European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/alfa-laval-ab" target="_blank" data-smartkarma-citation="entities:22270:1" rel="noopener">Alfa Laval AB (ALFA SS)</a> , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer <a href="https://www.smartkarma.com/entities/neles-oyj" target="_blank" data-smartkarma-citation="entities:29195:1" rel="noopener">Neles Oyj (METSO FH)</a>. After striking a "combination agreement" with Neles, Alfa Laval will carry out a tender offer for all issued and outstanding shares of Neles.
<ul>
<li>The offer is EUR 11.50 per share of Neles, adjustable for any dividend or capital distribution by Neles.</li>
<li>It values Neles at EUR 1,727 mn.</li>
<li>This represents a premium of c. 32.8% vs. last close on 10 July.</li>
</ul>
Neles opened today at EUR 11.67 per share, and closed at EUR 11.94, a 3.8% premium to the offer terms. In less than two weeks after becoming a listed company, Neles has been the target of a friendly takeover bid from Alfa Laval.
Neles is in turnaround mode. Neles has a Return on Capital of 2.9% vs. 10.8% for Alfa Laval.
The key issue is rival Valmet's 14.88% stake in Neles, which can prevent a delisting of Neles. Valmet stated its intention to seek a seat on the Board of Directors of Neles and to increase its shareholding over time. Valmet says it doesn’t consider Alfa Laval offer beneficial for Neles.
On a comps basis Neles trades slightly below closest comps: 19.35x EV/Forward EBITDA vs. the median of 19.81x (and vs. 13.06x for Alfa Laval).
By taking the median multiple of 19.81x, a raised bid of EUR 12.21 per share of Neles could be justified. This would be a 6% increase to the current offer by Alfa Laval.
At the current share price of Neles, there is 4% downside risk to go long Neles, but I suspect there may be a sweetened bid, a 6% increase can be justified on an EV/forward EBITDA basis. Valmet could counter offer or try to extract a higher price to tender its stake, and has already started signaling so.
Please read below for deal terms and related information.

Alfa Laval AB (ALFA SS) , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer Neles Oyj (METSO FH). After striking a "combination agreement" with Neles, Alfa Laval will carry out a tender offer for all issued and outstanding shares of Neles.

The offer is EUR 11.50 per share of Neles, adjustable for any dividend or capital distribution by Neles.
It values Neles at EUR 1,727 mn.
This represents a premium of c. 32.8% vs. last close on 10 July.

Neles opened today at EUR 11.67 per share, and closed at EUR 11.94, a 3.8% premium to the offer terms. In less than two weeks after becoming a listed company, Neles has been the target of a friendly takeover bid from Alfa Laval.
Neles is in turnaround mode. Neles has a Return on Capital of 2.9% vs. 10.8% for Alfa Laval.
The key issue is rival Valmet's 14.88% stake in Neles, which can prevent a delisting of Neles. Valmet stated its intention to seek a seat on the Board of Directors of Neles and to increase its shareholding over time. Valmet says it doesn’t consider Alfa Laval offer beneficial for Neles.
On a comps basis Neles trades slightly below closest comps: 19.35x EV/Forward EBITDA vs. the median of 19.81x (and vs. 13.06x for Alfa Laval).
By taking the median multiple of 19.81x, a raised bid of EUR 12.21 per share of Neles could be justified. This would be a 6% increase to the current offer by Alfa Laval.
At the current share price of Neles, there is 4% downside risk to go long Neles, but I suspect there may be a sweetened bid, a 6% increase can be justified on an EV/forward EBITDA basis. Valmet could counter offer or try to extract a higher price to tender its stake, and has already started signaling so.
Please read below for deal terms and related information.

Asia and Global Semiconductor and Tech Research

Andrew Lu

Equity Bottom-Up

Contemporary Amperex Technology (CATL) / Equity Bottom-Up

<ul><li>A leading EV battery vendor in China: CATL aims to be listed at Shenzhen Stock Exchange as A-share listing middle next year. The company will issue no more than 217.2mn new shares at IPO price of RMB$60.4 per share or US$1.98bn IPO size (US$19.8bn market cap).</li><li>ASP free fall will be a major concern: Affected by ASP decline of likely 30% y/y to below US$210/kWh in 2H17 from US$309/kWh in 2016 and US$224/kWh in 1H17, we expect 2017E sales growth to decelerate massively. We attribute ASP decline to 1) Competition from China peers and global leaders; 2) Some EV subsidies cut; 3) Pricing pressure from EV car vendors.</li><li>Margin contraction inevitable: Given expecting EV battery cost per kWh decline of 15-20% y/y for next few years is less than price decline of 20-30% y/y, we expect gross margin contraction to 37% in 2018E and 35% in 2019E from 44% in 2016.</li><li>Valuation is demanding: The preliminary IPO price is suggesting over 40x 2018/2019E EPS and 6x book value at lower ROE of &lt;10% (after US$1.98bn cash dilution). We thus see CATL is overvalued over peers' unless the company can deliver much stronger than expected 2H17 sales/earnings. </li><li>Strong performance expected before the lock-up period ends: Despite the demanding valuation, CATL stands out in China and global with higher operating margin, technology leadership, better yield rate, production efficiency, rich EV battery clients portfolio, and shares gain. Due to limited shares free float available post-IPO, we expect strong performance over the next 6 months (post-IPO) until approaching the lock-up period of 12 months for key shareholders.</li></ul>

A leading EV battery vendor in China: CATL aims to be listed at Shenzhen Stock Exchange as A-share listing middle next year. The company will issue no more than 217.2mn new shares at IPO price of RMB$60.4 per share or US$1.98bn IPO size (US$19.8bn market cap).ASP free fall will be a major concern: Affected by ASP decline of likely 30% y/y to below US$210/kWh in 2H17 from US$309/kWh in 2016 and US$224/kWh in 1H17, we expect 2017E sales growth to decelerate massively. We attribute ASP decline to 1) Competition from China peers and global leaders; 2) Some EV subsidies cut; 3) Pricing pressure from EV car vendors.Margin contraction inevitable: Given expecting EV battery cost per kWh decline of 15-20% y/y for next few years is less than price decline of 20-30% y/y, we expect gross margin contraction to 37% in 2018E and 35% in 2019E from 44% in 2016.Valuation is demanding: The preliminary IPO price is suggesting over 40x 2018/2019E EPS and 6x book value at lower ROE of &lt;10% (after US$1.98bn cash dilution). We thus see CATL is overvalued over peers' unless the company can deliver much stronger than expected 2H17 sales/earnings. Strong performance expected before the lock-up period ends: Despite the demanding valuation, CATL stands out in China and global with higher operating margin, technology leadership, better yield rate, production efficiency, rich EV battery clients portfolio, and shares gain. Due to limited shares free float available post-IPO, we expect strong performance over the next 6 months (post-IPO) until approaching the lock-up period of 12 months for key shareholders.

CATL IPO - Riding on Global and China EV Battery Demand

Finland

Valmet OYJ develops and supplies services and technologies. The Company offers its products and services, including new machinery and plants, rebuilds, process controls and other related services, to the pulp, paper, and energy industries.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Valmet OYJ (VALMT FH)

Neles - Alfa Laval Agreed Offer

Alfa Laval AB (ALFA SS) , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer Neles Oyj (METSO FH)....

Jesus Rodriguez Aguilar

CATL IPO - Riding on Global and China EV Battery Demand

A leading EV battery vendor in China: CATL aims to be listed at Shenzhen Stock Exchange as A-share listing middle next year. The company will...

Andrew Lu

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)