Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<div>S&amp;P Dow Jones Indices will announce changes to the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> as part of the March index review on 12 March and the changes will be effective after the close of trading on 19 March.</div><div>
The data cutoff for the March review was 26 February.
We see <a href="https://www.smartkarma.com/entities/nuix-limited" target="_blank" data-smartkarma-citation="entities:31040:1" rel="noopener">Nuix Limited (NXL AU)</a>, <a href="https://www.smartkarma.com/entities/codan-ltd-australia" target="_blank" data-smartkarma-citation="entities:6189:1" rel="noopener">Codan Ltd (CDA AU)</a> and <a href="https://www.smartkarma.com/entities/pilbara-minerals-ltd" target="_blank" data-smartkarma-citation="entities:7460:1" rel="noopener">Pilbara Minerals (PLS AU)</a> as potential inclusions to the index, while we see <a href="https://www.smartkarma.com/entities/service-stream-ltd" target="_blank" data-smartkarma-citation="entities:18493:1" rel="noopener">Service Stream (SSM AU)</a>, <a href="https://www.smartkarma.com/entities/tassal-group-ltd" target="_blank" data-smartkarma-citation="entities:16234:1" rel="noopener">Tassal (TGR AU)</a> and <a href="https://www.smartkarma.com/entities/bravura-solutions-ltd" target="_blank" data-smartkarma-citation="entities:23648:1" rel="noopener">Bravura Solutions (BVS AU)</a> as potential exclusions from the index.
<a href="https://www.smartkarma.com/entities/champion-iron-ltd" target="_blank" data-smartkarma-citation="entities:19734:1" rel="noopener">Champion Iron (CIA AU)</a> and <a href="https://www.smartkarma.com/entities/de-grey-mining-ltd" target="_blank" data-smartkarma-citation="entities:6192:1" rel="noopener">De Grey Mining (DEG AU)</a> are close adds while <a href="https://www.smartkarma.com/entities/gwa-group-ltd" target="_blank" data-smartkarma-citation="entities:663:1" rel="noopener">Gwa Group Ltd (GWA AU)</a> and <a href="https://www.smartkarma.com/entities/smartgroup-corp-ltd" target="_blank" data-smartkarma-citation="entities:19954:1" rel="noopener">Smartgroup Corp (SIQ AU)</a> are close deletes.
Short interest on the potential inclusions has been decreasing and is currently near the lows while short interest on the potential deletions has been steadily increasing and is at the highs.
Since the last index review in December, <a href="https://www.smartkarma.com/entities/pointsbet-holdings-pty-ltd" target="_blank" data-smartkarma-citation="entities:29102:1" rel="noopener">PointsBet Holdings Pty Ltd (PBH AU)</a> was included in the index replacing <a href="https://www.smartkarma.com/entities/saracen-mineral-holdings-limited" target="_blank" data-smartkarma-citation="entities:2415:1" rel="noopener">Saracen Mineral Holdings (SAR AU)</a> following its merger of equals with <a href="https://www.smartkarma.com/entities/northern-star-resources-ltd" target="_blank" data-smartkarma-citation="entities:4243:1" rel="noopener">Northern Star Resources (NST AU)</a>.
</div>

S&amp;P Dow Jones Indices will announce changes to the S&amp;P/ASX 200 (AS51 INDEX) as part of the March index review on 12 March and the changes will be effective after the close of trading on 19 March.
The data cutoff for the March review was 26 February.
We see Nuix Limited (NXL AU), Codan Ltd (CDA AU) and Pilbara Minerals (PLS AU) as potential inclusions to the index, while we see Service Stream (SSM AU), Tassal (TGR AU) and Bravura Solutions (BVS AU) as potential exclusions from the index.
Champion Iron (CIA AU) and De Grey Mining (DEG AU) are close adds while Gwa Group Ltd (GWA AU) and Smartgroup Corp (SIQ AU) are close deletes.
Short interest on the potential inclusions has been decreasing and is currently near the lows while short interest on the potential deletions has been steadily increasing and is at the highs.
Since the last index review in December, PointsBet Holdings Pty Ltd (PBH AU) was included in the index replacing Saracen Mineral Holdings (SAR AU) following its merger of equals with Northern Star Resources (NST AU).


