Fundamental Analyses, Contrarian Cashflows

Contrarian Cashflows

Fundamental Analyses

The purpose of Contrarian Cashflows is to document my investment research and share it with everyone who is interested in value investing. My long term aspiration for Contrarian Cashflows is to become a platform for professional investors and serious amateurs where they can get inspiration and discuss investing-related topics.
I plan to publish one company deep dive per month that is guided by my investment approach. All information I use for my write-ups is publicly available and most of the time directly sourced from public filings issued by the respective companies. To guarantee maximum transparency, for every post I provide a list of all used sources in the resources section.
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Thematic (Sector/Industry)

<ul><li>Each week, I’ll share five intriguing investment ideas that recently caught my attention. These ideas are meant to spark your research and help you kickstart the week ahead with fresh insights.</li><li>Because these ideas are the result of my first-level idea generation process, they require more in depth research. Therefore, the ideas will often be concise, with occasional references to valuable work from other practitioners that I encourage you to explore.</li><li>If you have something fascinating to share that could benefit me and the wider community, don’t hesitate to send it my way—I’d love to hear from you!</li></ul>

Each week, I’ll share five intriguing investment ideas that recently caught my attention. These ideas are meant to spark your research and help you kickstart the week ahead with fresh insights.Because these ideas are the result of my first-level idea generation process, they require more in depth research. Therefore, the ideas will often be concise, with occasional references to valuable work from other practitioners that I encourage you to explore.If you have something fascinating to share that could benefit me and the wider community, don’t hesitate to send it my way—I’d love to hear from you!

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* Responding to The Hong Kong Security Law: The US response will be predicated upon the full details of the new law. Early indications suggest that the new law will be enacted in September at the height of the US presidential election, and suggests that mainland China would prefer a President Biden over the current administration. Very difficult decisions lie ahead for President Trump;* No More Special Status For Hong Kong: With US Secretary of State Mike Pompeo indicating that Hong Kong no longer meets the certification requirements for special trade status, President Trump has warned of unspecified sanctions to be imposed on mainland China; and*Possible Shock Impact To Hong Kong:Assuming the worst case scenario where mainland China simply takes over Hong Kong now versus 2047, Hong Kong’s special status will be revoked and there will clearly be a shock impact to the Hong Kong economy and financial markets.

* Responding to The Hong Kong Security Law: The US response will be predicated upon the full details of the new law. Early indications suggest that the new law will be enacted in September at the height of the US presidential election, and suggests that mainland China would prefer a President Biden over the current administration. Very difficult decisions lie ahead for President Trump;* No More Special Status For Hong Kong: With US Secretary of State Mike Pompeo indicating that Hong Kong no longer meets the certification requirements for special trade status, President Trump has warned of unspecified sanctions to be imposed on mainland China; and*Possible Shock Impact To Hong Kong:Assuming the worst case scenario where mainland China simply takes over Hong Kong now versus 2047, Hong Kong’s special status will be revoked and there will clearly be a shock impact to the Hong Kong economy and financial markets. 

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are scheduled to be paid rather than when actually collected. In the case where there is a payment shortfall, the mortgage servicer must advance its own funds to cover the delinquent mortgage even if the funds are collected.  * Mortgage Insurers:Insurance is only partly overs the default after the loan becomes delinquent for 90 days. In other words, the mortgage servicer would still need to front the cash shortfall of each mortgage within the Fannie Mae and Freddie Mac pool. Another factor to consider is this thin capitalization of the mortgage insurers where their credit guarantee may not be worth the paper that its written on.

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are scheduled to be paid rather than when actually collected. In the case where there is a payment shortfall, the mortgage servicer must advance its own funds to cover the delinquent mortgage even if the funds are collected.  * Mortgage Insurers:Insurance is only partly overs the default after the loan becomes delinquent for 90 days. In other words, the mortgage servicer would still need to front the cash shortfall of each mortgage within the Fannie Mae and Freddie Mac pool. Another factor to consider is this thin capitalization of the mortgage insurers where their credit guarantee may not be worth the paper that its written on.

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. <h3>The Search For Compelling Spreads</h3><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/378/original/image_82700697241635169253114.png?1635169255" class="editor-image img-responsive" data-smartkarma-image-id="237378"></figure>Source: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a>  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. The Search For Compelling SpreadsSource: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ MagnaChip Semiconductor Corp (MX US) situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  51 Job Inc Adr (JOBS US)  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Genworth Financial Inc Cl A / Event-Driven

After 4 years plus of disappointment, short of another period of severe market dislocation, we believe actions that will bring about a long overdue share price re-rating for <a href="https://www.smartkarma.com/entities/genworth-financial-inc-cl-a" target="_blank" data-smartkarma-citation="entities:3876:1" rel="noopener">Genworth Financial Inc Cl A (GNW US)</a> are most likely just weeks away. This insight considers valuation scenarios for the Enact Holdings (ACT US) IPO  and their ramifications for GNW and its share price.

After 4 years plus of disappointment, short of another period of severe market dislocation, we believe actions that will bring about a long overdue share price re-rating for Genworth Financial Inc Cl A (GNW US) are most likely just weeks away. This insight considers valuation scenarios for the Enact Holdings (ACT US) IPO  and their ramifications for GNW and its share price.

SpinTalk: Genworth Raises The Curtain On Its Follow-Up ACT-Why We May Be Looking At A September IPO

United States

Genworth Financial Inc. offers insurance, wealth management, investment and financial solutions   The Company offers products that include life insurance products, long-term care insurance, and mortgage guarantee insurance coverage on residential mortgage loans.  Genworth is active in the United States, Canada, Australia, New Zealand, Mexico and multiple European countries.

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Genworth Financial Inc Cl A (GNW US)

Monday Delight: 14/04/25

Each week, I’ll share five intriguing investment ideas that recently caught my attention. These ideas are meant to spark your research and help...

Contrarian Cashflows

Seeing Red

* Responding to The Hong Kong Security Law: The US response will be predicated upon the full details of the new law. Early indications suggest that...

Thomas J. Monaco

Another American Mortgage Tsunami Coming

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are...

Thomas J. Monaco

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Precedent suggests that the odds heavily favor that this Go-Private deal will be consummated. With JOBS only 4% above its undisturbed price, the ...

Robert Sassoon

SpinTalk: Genworth Raises The Curtain On Its Follow-Up ACT-Why We May Be Looking At A September IPO

After 4 years plus of false dawns, this time may be truly be different for a long overdue share price value re-rating with an IPO of GNW's prized...

Robert Sassoon

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