,210 mn (€28.42/share) takeover offer from French-Italian eyewear giant <a href="https://www.smartkarma.com/entities/essilorluxottica-sa-369cd59a-eccd-455d-a37d-29ef3c41a705" target="_blank" data-smartkarma-citation="entities:21443:1" rel="noopener">EssilorLuxottica (EL FP)</a> (EssiLux) agreed in 2019. The ruling means EssiLux is no longer obliged to purchase GrandVision, can walk away without paying a €400 mn break-up fee and even could claim compensation from GrandVision.
This has happened when all competition clearances and regulatory approvals required to complete the transaction have already been obtained. Financing of the deal is already raised.
I regard the rationale for acquiring GrandVision as still compelling and unaffected by the court ruling. The deal still has significant strategic value, as it is set to rebalance EssiLux's channel mix of retail and wholesale in Europe and enlarge its geographical diversification. Furthermore, Capital IQ consensus points to a recovery in sales and increasing EBITDA margins of GrandVision.
I believe that EssiLux's arbitration victory is an opportunity to renegotiate with HAL to lower the agreed price. It is not dissimilar to LVMH renegotiating terms with Tiffany. There are still high chances that the deal completes, at a lower price.
The share price of GrandVision has fallen by c. 11%, so this seems to indicate that interlopers are unlikely to arise. An excuse for lowering the agreed price would be to compensate for the effects of the pandemic.
My TP is €27/share, a 5% reduction to the agreed price (savings of €360 mn for EssiLux), which I cross check against a multiples based implied median valuation of €29.72/share and a mean TP of €27.44/share of Capital IQ consensus.
EssiLux should pick up a bargain. At my TP, upside is 7%. Recommendation is long GVNV NA.

On 21 June, a Dutch arbitration court ruled that GrandVision NV (GVNV NA) had breached its obligations under a €7,210 mn (€28.42/share) takeover offer from French-Italian eyewear giant EssilorLuxottica (EL FP) (EssiLux) agreed in 2019. The ruling means EssiLux is no longer obliged to purchase GrandVision, can walk away without paying a €400 mn break-up fee and even could claim compensation from GrandVision.
This has happened when all competition clearances and regulatory approvals required to complete the transaction have already been obtained. Financing of the deal is already raised.
I regard the rationale for acquiring GrandVision as still compelling and unaffected by the court ruling. The deal still has significant strategic value, as it is set to rebalance EssiLux's channel mix of retail and wholesale in Europe and enlarge its geographical diversification. Furthermore, Capital IQ consensus points to a recovery in sales and increasing EBITDA margins of GrandVision.
I believe that EssiLux's arbitration victory is an opportunity to renegotiate with HAL to lower the agreed price. It is not dissimilar to LVMH renegotiating terms with Tiffany. There are still high chances that the deal completes, at a lower price.
The share price of GrandVision has fallen by c. 11%, so this seems to indicate that interlopers are unlikely to arise. An excuse for lowering the agreed price would be to compensate for the effects of the pandemic.
My TP is €27/share, a 5% reduction to the agreed price (savings of €360 mn for EssiLux), which I cross check against a multiples based implied median valuation of €29.72/share and a mean TP of €27.44/share of Capital IQ consensus.
EssiLux should pick up a bargain. At my TP, upside is 7%. Recommendation is long GVNV NA.

Likely Renegotiation in EssiLux/GrandVision

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.

On 31 July 2019, <a href="https://www.smartkarma.com/entities/essilor-international" target="_blank" data-smartkarma-citation="entities:21443:1" rel="noopener">Essilor International (EI FP)</a> announced an agreement to acquire HAL’s 76.72% stake in <a href="https://www.smartkarma.com/entities/grandvision-nv" target="_blank" data-smartkarma-citation="entities:21114:1" rel="noopener">GrandVision NV (GVNV NA)</a> for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. <div class="content-highlight">The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   </div>

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   

EssilorLuxottica/GrandVision Attractive Spread

M&A Reporting, CTFN

Jonathan Spitzer

M&A Reporting

CTFN

Bringing the marketplace leading coverage of mergers, events, and major corporate actions, CTFN has a team of seasoned reporters from Los Angeles to London, publishing news that advances stories that matter to event-driven investors and deal professionals.

Chinese antitrust regulator Mofcom is expected to impose some restrictions on the planned $50 billion merger between French optical lens maker Essilor and Italian eyewear leader Luxottica, Blake Yang, a Shanghai-based senior associate with Martin Hu &amp; Partners, who is familiar with the industry, told CTFN.

Chinese antitrust regulator Mofcom is expected to impose some restrictions on the planned $50 billion merger between French optical lens maker Essilor and Italian eyewear leader Luxottica, Blake Yang, a Shanghai-based senior associate with Martin Hu &amp; Partners, who is familiar with the industry, told CTFN.

MOFCOM Likely to Impose Conditions on Luxottica/Essilor Merger

France

EssilorLuxottica manufactures eyewear. The Company offers sun glasses, lenses, and other eye care products. EssilorLuxottica serves customers worldwide.

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EssilorLuxottica (EL FP)

National Vision Holdings, Inc. (EYE) Recommendation: Sell Short

National Vision Holdings, Inc. (EYE) Recommendation: Sell Short on weak sales, margin compression, and lack of sustainable differentiation.

Eric Fernandez, CFA

BHP Unification A Done Deal - Now for the BIG FLOWS

BHP Unification is now decided. The flows are mostly known. But they are big. The more interesting flows may be on the funding trade in AU to sell...

Travis Lundy

Likely Renegotiation in EssiLux/GrandVision

EssiLux's arbitration victory opens the opportunity to renegotiate the price, with no interlopers in sight, a 5% reduction is likely. My TP is €27...

Jesus Rodriguez Aguilar

EssilorLuxottica/GrandVision Attractive Spread

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share,...

Arun George

MOFCOM Likely to Impose Conditions on Luxottica/Essilor Merger

Chinese antitrust regulator Mofcom is expected to impose some restrictions on the planned $50 billion merger between French optical lens maker...

CTFN

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