ASX200 Index Rebalance Preview: Three Potential Changes & Some Close Names

Centuria Industrial REIT / Index Rebalance

S&amp;P Dow Jones Indices announced changes to the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" rel="noopener" data-smartkarma-citation="entities:22901:1">S&amp;P/ASX 200 (AS51 INDEX)</a> today. The changes are effective at the open of trading on 22 June and passive funds will need to complete their rebalancing activity at or by the close on 19 June.There are 5 additions in the review: <a href="https://www.smartkarma.com/entities/360-capital-industrial-fund" target="_blank" rel="noopener" data-smartkarma-citation="entities:17517:1">Centuria Industrial Reit (CIP AU)</a>, <a href="https://www.smartkarma.com/entities/megaport-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:24310:1">Megaport Ltd (MP1 AU)</a>, <a href="https://www.smartkarma.com/entities/mesoblast-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:769:1">Mesoblast Ltd (MSB AU)</a>, <a href="https://www.smartkarma.com/entities/emperor-energy-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9522:1">Oil Basins Ltd (OBL AU)</a> and <a href="https://www.smartkarma.com/entities/perseus-mining-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:15306:1">Perseus Mining (PRU AU)</a>.There are 6 deletions in the review: <a href="https://www.smartkarma.com/entities/estia-health-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:77:1">Estia Health (EHE AU)</a>, <a href="https://www.smartkarma.com/entities/hub24-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:12336:1">Hub24 Ltd (HUB AU)</a>, <a href="https://www.smartkarma.com/entities/jumbo-interactive-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:11495:1">Jumbo Interactive (JIN AU)</a>, <a href="https://www.smartkarma.com/entities/mayne-pharma-group-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:757:1">Mayne Pharma (MYX AU)</a>, <a href="https://www.smartkarma.com/entities/pilbara-minerals-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:7460:1">Pilbara Minerals (PLS AU)</a> and Pinnacle Investment Management Group.With only 6 days to implementation day there could be big moves ahead. As I type, the adds are down 2.61% on average while the deletes are 6.31% lower on average.

S&amp;P Dow Jones Indices announced changes to the S&amp;P/ASX 200 (AS51 INDEX) today. The changes are effective at the open of trading on 22 June and passive funds will need to complete their rebalancing activity at or by the close on 19 June.There are 5 additions in the review: Centuria Industrial Reit (CIP AU), Megaport Ltd (MP1 AU), Mesoblast Ltd (MSB AU), Oil Basins Ltd (OBL AU) and Perseus Mining (PRU AU).There are 6 deletions in the review: Estia Health (EHE AU), Hub24 Ltd (HUB AU), Jumbo Interactive (JIN AU), Mayne Pharma (MYX AU), Pilbara Minerals (PLS AU) and Pinnacle Investment Management Group.With only 6 days to implementation day there could be big moves ahead. As I type, the adds are down 2.61% on average while the deletes are 6.31% lower on average.

ASX200 Index Review - A Handful of Changes

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

We maintain our AUD 1.25 fair value estimate for no-moat Mayne Pharma given the recent update by management on the US generic industry trading environment. This follows the unprecedented level of price deflation in second-half fiscal 2017, which resulted in the disappointing performance of the US generic products division and prompted our move to very high fair value uncertainty.Although acknowledging ongoing pressure, and reiterating soft 1H18 sales in the recent update, management did not provide further guidance. As such, we are not changing our fiscal 2018 forecast revenue of AUD 581 million at this point. Shares are currently trading at a significant discount to our fair value estimate, however our very high uncertainty rating remains intact. From a pipeline perspective, Mayne is in good shape with around 35 generic pipeline products targeting markets with total annual sales of more than USD 5 billion. Seventeen of these products are pending approval at the US Food and Drug Administration, including a potential first to market opportunity. We think the steady flow of new products bodes well for diversification of the product portfolio away from the problematic TEVA assets and stabilization of the US generic business. We think increasing diversification should offset increasing competition in select markets. We also believe generic price deflation will make currently contestable niche markets less attractive and eventually lead to an exit of industry players leading to more sustainable pricing environments for the remaining participants. As such, we expect Mayne to be amongst the remaining players.Importantly, Mayne’s capital structure remains healthy, with cash on hand of AUD 63 million versus debt of AUD 340 million. Gearing remains relatively low, with net debt/EBITDA of around 1.30, together with an undrawn debt facility of USD 155 million, with the first repayment in that facility not due until fiscal 2021. As such, and in light several cost saving initiatives, we remain comfortable with Mayne’s ability to weather the currently difficult trading environment.Analyst: Chris Kallos, CFA

