European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Ultra Electronics Holdings / Event-Driven

<ul>
<li>The £2.55 billion takeover of Ultra by Advent looks set to be waved on by the UK government after the Business Secretary said he was minded to accept the deal.</li>
<li>Cobham was itself taken over and broken up by Advent over the course of 2019 and 2020, amidst some controversy. As in that case, Advent will bag its prey. </li>
<li>The 3500p offer price represents 15.4x EV/Fwd EBITDA (same as at the time of deal announcement). Gross spread is 1.49%, estimated annual return is 8.8% (assuming settlement by 30 August).</li>
</ul>


The £2.55 billion takeover of Ultra by Advent looks set to be waved on by the UK government after the Business Secretary said he was minded to accept the deal.
Cobham was itself taken over and broken up by Advent over the course of 2019 and 2020, amidst some controversy. As in that case, Advent will bag its prey. 
The 3500p offer price represents 15.4x EV/Fwd EBITDA (same as at the time of deal announcement). Gross spread is 1.49%, estimated annual return is 8.8% (assuming settlement by 30 August).


Cobham/​​Ultra Electronics: UK Government Approval

Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

<ul>
<li>The March 2022 constituent changes for the STOXX Europe 600 and the EURO STOXX Indices were announced on 1st March 2022. </li>
<li>The Index Changes will be implemented (Inclusion Event) at the close of 18th March 2022 (Friday) and the changes will be effective from 21st March 2022 (Monday). </li>
<li>So far, the LONG-SHORT baskets suggested by Quiddity have done extremely well. Below are my thoughts for the remainder of the timeline.</li>
</ul>


The March 2022 constituent changes for the STOXX Europe 600 and the EURO STOXX Indices were announced on 1st March 2022. 
The Index Changes will be implemented (Inclusion Event) at the close of 18th March 2022 (Friday) and the changes will be effective from 21st March 2022 (Monday). 
So far, the LONG-SHORT baskets suggested by Quiddity have done extremely well. Below are my thoughts for the remainder of the timeline.


STOXX Europe Indices: March 2022 Rebalance Trade So Far So Good. What Next?

<ul>
<li>The European Benchmark Indices (BMI) of the STOXX family are reviewed on a quarterly basis in March, June, September and December. The March 2022 constituent changes were announced yesterday.</li>
<li>In this insight, we mainly focus on the constituent changes for the STOXX Europe 600 Index and the EURO STOXX Index.</li>
<li>In addition, we also take a look at the timeline, expected Inclusion/Exclusion Parameters for these candidates, historical performance of past rebalance events, and a potential trading strategy for March 2022.</li>
</ul>


The European Benchmark Indices (BMI) of the STOXX family are reviewed on a quarterly basis in March, June, September and December. The March 2022 constituent changes were announced yesterday.
In this insight, we mainly focus on the constituent changes for the STOXX Europe 600 Index and the EURO STOXX Index.
In addition, we also take a look at the timeline, expected Inclusion/Exclusion Parameters for these candidates, historical performance of past rebalance events, and a potential trading strategy for March 2022.


STOXX Europe Indices: Constituent Changes and Trading Strategy March 2022

<ul>
<li>The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region.</li>
<li>The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for the widely-tracked EURO STOXX 50 Index.</li>
<li>Below is a look at the Potential Adds and Deletes for the STOXX Europe 600 Index and the EURO STOXX Index in the upcoming index review in March 2022.</li>
</ul>


The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region.
The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for the widely-tracked EURO STOXX 50 Index.
Below is a look at the Potential Adds and Deletes for the STOXX Europe 600 Index and the EURO STOXX Index in the upcoming index review in March 2022.


