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

Financial Select Sector SPDR F / Technical Analysis

<p>We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.</p><p>Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI</p>

We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI

Upgrading Financials To Overweight; Downgrading Communications To Market Weight

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.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/phc-holdings-corp" target="_blank" data-smartkarma-citation="entities:34198:1" rel="noopener">PHC Holdings (6523 JP)</a> is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> (owns 48.0% of PHC), <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> (21.1%), Life Science Institute (13.2%) and <a href="https://www.smartkarma.com/entities/panasonic-corp" target="_blank" data-smartkarma-citation="entities:222:1" rel="noopener">Panasonic Corp (6752 JP)</a> (11.3%).</p></div><div><p>At the indicative price of JPY3,700 per share, PHC will have a market cap of JPY452 billion (US$4.1 billion). PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares (JPY22 billion raise) and 40.7 million secondary shares (JPY150 billion raise). </p></div><div><div>
<p>In <a href="https://www.smartkarma.com/insights/phc-holdings-ipo-initiation-sugar-high" target="_blank" data-smartkarma-citation="insights:57915" rel="noopener">PHC Holdings IPO Initiation: Sugar High</a>, we opined that at first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. We concluded that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines.</p>
<div class="content-highlight"><p>Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the IPO. </p></div>
</div></div>

PHC Holdings (6523 JP) is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include KKR &amp; Co Inc (KKR US) (owns 48.0% of PHC), Mitsui &amp; Co Ltd (8031 JP) (21.1%), Life Science Institute (13.2%) and Panasonic Corp (6752 JP) (11.3%).At the indicative price of JPY3,700 per share, PHC will have a market cap of JPY452 billion (US$4.1 billion). PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares (JPY22 billion raise) and 40.7 million secondary shares (JPY150 billion raise). 
In PHC Holdings IPO Initiation: Sugar High, we opined that at first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. We concluded that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines.
Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the IPO. 


<p><a href="https://www.smartkarma.com/entities/phc-holdings-corp" target="_blank" data-smartkarma-citation="entities:34198:1" rel="noopener">PHC Holdings (6523 JP)</a> is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> (owns 48.0% of PHC), <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> (21.1%), Life Science Institute (13.2%) and <a href="https://www.smartkarma.com/entities/panasonic-corp" target="_blank" data-smartkarma-citation="entities:222:1" rel="noopener">Panasonic Corp (6752 JP)</a> (11.3%).</p><p>PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares and 40.7 million secondary shares at an indicative price of JPY3,700 per share. KKR, Mitsui &amp; Co, Life Science Institute, Panasonic and LCA 3 Moonshot are the selling shareholders. Books will open from 28 September to 4 October. The deal will price on 6 October and the shares are due to list on 14 October. </p><div class="content-highlight"><p>At first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. On balance, we think that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines. </p></div>

PHC Holdings (6523 JP) is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include KKR &amp; Co Inc (KKR US) (owns 48.0% of PHC), Mitsui &amp; Co Ltd (8031 JP) (21.1%), Life Science Institute (13.2%) and Panasonic Corp (6752 JP) (11.3%).PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares and 40.7 million secondary shares at an indicative price of JPY3,700 per share. KKR, Mitsui &amp; Co, Life Science Institute, Panasonic and LCA 3 Moonshot are the selling shareholders. Books will open from 28 September to 4 October. The deal will price on 6 October and the shares are due to list on 14 October. At first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. On balance, we think that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines. 

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 13 September 2021, <a href="https://www.smartkarma.com/entities/ocean-yield-asa" target="_blank" data-smartkarma-citation="entities:22243:1" rel="noopener">Ocean Yield ASA (OCY NO)</a> announced that it had reached an agreement with Octopus Bidco (owned by funds advised by <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a>) on the terms of a recommended voluntary offer for all outstanding shares. KKR intends to expand the sale-and-leaseback specialist.</p>
<p>Consideration is <strong>NOK 41/share</strong>, cum dividend, for an <strong>implied equity value (deal value)</strong> of <strong>NOK 7,186.75 mn</strong> (NOK 7,200 mn as reported) and implied EV of 18,789.38 mn. This represents 12.4x EV/Fwd Revenue, 13.2x EV/Fwd EBITDA, 10.9x Fwd P/E and <strong>125.8x deal value/Consensus NAV</strong>.</p>
<p>Consideration will be <strong>increased with any incremental sales price received for the FPSO Dhirubhai above $19 mn</strong> if sold prior to settlement of the offer. If Aker Energy declares the purchase option at $35m, the <strong>offer price will rise to NOK 41.74/share</strong>.</p>
<p>Irrevocable undertakings from Aker Capital ASA (61.65% stake), and Board members and management holding approximately 2.02%.</p>
<p>Ocean Yield's financial situation continues to be stressed, and gearing is high. Book equity, $668.1 million vs. total assets of $2,132 billion, for an equity ratio of 31.3% at end of Q2. Leverage is 8.4x net debt/EBITDA and EBIT/interest is 7.2x.</p>
<p>In terms of tangible book value for its assets, the offer price represents 1.25x. Comparable companies are trading at a median 1.0x P/TBV, on this basis the offer seems fair.</p>
<p>The market is betting on Aker Energy declaring the purchase option at $35m, thus the offer price will rise to NOK 41.74/share, and the <strong>adjusted gross spread is then c. 1.8%</strong> (completion expected in Q4).</p>
<p>Although not a terribly exciting spread, it is a done deal. <strong>Long OCY OB, TP 41.74</strong>.</p>
<p>Some bonds look interesting, more specifically the Ocean Yield ASA - FRN SNR 12/2024, with a 5.32% YTW, but only $87 mn outstanding.</p>