We maintain our AUD 1.25 fair value estimate for no-moat Mayne Pharma given the recent update by management on the US generic industry trading environment. This follows the unprecedented level of price deflation in second-half fiscal 2017, which resulted in the disappointing performance of the US generic products division and prompted our move to very high fair value uncertainty.Although acknowledging ongoing pressure, and reiterating soft 1H18 sales in the recent update, management did not provide further guidance. As such, we are not changing our fiscal 2018 forecast revenue of AUD 581 million at this point. Shares are currently trading at a significant discount to our fair value estimate, however our very high uncertainty rating remains intact. From a pipeline perspective, Mayne is in good shape with around 35 generic pipeline products targeting markets with total annual sales of more than USD 5 billion. Seventeen of these products are pending approval at the US Food and Drug Administration, including a potential first to market opportunity. We think the steady flow of new products bodes well for diversification of the product portfolio away from the problematic TEVA assets and stabilization of the US generic business. We think increasing diversification should offset increasing competition in select markets. We also believe generic price deflation will make currently contestable niche markets less attractive and eventually lead to an exit of industry players leading to more sustainable pricing environments for the remaining participants. As such, we expect Mayne to be amongst the remaining players.Importantly, Mayne’s capital structure remains healthy, with cash on hand of AUD 63 million versus debt of AUD 340 million. Gearing remains relatively low, with net debt/EBITDA of around 1.30, together with an undrawn debt facility of USD 155 million, with the first repayment in that facility not due until fiscal 2021. As such, and in light several cost saving initiatives, we remain comfortable with Mayne’s ability to weather the currently difficult trading environment.Analyst: Chris Kallos, CFA

Mayne Well Positioned to Weather the Storm; Maintaining FVE and Very High Uncertainty

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

<ul><li>Financial forensics remains an indispensable part of the short-seller's tool-kit. In this report, Evidente updates and expands its analysis of financial forensics, now that most ASX listed companies have reported their interim financial results <a href="https://www.smartkarma.com/insights/financial-forensic-part-i" target="_blank" data-smartkarma-citation="insights:6669">Financial Forensic - Part I</a></li><li>Since the launch of Financial Forensics in October 2016, the twenty stocks identified by Evidente as having the highest non-cash component of earnings have delivered a mean accumulated return -6.6%, well below the ASX200 (+9.6%).</li><li>Evidente has compiled an updated list of the twenty stocks which have the highest non-cash component of earnings, and in many cases have experienced a marked deterioration in earnings quality from the previous interim reporting season, including Blackmores, Webjet and Myer Holdings.  Some of these are growth stocks, trading on high multiples and with little margin for disappointing faithful investors.</li></ul>

Financial forensics remains an indispensable part of the short-seller's tool-kit. In this report, Evidente updates and expands its analysis of financial forensics, now that most ASX listed companies have reported their interim financial results Financial Forensic - Part ISince the launch of Financial Forensics in October 2016, the twenty stocks identified by Evidente as having the highest non-cash component of earnings have delivered a mean accumulated return -6.6%, well below the ASX200 (+9.6%).Evidente has compiled an updated list of the twenty stocks which have the highest non-cash component of earnings, and in many cases have experienced a marked deterioration in earnings quality from the previous interim reporting season, including Blackmores, Webjet and Myer Holdings.  Some of these are growth stocks, trading on high multiples and with little margin for disappointing faithful investors.

