Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - October 2021 - Lucror Analytics

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - August 2021 - Lucror Analytics

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 14 August, <a href="https://www.smartkarma.com/entities/faurecia" target="_blank" data-smartkarma-citation="entities:21451:1" rel="noopener">Faurecia (EO FP)</a> signed an agreement to acquire a 60% stake in <a href="https://www.smartkarma.com/entities/hella-gmbh-co-kgaa" target="_blank" data-smartkarma-citation="entities:21650:1" rel="noopener">Hella GmbH &amp; Co KGaA (HLE GR)</a> from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.
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Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.
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The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.
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Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.
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The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.
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I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.
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Completion is expected in early 2022.
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On 14 August, Faurecia (EO FP) signed an agreement to acquire a 60% stake in Hella GmbH &amp; Co KGaA (HLE GR) from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.

Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.

The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.


Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.

The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.

I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.

Completion is expected in early 2022.


The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - July 2021 - Lucror Analytics

France

Forvia operates as an automotive technology group. The Company offers seats, vehicle interiors, exhaust systems, front-end body parts, dashboards, center consoles, door panels, acoustic modules, and decorative products, as well as specializes in electronics, clean mobility, lighting, interiors, seating, and lifecycle solutions. Forvia serves automobile sector worldwide.

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Forvia (FRVIA FP)

Europe HY Trade Book - October 2021 - Lucror Analytics

The Europe HY Trade Book for October 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europe HY Trade Book - August 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Faurecia/Hella

The deal has a high probability to close, due to the premium offered and friendly approach, after a competitive bidding process. HLA GR trades...

Jesus Rodriguez Aguilar

Europe HY Trade Book - July 2021 - Lucror Analytics

The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

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