On 13 September 2021, Ocean Yield ASA (OCY NO) announced that it had reached an agreement with Octopus Bidco (owned by funds advised by KKR &amp; Co Inc (KKR US)) on the terms of a recommended voluntary offer for all outstanding shares. KKR intends to expand the sale-and-leaseback specialist.
Consideration is NOK 41/share, cum dividend, for an implied equity value (deal value) of NOK 7,186.75 mn (NOK 7,200 mn as reported) and implied EV of 18,789.38 mn. This represents 12.4x EV/Fwd Revenue, 13.2x EV/Fwd EBITDA, 10.9x Fwd P/E and 125.8x deal value/Consensus NAV.
Consideration will be increased with any incremental sales price received for the FPSO Dhirubhai above $19 mn if sold prior to settlement of the offer. If Aker Energy declares the purchase option at $35m, the offer price will rise to NOK 41.74/share.
Irrevocable undertakings from Aker Capital ASA (61.65% stake), and Board members and management holding approximately 2.02%.
Ocean Yield's financial situation continues to be stressed, and gearing is high. Book equity, $668.1 million vs. total assets of $2,132 billion, for an equity ratio of 31.3% at end of Q2. Leverage is 8.4x net debt/EBITDA and EBIT/interest is 7.2x.
In terms of tangible book value for its assets, the offer price represents 1.25x. Comparable companies are trading at a median 1.0x P/TBV, on this basis the offer seems fair.
The market is betting on Aker Energy declaring the purchase option at $35m, thus the offer price will rise to NOK 41.74/share, and the adjusted gross spread is then c. 1.8% (completion expected in Q4).
Although not a terribly exciting spread, it is a done deal. Long OCY OB, TP 41.74.
Some bonds look interesting, more specifically the Ocean Yield ASA - FRN SNR 12/2024, with a 5.32% YTW, but only $87 mn outstanding.

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Equity Bottom-Up

<h2>
<strong>Examining key questions from the Kioxia &amp; PE </strong><strong>news flow</strong>
</h2><p>In our July 2021 note <a href="https://www.smartkarma.com/insights/toshiba-corp-6502-jp-chapter-5" target="_blank" data-smartkarma-citation="insights:54649" rel="noopener">Toshiba Corp (6502 JP) Chapter 5: Assessing the Next Move</a> we stated that one of the key events to be expected as early as September 2021, was the IPO of the firms 40% stake in Kioxia Holdings Corporation (Kioxia). Kioxia was due to be listed in 2020, but did not occur due to “the coronavirus pandemic and market volatility.” At the time of pulling the IPO in 2020, Toshiba was expecting a valuation of around $16 billion. </p><p>Several media sources, including Bloomberg and the Wall Street Journal, have alluded to the fact that a potential merger of Kioxia with Western Digital to the value of US$20bn may be on the cards. They have cited a possible transaction using shares as opposed to cash or a combination. This is news that shareholders and in particular the activist shareholders have wanted to hear for some time and a transaction that is expected to be welcomed. </p><p>We examine several of the key questions surrounding the Kioxia news and what is next for Toshiba - including the potential for a full PE bid. </p>


Examining key questions from the Kioxia &amp; PE news flow
In our July 2021 note Toshiba Corp (6502 JP) Chapter 5: Assessing the Next Move we stated that one of the key events to be expected as early as September 2021, was the IPO of the firms 40% stake in Kioxia Holdings Corporation (Kioxia). Kioxia was due to be listed in 2020, but did not occur due to “the coronavirus pandemic and market volatility.” At the time of pulling the IPO in 2020, Toshiba was expecting a valuation of around $16 billion. Several media sources, including Bloomberg and the Wall Street Journal, have alluded to the fact that a potential merger of Kioxia with Western Digital to the value of US$20bn may be on the cards. They have cited a possible transaction using shares as opposed to cash or a combination. This is news that shareholders and in particular the activist shareholders have wanted to hear for some time and a transaction that is expected to be welcomed. We examine several of the key questions surrounding the Kioxia news and what is next for Toshiba - including the potential for a full PE bid. 

Toshiba Corp (6502 JP) Chapter 6: Potential for Value Creation

United States

KKR & Co. Inc. operates as an investment firm. The Company manages investments such as private equity, energy, infrastructure, real estate, credit strategies, and hedge funds. KKR & Co serves clients worldwide.

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KKR & Co (KKR US)

Upgrading Financials To Overweight; Downgrading Communications To Market Weight

We are upgrading Financials to overweight; Financial Sector ETFs (XLF, RYF), banks (KBE, KRE), and insurance stocks (KIE) are all breaking out to...

Vermilion Research

PHC Holdings IPO: Valuation Insights

Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the...

Arun George

PHC Holdings IPO Initiation: Sugar High

PHC plans to raise JPY172 billion ($1.57 billion) at an indicative price of JPY3,700 per share. We think that PHC’s fundamentals are mixed and we...

Arun George

KKR/Ocean Yield: Recommended Offer

A done deal. The market is betting on Aker Energy declaring the purchase option at $35m, thus offer rising to NOK 41.74/share, for a 1.8% adjusted...

Jesus Rodriguez Aguilar

Toshiba Corp (6502 JP) Chapter 6: Potential for Value Creation

@Toshiba (6502.JP) activists might applaud a Wester Digital Merger, but this is just one alternative - PE bids still viable. Perhaps value...

David Lepper

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