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

The S&amp;P 500 and Nasdaq 100 are within striking distance of all-time highs and we believe breakouts are on the horizon. Overall, our outlook remains bullish and we recommend adding exposure on pullbacks. In today’s report we highlight attractive Groups and stocks within Discretionary, Materials, and Manufacturing.

The S&amp;P 500 and Nasdaq 100 are within striking distance of all-time highs and we believe breakouts are on the horizon. Overall, our outlook remains bullish and we recommend adding exposure on pullbacks. In today’s report we highlight attractive Groups and stocks within Discretionary, Materials, and Manufacturing.

U.S. Equity Strategy: Breakouts On The Horizon

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

As of 5 July Ali Group submitted a definitive $24/share proposal to the Board of Directors of <a href="https://www.smartkarma.com/entities/welbilt-inc" target="_blank" data-smartkarma-citation="entities:27147:1" rel="noopener">Welbilt Inc (WBT US)</a> to acquire all outstanding shares. Ali Group has substantial cash on hand and has received a Highly Confident Letter from Goldman Sachs International for new financing to fund the proposed transaction. This represents 53.6% Premium to Welbilt’s Unaffected Share Price and 11.4% Premium to the implied value of the <a href="https://www.smartkarma.com/entities/middleby-corp" target="_blank" data-smartkarma-citation="entities:18143:1" rel="noopener">Middleby Corp (MIDD US)</a> transaction as of 2 July.
Welbilt has notified Middleby that it intends to terminate their 20 April agreement and enter into a definitive merger agreement with Ali Group, subject to Middleby’s right to negotiate amendments to the merger agreement for five business days and the Welbilt Board’s further determination as to whether any such amendments would cause the Ali Group proposal to no longer constitute a “Company Superior Proposal.”
A DCF valuation, gives a fair value on a standalone basis of $23.09/share (WACC 9%, tax rate 25%, EV/EBITDA exit of 14.5x in line with that of Middleby). Using Middleby's input, I conservatively estimate that synergies may be worth $1.79/share. By estimating that Welbilt shareholders capture 60% of those synergies, therefore my TP is $24.16. Therefore the offer from Ali looks fair, in my view.
Middleby can still sweeten its 0.1240 MIDD US x 1 WBT US offer, up to 12 July. A higher exchange ratio would be dilutive for its own shareholders but probably would be compensated by higher synergies.
A sweetened offer from Middleby could come at 0.15 MIDD US x 1 WBT US. This implies $26.1 per Welbilt share. On these basis I would be long WBT US, risk is that Middleby gets cold feet.
On 8 July Welbilt closed at $24.7, 2.9% above Ali's offer.

As of 5 July Ali Group submitted a definitive $24/share proposal to the Board of Directors of Welbilt Inc (WBT US) to acquire all outstanding shares. Ali Group has substantial cash on hand and has received a Highly Confident Letter from Goldman Sachs International for new financing to fund the proposed transaction. This represents 53.6% Premium to Welbilt’s Unaffected Share Price and 11.4% Premium to the implied value of the Middleby Corp (MIDD US) transaction as of 2 July.
Welbilt has notified Middleby that it intends to terminate their 20 April agreement and enter into a definitive merger agreement with Ali Group, subject to Middleby’s right to negotiate amendments to the merger agreement for five business days and the Welbilt Board’s further determination as to whether any such amendments would cause the Ali Group proposal to no longer constitute a “Company Superior Proposal.”
A DCF valuation, gives a fair value on a standalone basis of $23.09/share (WACC 9%, tax rate 25%, EV/EBITDA exit of 14.5x in line with that of Middleby). Using Middleby's input, I conservatively estimate that synergies may be worth $1.79/share. By estimating that Welbilt shareholders capture 60% of those synergies, therefore my TP is $24.16. Therefore the offer from Ali looks fair, in my view.
Middleby can still sweeten its 0.1240 MIDD US x 1 WBT US offer, up to 12 July. A higher exchange ratio would be dilutive for its own shareholders but probably would be compensated by higher synergies.
A sweetened offer from Middleby could come at 0.15 MIDD US x 1 WBT US. This implies $26.1 per Welbilt share. On these basis I would be long WBT US, risk is that Middleby gets cold feet.
On 8 July Welbilt closed at $24.7, 2.9% above Ali's offer.

United States

Welbilt, Inc. designs and manufactures food products machinery. The Company provides ranges, griddles, grills, convection and conveyor ovens, induction cookers, steam jacketed kettles, and steamers. Welbilt serves customers worldwide.

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Welbilt Inc (WBT US)

U.S. Equity Strategy: Breakouts On The Horizon

The S&P 500 and Nasdaq 100 are within striking distance of all-time highs and we believe breakouts are on the horizon. Our outlook remains bullish...

Vermilion Research

Kitchen Nightmares

Ali's offer looks fair. Middleby can still sweeten its offer, up to 12 July. It could come at 0.15 MIDD US x 1 WBT US, or $26.1 per Welbilt share....

Jesus Rodriguez Aguilar

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