STOXX Europe Indices: Quiddity Leaderboard for March 2022 Rebalance (Final)

<ul>
<li>The deal is expected to be referred for thorough analysis given political sensitivities as <a href="https://www.smartkarma.com/entities/ultra-electronics-holdings-plc" target="_blank" data-smartkarma-citation="entities:22196:1" rel="noopener">Ultra Electronics Holdings (ULE LN)</a> is a key supplier to the UK’s army. Shorts are increasing.</li>
<li>The review should fall under the old rules though. My standalone fair value estimate (DCF based) is 3,184p. (vs. 2,950p comps-based implied valuation and 3,325p median Capital IQ consensus TP).</li>
<li>
Long ULE LN, TP 3,500p, plus 16p interim. Upside is 17.2%. I just don't see the UK Government blocking a friendly defence deal from an investor coming from a key ally.</li>
</ul>


The deal is expected to be referred for thorough analysis given political sensitivities as Ultra Electronics Holdings (ULE LN) is a key supplier to the UK’s army. Shorts are increasing.
The review should fall under the old rules though. My standalone fair value estimate (DCF based) is 3,184p. (vs. 2,950p comps-based implied valuation and 3,325p median Capital IQ consensus TP).

Long ULE LN, TP 3,500p, plus 16p interim. Upside is 17.2%. I just don't see the UK Government blocking a friendly defence deal from an investor coming from a key ally.


Cobham/​Ultra Electronics: Updated Valuation and Spread

United Kingdom

Ultra Electronics Holdings plc designs, manufactures, and supports electronic and electromechanical systems, sub-systems, and products for defense, security, and aerospace applications worldwide.  The Group focuses on sensing, control, communication, and display systems which an emphasis on integrated information technology solutions.

Ultra Electronics Holdings (ULE LN)

Cobham/Ultra Electronics: UK Government Approval

The acquisition remains conditional upon the Secretary of State's formal approval, pending the outcome of the public consultation, but it can be...

Jesus Rodriguez Aguilar

STOXX Europe Indices: March 2022 Rebalance Trade So Far So Good. What Next?

The LONG-SHORT Trades for the STOXX Europe 600 and EURO STOXX Indices March 2022 Rebalance has performed well so far. Below is a discussion on my...

Janaghan Jeyakumar, CFA

STOXX Europe Indices: Constituent Changes and Trading Strategy March 2022

STOXX Europe 600 announced 9 Adds and 9 Deletes for March 2022. Here is a closer look at the constituency changes and potential trading strategies...

Janaghan Jeyakumar, CFA

STOXX Europe Indices: Quiddity Leaderboard for March 2022 Rebalance (Final)

A look at the Potential Adds and Deletes for the STOXX Europe 600 Index and the EURO STOXX Index in the upcoming index review in March 2022.

Janaghan Jeyakumar, CFA

Cobham/Ultra Electronics: Updated Valuation and Spread

It is expected that the UK Government will refer the deal for thorough analysis (as formerly with Cobham), but will not block a defence deal led by...

Jesus Rodriguez Aguilar

Cobham/​​Ultra Electronics: UK Government Approval

The acquisition remains conditional upon the Secretary of State's formal approval, pending the outcome of the public consultation, but it can be...

Jesus Rodriguez Aguilar

STOXX Europe Indices: March 2022 Rebalance Trade So Far So Good. What Next?

The LONG-SHORT Trades for the STOXX Europe 600 and EURO STOXX Indices March 2022 Rebalance has performed well so far. Below is a discussion on my...

Janaghan Jeyakumar, CFA

STOXX Europe Indices: Constituent Changes and Trading Strategy March 2022

STOXX Europe 600 announced 9 Adds and 9 Deletes for March 2022. Here is a closer look at the constituency changes and potential trading strategies...

Janaghan Jeyakumar, CFA

STOXX Europe Indices: Quiddity Leaderboard for March 2022 Rebalance (Final)

A look at the Potential Adds and Deletes for the STOXX Europe 600 Index and the EURO STOXX Index in the upcoming index review in March 2022.

Janaghan Jeyakumar, CFA

Cobham/​Ultra Electronics: Updated Valuation and Spread

It is expected that the UK Government will refer the deal for thorough analysis (as formerly with Cobham), but will not block a defence deal led by...

Jesus Rodriguez Aguilar

Cobham/Ultra Electronics: UK Government Approval

Cobham/Ultra Electronics: Updated Valuation and Spread