ConsumerDaily Briefs

Consumer: Honda Motor, Volkswagen, Accor SA, Kakao Pay and more

In today’s briefing:

  • Honda – Potential for a 1QFY22 Blowout
  • Liquid Universe of European Ordinary and Preferred Shares: July Report
  • Europe HY Trade Book – July 2021 – Lucror Analytics
  • Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

Honda – Potential for a 1QFY22 Blowout

By Mio Kato

Consensus estimates for Honda suggest 1QFY22 OP could be roughly ¥112bn. We believe sell side analysts are not accounting for seasonality sufficiently and believe results could be materially higher than that figure driven by strength in North America.


Liquid Universe of European Ordinary and Preferred Shares: July Report

By Jesus Rodriguez Aguilar

Trends

Discounts have not kept a clear trend since mid-June.

Interesting situations and trades

  • Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 18.3% discount (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain Long B shares/short A shares on, if you can get hold of any A shares.

  • Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount has tightened to 13.8% (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.

  • Fuchs Petrolub SE (FPE GR)‘s preference shares premium seems to vary within a range, which is probably liquidity related. It has tightened to 22.3% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.

    Although there is no reason why the voting rights should be specially dear in Fuchs’s case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.

  • Henkel AG & Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has tightened to 11.5% (vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.

  • Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 25.9% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. Traton SE (8TRA GR), a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in MAN SE (MAN GR). Recommendation is to avoid this trade for the time being.

  • Danieli & C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.
  • Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings’ dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. Short savings/long ords.
  • Grifols SA (GRF SM)B shares are trading at a 35.0% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for “loyal” shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.

  • The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 15.2%  and seems to be on a widening trend.

  • On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS) . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB “in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change”. On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has tightened to 11.3%, lower than July, due to LKAB not increasing its stake. It seems the time to go long B shares/short A shares.

  • The discount in Volvo AB (VOLVB SS) B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still highest levels since January 2016.

  • The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 7.9% (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.

  • The discount in Schroders PLC (SDR LN) has widened to 28.4% (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.

Please read on for table and charts.


Europe HY Trade Book – July 2021 – Lucror Analytics

By Charles Macgregor

The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.


Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

By Sanghyun Park

In a regulatory filing on July 16 (later today), the Financial Supervisory Service said that it had requested Kakao Pay to revise its IPO prospectus. As a result, the IPO prospectus submitted by Kakao Pay earlier this month has been suspended.

Kakao Pay must submit a revised report within three months, and if it is not submitted, it is considered a withdrawal of the public offering.


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