Daily Brief Energy/Materials: Greatview Aseptic Packaging, Natural Gas, Vedanta Resources, Kinder Morgan, Treatt PLC and more

• Shandong Xinjufeng Technology Packaging (301296 CH) agreed to acquire Jardine Matheson Holdings (JM SP)’s 28.22% stake in Greatview Aseptic Packaging (468 HK) at HK$2.65 per share.
• Post-Completion, Xinjufeng will be the largest shareholder. As Xinjufeng’s shareholding will remain below the 30% voting threshold, the transaction will NOT result in a mandatory general offer. 
• The transaction price, which is a 22.7% premium to the last close, highlights Greatview’s value. Greatview’s forward P/E multiple is undemanding in comparison to peer P/E multiples.

• The general market consensus going into the new year was that commodity prices would continue to correct.
• We also positioned ourselves in this camp, as we predicted the turnaround story a few months later.
• While some commodities such as wheat or natural gas (both commodities that had been priced in a risk bonus for a long time due to the Ukraine war) fell sharply, other commodities such as corn, soybeans, orange juice, or soybean meal remain not far from their highs.

Vedanta Ltd’s (VEDL) Q3/22-23 results were weaker than expected, with thin profitability at the aluminium segment due to higher energy and commodity costs. However, we note positively the sale of Zinc International to Hindustan Zinc​ (HZL) and the fourth interim dividend (USD 570 mn). The financial risk metrics remain modest. The key risk remains the weak debt maturity profile, with large maturities in FY 2023-24.

Vedanta as a group has demonstrated a strong willingness to repay debt, and the capacity to do so by upstreaming cash as quickly as possible. In addition, we note the group’s creative methods to upstream cash efficiently, such as: [1] the sale of Zinc International to HZL; and [2] the merger between Cairn India and VEDL in 2017, when oil prices were low, with the deal partly funded by preference shares to Cairn India’s minority shareholders. We believe that the huge dividends by VEDL in FY 2022-23 (USD 3.7 bn) are the highest possible and will likely decline subsequently, given the correction in commodity prices. Still, this could offer comfort to lenders as it would support VRL’s refinancing needs (i.e. gap between the maturing debt and cash inflows).

• Kinder Morgan had a mixed quarter as the company failed to meet the revenue expectations of Wall Street but managed an earnings beat.
• The quarter also saw a good increase in their tankers business due to higher rates and more utilization.
• Although Kinder Morgan benefited from increased commodity prices, its core business, specialty natural gas, performed remarkably well, and the fundamentals remain solid in the future.

Treatt’s AGM trading update suggests a more normal and steady pattern of trading has resumed, following the setbacks that caused the profit warning last August. Management has clearly taken rapid steps to address the issues that were identified, and indeed this was already evident in October’s FY22 pre-close trading update. Performance remains in line with management expectations and our forecasts are unchanged.