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

We believe the secular mobile payments theme has room to run, and we expect related stocks to continue outperforming... see pages 2-4 for actionable stocks. We reiterate our overweight metals and mining.. see pages 5 and 9-12 for actionable stocks. Though lagging across many global markets, Utilities are particularly attractive in Europe and Japan... see pages 6 and 13-17 for actionable stocks.

We believe the secular mobile payments theme has room to run, and we expect related stocks to continue outperforming... see pages 2-4 for actionable stocks. We reiterate our overweight metals and mining.. see pages 5 and 9-12 for actionable stocks. Though lagging across many global markets, Utilities are particularly attractive in Europe and Japan... see pages 6 and 13-17 for actionable stocks.

Global Strategy: Opportunities Within Mobile Payments, Metals & Mining, and Utilities

Commodities and related stocks are on the rise. Crude oil, industrial metals, and lumber prices are all breaking out to new highs and related energy and materials stocks are reaping the benefits. We expect their outperformance to continue. In this week's report we highlight commodities and actionable associated stocks.

Commodities and related stocks are on the rise. Crude oil, industrial metals, and lumber prices are all breaking out to new highs and related energy and materials stocks are reaping the benefits. We expect their outperformance to continue. In this week's report we highlight commodities and actionable associated stocks.

Opportunities in Global Energy & Materials Stocks

Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps tell a different story and are a great source of investment ideas within the EAFE region. In today’s report we use a bottom-up approach to highlight actionable charts, sorted by market cap (all buys at current levels).

Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps tell a different story and are a great source of investment ideas within the EAFE region. In today’s report we use a bottom-up approach to highlight actionable charts, sorted by market cap (all buys at current levels).

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 30 July, Xavier Niel, co-founder and controlling shareholder of <a href="https://www.smartkarma.com/entities/iliad-sa" target="_blank" data-smartkarma-citation="entities:21486:1" rel="noopener">Iliad SA (ILD FP)</a> (70.63% of the share capital and 78.67% of the voting rights) launched a simplified public tender offer for the remaining iliad stake he does not own.
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The offer price will be €182/share, a premium of 61.0% on the closing share price on the prior trading session, c. 50% premium to the 1-month VWAP and 52.7% to the 3-month VWAP.
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This offer for the remaining 29.37% signals Niel's belief that iliad is undervalued, as per the typical “From now on, a new phase of development for Iliad will require quicker transformations and significant investments that will be easier to carry out as a private company,” Niel said in a statement. “Our ambition for Iliad is to accelerate to become a leader in telecommunications in Europe.”
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Niel had previously boosted its stake in 2019 by buying at €120/share as the stock stagnated at nearly half its all-time highs.
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It is a similar move to that carried out by Patrick Drahi, when he took private Altice Europe (see <a href="https://www.smartkarma.com/insights/altice-next-private-takeover-announcement" target="_blank" data-smartkarma-citation="insights:43240" rel="noopener">Altice - Next Private Takeover Announcement</a> and <a href="https://www.smartkarma.com/insights/altice-next-private-trading-above-terms" target="_blank" data-smartkarma-citation="insights:45873" rel="noopener">Altice - Next Private: Trading Above Terms</a>), because of low valuations of European telecoms. Private equity has been circling <a href="https://www.smartkarma.com/entities/koninklijke-kpn-nv" target="_blank" data-smartkarma-citation="entities:21122:1" rel="noopener">Koninklijke KPN (KPN NA)</a> and KKR (in a consortium) has taken over <a href="https://www.smartkarma.com/entities/masmovil-ibercom-sa" target="_blank" data-smartkarma-citation="entities:29013:1" rel="noopener">Masmovil Ibercom SA (MAS SM)</a> and indirectly it is acquiring <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM)</a>.
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<li>Niel has bridge financing which should be comfortably refinanced with high-yield debt. He will be receiving c. €178 mn in dividends from FY2021e.</li>
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Since November 2020, iliad's shares have lost nearly a third of their value, both on investor concerns about investments in Italy and price wars in France. European telecoms will also need to carry out significant capex for the 5G deployment and upgrade networks to high-speed fibre.
This is essentially an opportunistic bid, as Xavier Niel thinks the market is undervaluing his company, coupled with the planned Capex investments. This is not too disimilar to the <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a> takeout offer.
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iliad has growth ambitions in Poland  to become a convergent player and on 30 July submitted an indicative bid to fully acquire <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">Liberty-Global-owned <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">UPC Poland. The indicative bid values the Polish operator at 7.3 billion Polish zlotys. iliad said the valuation is based on EBITDA of 782 million zlotys this year for UPC Poland. iliad is debating whether to acquire a broadband operator in the Polish market, or establishing its own broadband company to deploy optic fiber technology in Poland. This follows on the September 2020 acquisition of <a href="https://www.smartkarma.com/entities/play-communications-sa" target="_blank" data-smartkarma-citation="entities:29661:1" rel="noopener">Play Communications SA (1P1 GR)</a> for €3.5 billion (<a href="https://www.smartkarma.com/insights/play-communications-iliad-offer-announcement" target="_blank" data-smartkarma-citation="insights:43457" rel="noopener">Play Communications - Iliad: Offer Announcement</a>).
The takeout and delisting of iliad represents an opportunity for Xavier Niel. The 5G capex schedule   and fiber broadband upgrades will require heavy investments that are discouraging investors from increasing positions in reportedly cheap European telcos. At the same time, it has been the large American tech companies that have reaped the benefits of the higher internet traffic.
The offer represents c. 4.9% CF yield and the shares are trading at c. 6.5x on 2021E EV/EBITDAaL. Although the offer is interesting, and will likely receive majority of acceptances, my estimate of fair value (DCF based) is €190.7/share, which represents a 4.7% upside to the offer price. Market seems to await a sweetened bid. On this basis, and considering the risk/reward, my recommendation is Long ILD FP.
iliad's shares closed, on 30 July, 61% higher at €182.05, just above the offer price, giving it a market cap of c. €10.85b n.
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On 30 July, Xavier Niel, co-founder and controlling shareholder of Iliad SA (ILD FP) (70.63% of the share capital and 78.67% of the voting rights) launched a simplified public tender offer for the remaining iliad stake he does not own.



