In this briefing:
- Macq Media In The Crosshairs As Fairfax Merger Completes
- IPO Trading Strategy: A Deep-Dive on Early Trade of Chinese Companies Listing in the US
- Natural Foods IPO Trading Update – Not Expensive but Needs to Show a Clear Turnaround
- Naspers: Profitability Improvements Continue
- TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
1. Macq Media In The Crosshairs As Fairfax Merger Completes
Late last week, Australian media reported that preliminary discussions were underway between Nine Entertainment Co Holdings (NEC AU) and Macquarie Radio Network (MRN AU)’s second-largest shareholder, John Singleton. This development is not entirely unsurprising, just that formal discussions were deferred until the Nine/Fairfax Media (FXJ AU) merger was formally completed.
In July, Nine and Fairfax entered into a Scheme Implementation Agreement in which the two companies would merge (albeit a Nine takeover) via a cash/scrip structure, in an A$4bn deal, creating Australia’s largest integrated media player. This included the acquisition of Fairfax’s 54.5% stake in MRN. The scheme was implemented on the 7 December. I discussed the merger in my insight Nine & Fairfax – Integrated Advertising.
In an interview with The Daily Telegraph last month (paywalled), John Singleton confirmed that he was ready to sell his 32% stake in MRN as he was not interested in being a small player in a big operation.
The Australian (paywalled) is reporting that Nine has offered $2/share (a 9.3% premium to the closing price of A$1.83 on December 4th), with Singleton believed to be holding out for $2.15/share. In a further twist, Alan Jones, with 1.27% of MRN, is understood to have certain conditions/clauses attached to that stake should Singleton sell, which may make an offer tabled by Nine potentially untenable.
For its part, Nine has confirmed it has held preliminary discussions regarding the outstanding shares, and further announcements will be made by Nine should these discussions progress to a transaction. MRN is currently trading at ~$1.90/share.
2. IPO Trading Strategy: A Deep-Dive on Early Trade of Chinese Companies Listing in the US
Ahead of Tencent Music (TME US)‘s IPO today , we have done a deep-dive analysis on the past 28 major Chinese IPOs that have listed in the US. We note the following points
A higher pop associated with a lower free float?
If it starts weak , we wouldn’t assume disaster – historically shares have broken above IPO price at some point during day one trade
Day one moves by pricing range – pops across the board
GER pricing view for Tencent music
Companies assessed in this report: X Financial (XYF US) , Qudian Inc (QD US) , Pinduoduo (PDD US) , Qutoutiao Inc (QTT US) , HUYA Inc (HUYA US) , Pintec Technology Holdings L (PT US) , 111 Inc (YI US) , Uxin Ltd (UXIN US) , BEST Inc (BSTI US) , Sunlands Online Education Gr (STG US) , Cango Inc (CANG US) , Huami Corp (HMI US) , Sea Ltd (SE US) , Aurora Mobile Ltd (JG US) , Viomi Technology Co Ltd (VIOT US) , Weidai Ltd (WEI US) , Jianpu Technology (JT US) , Greentree Hospitality (GHG US) , iQIYI Inc (IQ US), Sogou Inc (SOGO US) , Onesmart Education (ONE US) , CNFinance Holdings Ltd (1640496D US) , TuanChe Ltd (TC US) , NIO Inc (NIO US) , CooTek Cayman Inc (CTK US) , Niu Technologies (NIU US) , Mogu (MOGU US) , and Bilibili Inc (BILI US)
More details below
3. Natural Foods IPO Trading Update – Not Expensive but Needs to Show a Clear Turnaround
Natural Food International H (1837 HK)‘s IPO was priced at the low-end at HKD1.62/share. The retail tranche was 1.4x covered and the institutional tranche was said to be moderately over-subscribed. I have covered most aspects of the deal in my earlier insight,
In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.
4. Naspers: Profitability Improvements Continue
Following David Blennerhassett‘s recent StubWorld note, we wanted add a bit more detail on the non Tencent Holdings (700 HK) part of Naspers (NPN SJ). In any discussion of Naspers, this tends to get overlooked but in fact, Naspers has generally done quite well in these businesses, by building them, monetizing them, and in some cases selling them. Alastair Jones believes that, given moves to unbundle the pay-TV assets in 2019, there is scope for the NAV discount to narrow. The current low/negative valuation for the unlisted assets ignores their significant value.
Naspers valuation:
5. TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric vehicle prevalence, it is that of Toyota Industries (6201 JP). In August, I took an in-depth look at the major businesses of Toyota Industries and concluded that the market was not giving the company credit for the global leadership it has established in the forklifts and automobile A/C compressor businesses, nor for the progress it has made in the logistics equipment business. While the market’s oversight appeared to have corrected in September and October as the discount to NAV contracted from 34% to 25%, the trend has since reversed and the discount is back at trough levels of 35%. In August, I implied that this would be a good trading opportunity. Today, I explicitly recommend going long the stub.
In this insight I will cover:
- A market-neutral trade setup
- A review of the core unlisted businesses
- Alternative data used to gauge performance in the core business
- Risks of the trade
- A recap of ALL my stub trade ideas on Smartkarma, including track record of performance