Financial Forensics - The Short-Seller's Indispensable Tool-Kit

Domino's Pizza Enterprises / Equity Bottom-Up

<ul><li>Four months ago, Evidente published a post suggesting that Australian growth stocks were over-priced <a href="https://www.smartkarma.com/insights/the-big-short-australian-growth-stocks" target="_blank" data-smartkarma-citation="insights:6166">The Big Short: Australian Growth Stocks</a> and followed up with an update of the analysis in December <a href="https://www.smartkarma.com/insights/re-visiting-the-big-short-australian-growth-stocks" target="_blank" data-smartkarma-citation="insights:6838">Re-Visiting the Big Short: Australian Growth Stocks</a>.  In this post, I update and expand the analysis.</li><li>The key conclusions are little changed.  Despite precipitous falls in the share prices of a number of high growth names in recent months, the valuation dispersion between growth and value stocks remains high by historical standards, and cannot be explained by trends in ROE and long term growth expectations.   Lower expected stock returns therefore remains the basis of Evidente's view that Australian growth stocks represent the big short.  The key new insight is that compositional change in the growth portfolio - the 'new growth migrants' - has driven multiple expansion, many of which are newly listed.</li><li>The basket of six short candidates Evidente identified in October to capitalise on the big short have yielded an average accumulated return of -15%, well below the ASX200 return of +8% over this period.  In particular, <a href="https://www.smartkarma.com/entities/757" target="_blank" data-smartkarma-citation="entities:757:1">Mayne Pharma Group Ltd (MYX AU)</a>, <a href="https://www.smartkarma.com/entities/323" target="_blank" data-smartkarma-citation="entities:323:1">TPG Telecom Ltd (TPM AU)</a> and <a href="https://www.smartkarma.com/entities/700" target="_blank" data-smartkarma-citation="entities:700:1">Domino's Pizza Enterprises Ltd. (DMP AU)</a> have each fallen by no less than 20%.  In this post, Evidente identifies a new basket of twelve short candidates.</li><li>Unless growth stocks experience a substantial upgrade to consensus long term EPSg and ROE estimates, 2017 promises to be another challenging year for Australia's community of growth oriented investors.  The analysis advises caution in particular for growth stocks that have been listed for a short time and thus whose business model and management only have a short track record to boast of.  Analysts and investors are therefore likely to have less conviction around their earnings forecasts for these newly listed firms.</li></ul>

Four months ago, Evidente published a post suggesting that Australian growth stocks were over-priced The Big Short: Australian Growth Stocks and followed up with an update of the analysis in December Re-Visiting the Big Short: Australian Growth Stocks.  In this post, I update and expand the analysis.The key conclusions are little changed.  Despite precipitous falls in the share prices of a number of high growth names in recent months, the valuation dispersion between growth and value stocks remains high by historical standards, and cannot be explained by trends in ROE and long term growth expectations.   Lower expected stock returns therefore remains the basis of Evidente's view that Australian growth stocks represent the big short.  The key new insight is that compositional change in the growth portfolio - the 'new growth migrants' - has driven multiple expansion, many of which are newly listed.The basket of six short candidates Evidente identified in October to capitalise on the big short have yielded an average accumulated return of -15%, well below the ASX200 return of +8% over this period.  In particular, Mayne Pharma Group Ltd (MYX AU), TPG Telecom Ltd (TPM AU) and Domino's Pizza Enterprises Ltd. (DMP AU) have each fallen by no less than 20%.  In this post, Evidente identifies a new basket of twelve short candidates.Unless growth stocks experience a substantial upgrade to consensus long term EPSg and ROE estimates, 2017 promises to be another challenging year for Australia's community of growth oriented investors.  The analysis advises caution in particular for growth stocks that have been listed for a short time and thus whose business model and management only have a short track record to boast of.  Analysts and investors are therefore likely to have less conviction around their earnings forecasts for these newly listed firms.

Australian Growth Stocks: The Big Short (Still)

Australia

Mayne Pharma Group Ltd. develops and manufactures oral pharmaceuticals.  The Company produces branded generics, specialty generics, and active pharmaceutical ingredients.

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Mayne Pharma (MYX AU)

ASX200 Index Rebalance Preview: Three Potential Changes & Some Close Names

We see three potential changes to the ASX200 in the March review while there are another two close adds/deletes. High short interest on the...

Brian Freitas

ASX200 Index Review - A Handful of Changes

S&P Dow Jones Indices announced changes to the S&P/ASX 200 (AS51 INDEX) today. The changes are effective at the open of trading on 22 June...

Brian Freitas

Mayne Well Positioned to Weather the Storm; Maintaining FVE and Very High Uncertainty

We maintain our AUD 1.25 fair value estimate for no-moat Mayne Pharma given the recent update by management on the US generic industry trading...

Morningstar, Inc.

Financial Forensics - The Short-Seller's Indispensable Tool-Kit

Financial forensics remains an indispensable part of the short-seller's tool-kit. In this report, Evidente updates and expands its analysis of...

Sam Ferraro

Australian Growth Stocks: The Big Short (Still)

Four months ago, Evidente published a post suggesting that Australian growth stocks were over-priced The Big Short: Australian Growth Stocks and...

Sam Ferraro

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