The offer price will be €182/share, a premium of 61.0% on the closing share price on the prior trading session, c. 50% premium to the 1-month VWAP and 52.7% to the 3-month VWAP.


This offer for the remaining 29.37% signals Niel's belief that iliad is undervalued, as per the typical “From now on, a new phase of development for Iliad will require quicker transformations and significant investments that will be easier to carry out as a private company,” Niel said in a statement. “Our ambition for Iliad is to accelerate to become a leader in telecommunications in Europe.”


Niel had previously boosted its stake in 2019 by buying at €120/share as the stock stagnated at nearly half its all-time highs.


It is a similar move to that carried out by Patrick Drahi, when he took private Altice Europe (see Altice - Next Private Takeover Announcement and Altice - Next Private: Trading Above Terms), because of low valuations of European telecoms. Private equity has been circling Koninklijke KPN (KPN NA) and KKR (in a consortium) has taken over Masmovil Ibercom SA (MAS SM) and indirectly it is acquiring Euskaltel SA (EKT SM).

Niel has bridge financing which should be comfortably refinanced with high-yield debt. He will be receiving c. €178 mn in dividends from FY2021e.


Since November 2020, iliad's shares have lost nearly a third of their value, both on investor concerns about investments in Italy and price wars in France. European telecoms will also need to carry out significant capex for the 5G deployment and upgrade networks to high-speed fibre.
This is essentially an opportunistic bid, as Xavier Niel thinks the market is undervaluing his company, coupled with the planned Capex investments. This is not too disimilar to the KAZ Minerals (KAZ LN) takeout offer.


iliad has growth ambitions in Poland  to become a convergent player and on 30 July submitted an indicative bid to fully acquire Liberty-Global-owned UPC Poland. The indicative bid values the Polish operator at 7.3 billion Polish zlotys. iliad said the valuation is based on EBITDA of 782 million zlotys this year for UPC Poland. iliad is debating whether to acquire a broadband operator in the Polish market, or establishing its own broadband company to deploy optic fiber technology in Poland. This follows on the September 2020 acquisition of Play Communications SA (1P1 GR) for €3.5 billion (Play Communications - Iliad: Offer Announcement).
The takeout and delisting of iliad represents an opportunity for Xavier Niel. The 5G capex schedule   and fiber broadband upgrades will require heavy investments that are discouraging investors from increasing positions in reportedly cheap European telcos. At the same time, it has been the large American tech companies that have reaped the benefits of the higher internet traffic.
The offer represents c. 4.9% CF yield and the shares are trading at c. 6.5x on 2021E EV/EBITDAaL. Although the offer is interesting, and will likely receive majority of acceptances, my estimate of fair value (DCF based) is €190.7/share, which represents a 4.7% upside to the offer price. Market seems to await a sweetened bid. On this basis, and considering the risk/reward, my recommendation is Long ILD FP.
iliad's shares closed, on 30 July, 61% higher at €182.05, just above the offer price, giving it a market cap of c. €10.85b n.




Xavier Niel/Iliad: An Offer Shareholders Can't Refuse?

The tender offer period for <a href="https://www.smartkarma.com/entities/cerved-group-s-p-a" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Group S.p.A. (CERV IM)</a> has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see <a href="https://www.smartkarma.com/insights/cerved-group-castor-srl-sweet-opportunity-in-loans-gone-sour" target="_blank" data-smartkarma-citation="insights:48990" rel="noopener">Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour</a>).
The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.
Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a>, whose takeover offer was increased by c. 36%.
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Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.
If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.
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I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.
The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.
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The tender offer period for Cerved Group S.p.A. (CERV IM) has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour).
The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.
Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of KAZ Minerals (KAZ LN), whose takeover offer was increased by c. 36%.

Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.
If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.


I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.
The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.


Trading Above Terms at the Start of the Tender Offer Period

United Kingdom

KAZ Minerals is a copper-focused company operating large-scale, low-cost open-pit and underground mines primarily in Kazakhstan and Kyrgyzstan. The company produces copper along with by-products such as zinc, silver, and gold. KAZ Minerals was founded in 1930 and is headquartered in London, United Kingdom.

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KAZ Minerals (KZMYF US)

Global Strategy: Opportunities Within Mobile Payments, Metals & Mining, and Utilities

We believe the secular mobile payments theme has room to run, and we expect related stocks to continue outperforming... see pages 2-4 for...

Vermilion Research

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Commodities and related stocks are on the rise. Crude oil, industrial metals, and lumber prices are all breaking out to new highs and related...

Vermilion Research

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Developed international equities (MSCI EAFE) have been underperforming relative to global equities (MSCI ACWI). However, within EAFE, SMID-caps...

Vermilion Research

Xavier Niel/Iliad: An Offer Shareholders Can't Refuse?

Although the offer will likely receive majority of acceptances, my TP is €190.7, a 4.7% upside to the offer. Market awaits a sweetened bid....

Jesus Rodriguez Aguilar

Trading Above Terms at the Start of the Tender Offer Period

The market awaits a sweetened offer, highly likely in my view. New TP (DCF based) is €11.04/share. An increase would be justified by better...

Jesus Rodriguez Aguilar

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