European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 9 September, in a <strong>defensive move</strong>, <a href="https://www.smartkarma.com/entities/easyjet-plc" target="_blank" data-smartkarma-citation="entities:21929:1" rel="noopener">easyJet PLC (EZJ LN)</a> first rejected a takeover approach from <a href="https://www.smartkarma.com/entities/wizz-air-holdings-plc" target="_blank" data-smartkarma-citation="entities:22208:1" rel="noopener">Wizz Air Holdings (WIZZ LN)</a> that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.</p>
<p>EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.</p>
<p>EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".</p>
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<p><strong>47 rights are needed to subscribe for 31 new shares</strong>. The issue price is <strong>410p/new share</strong> and represents a 48.0% discount to the closing price prior to announcement (789p) and a <strong>35.8% discount to TERP</strong>. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.</p>
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<p>This is akin to a <strong>placing by market volume</strong>. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.</p>
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<p>My <strong>fair value estimate</strong> (adjusted for the rights issue) is <strong>728p</strong>, which represents <strong>5.3x EV/2023e EBITDA</strong>.</p>
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On 9 September, in a defensive move, easyJet PLC (EZJ LN) first rejected a takeover approach from Wizz Air Holdings (WIZZ LN) that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.
EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.
EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".

47 rights are needed to subscribe for 31 new shares. The issue price is 410p/new share and represents a 48.0% discount to the closing price prior to announcement (789p) and a 35.8% discount to TERP. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.

This is akin to a placing by market volume. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.





My fair value estimate (adjusted for the rights issue) is 728p, which represents 5.3x EV/2023e EBITDA.




EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

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

<p>Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.</p>

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Global Equity Strategy: Stick With Reflation & Reopening Theme

TSE Tokyo Price Index TOPIX / Technical Analysis

<p style="text-align: justify;">In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (<strong>TOPIX</strong>), Switzerland (<strong>SMI</strong>), and France (<strong>CAC 40</strong>).</p><p style="text-align: justify;">Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report<em>. </em></p>

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (TOPIX), Switzerland (SMI), and France (CAC 40).Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report. 

Overweight Global Technology & Industrials

Small & Mid Cap focused Value Investor

Gokul Raj. P

Equity Bottom-Up

<p>Wizz Air's share price is up nearly 70% over the last 5 months, since my initiating coverage note on SmartKarma. While the entire European ULCC pack has delivered healthy returns over the past 5 months, Wizz Air has been an outlier with very strong re-rating. The reason for the healthy investment returns is the solid operational and financial performance of the firm. Along with that, the management has guided the market for a healthy growth in FY 18 as well. We continue to hold onto this compounder and remain positive about its long term prospects. </p>

Wizz Air's share price is up nearly 70% over the last 5 months, since my initiating coverage note on SmartKarma. While the entire European ULCC pack has delivered healthy returns over the past 5 months, Wizz Air has been an outlier with very strong re-rating. The reason for the healthy investment returns is the solid operational and financial performance of the firm. Along with that, the management has guided the market for a healthy growth in FY 18 as well. We continue to hold onto this compounder and remain positive about its long term prospects. 

Wizz Air - Strong Operating & Financial Performance Continues to Drive the Stock Higher !!

<p>The stock is up 33%+ since my initiation write-up last month. Markets have re-rated the business strongly on the back of consistently superior operational performance coupled with strong Q4 results. The long-term (3-5 year) investment thesis of buying into a well-run ULCC that is operating in a growth market and available at attractive valuations will continue to play out going forward as well. </p>

The stock is up 33%+ since my initiation write-up last month. Markets have re-rated the business strongly on the back of consistently superior operational performance coupled with strong Q4 results. The long-term (3-5 year) investment thesis of buying into a well-run ULCC that is operating in a growth market and available at attractive valuations will continue to play out going forward as well. 

Wizz Air - Fantastic Q4 Results Combined with Strong FY 18 Guidance. Hold This Long-Term Compounder!

Switzerland

Wizz Air Holdings Plc provides passenger and cargo air transportation services. The Company offers flight and connection programs in Central and Eastern Europe.

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Wizz Air Holdings (WIZZ LN)

EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

Fully underwritten 31 for 47 at 35.8% discount to TERP. Gross proceeds of c. £1.2 bn, a placing by market volume, 40% dilution. Potential arbitrage...

Jesus Rodriguez Aguilar

Global Equity Strategy: Stick With Reflation & Reopening Theme

Our bullish outlook remains intact supported by the absence of breakdowns across major global indexes. Until this changes, we believe global...

Vermilion Research

Overweight Global Technology & Industrials

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the...

Vermilion Research

Wizz Air - Strong Operating & Financial Performance Continues to Drive the Stock Higher !!

Wizz Air's share price is up nearly 70% over the last 5 months, since my initiating coverage note on SmartKarma. While the entire European ULCC...

Gokul Raj. P

Wizz Air - Fantastic Q4 Results Combined with Strong FY 18 Guidance. Hold This Long-Term Compounder!

The stock is up 33%+ since my initiation write-up last month. Markets have re-rated the business strongly on the back of consistently superior...

Gokul Raj. P

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