In today’s briefing:
- Kito (6409) Goes Private. Again. This Time With KKR, But Watch the Register
- Block Deal Sale of Hyundai Heavy Industries
- NIFTY100 Index Rebalance Preview: Five Potential Changes in September
- CVC Sizes Up Brambles (BXB AU)
- Hyundai Heavy Liquidation by KSOE & Passive Flow Tightening Recalculations
- CVC to Lob an Offer for Brambles?
- Conviction Call Recruit: All Good Things Must Come to an End
- Recruit (6098 JP) | Too Conservative on Labour Outlook
- Brookfield/HomeServe Close to Reaching an Agreement
- Joe Biden’s Visit to South Korea: Hyundai Motor Ready to Announce $7 Billion Investment in EVs in US
Kito (6409) Goes Private. Again. This Time With KKR, But Watch the Register
- Kito Corporation (6409 JP) was taken private in 2003. It was re-IPOed by Carlyle in 2007 but Konecranes stayed an investor until 2016. Then it unwound.
- Today, Kito announced the best results since pre-covid and forecasts for growth. They also announced KKR unit Crosby would launch a Tender to buy them out at a 62% premium.
- Shareholder structure is highly unusual, and interesting to boot, especially looking at the most recent arrival in the top two. The fact there is a break fee is… telling.
Block Deal Sale of Hyundai Heavy Industries
- After the market close today, Korea Shipbuilding & Offshore Engineering announced that will sell 1.7% of its shares (1.5 million shares) in Hyundai Heavy Industries in a block deal.
- The block deal sale is expected to take place on the morning of 17 May. The block deal price is expected to be 120,650 won.
- We would take this deal as we believe this sale is likely to have a short term positive impact on HHI and increase the free float of HHI.
NIFTY100 Index Rebalance Preview: Five Potential Changes in September
- We are past the halfway mark in the review period for the September rebalance of the NIFTY100 Index. We see five potential changes which should be announced end August.
- There is a high probability of Tata Power (TPWR IN), Indian Railway Catering and Tourism (IRCTC IN), Bharat Electronics (BHE IN) and Mphasis Ltd (MPHL IN) being added to the index.
- High probability deletions are Lupin Ltd (LPC IN), Jubilant Foodworks (JUBI IN), Zydus Lifesciences Ltd (ZYDUSLIF IN), Punjab National Bank (PNB IN) and Steel Authority of India (SAIL IN).
CVC Sizes Up Brambles (BXB AU)
- Brambles Ltd (BXB AU) has confirmed that it has had a preliminary engagement with Luxembourg-based CVC in regard to an unsolicited proposal to acquire all of its shares.
- No formal proposal has yet been received. No price was made public although various media reports indicate a A$20bn bid, which may or may not hinge off an EV figure.
- In is 3Q22 trading update, Brambles upgraded its FY22 revenue and earnings guidance, despite ongoing cost inflation and pallet shortages.
Hyundai Heavy Liquidation by KSOE & Passive Flow Tightening Recalculations
- KSOE will sell 1.5M shares, equivalent to 1.70% of SO, at an expected discount rate of 5%. After the disposal, KSOE’s stake will fall to 78.02%.
- The need to increase float shares (and loan balance) due to the MSCI inclusion and the KOSPI 200 up-weight should be considered as the company’s pre-emptive response to the market.
- But even with today’s disposal, the MAXIMUM real-world float will be 11.29%. An additional passive inflow equivalent to 1.73% of SO will occur until June 9th, 5.13x ADTV.
CVC to Lob an Offer for Brambles?
- Brambles Ltd (BXB AU) responded to press speculation by stating it had preliminary discussions with CVC Capital on a privatisation proposal. The shares rose 11.2% to close at A$11.60.
- The AFR’s rumour of “a bid valuing Brambles at more than $20 billion, including debt” would imply an offer price around A$11.50, a 10% premium to the undisturbed price.
- As the Australian takeover premium ranges from 20% to 40%, we think that a bid of around A$13 per share (25% takeover premium) will be necessary for due diligence access.
Conviction Call Recruit: All Good Things Must Come to an End
- Recruit Holdings (6098 JP) reported 4Q and full-year FY03/2022 results today. Revenue grew 23.9% YoY to JPY759.9bn while OP more than doubled to JPY45.4bn during 4QFY03/2022.
- Full-Year revenues grew 26.5% YoY to JPY2,871.7bn which was about 3.0% above the upper range of guidance (JPY2,700-2,800bn) while OP of JPY378.9bn was within the guidance of JPY350-380bn.
- Though full-year results were strong, 4QFY03/2022 results show that the company’s earnings have begun to weaken with normalisation of recruitment and staffing markets with Covid conditions easing off.
Recruit (6098 JP) | Too Conservative on Labour Outlook
- FY3/22 EBITDA rose 96% driven by the recovery in the global labour market. Macro conditions suggest the coming year will be less exciting
- EBITDA is expected to rise just 2% this year, adjusting for changes in stock-based comp
- However, the 32% decline in the stock price YTD suggests the market is on top of the weaker outlook. We see 40% upside to the stock price
Brookfield/HomeServe Close to Reaching an Agreement
- Media reports that HomeServe and Brookfield are close to reaching an agreement. Since news of the approach broke, the share price of HomeServe has increased by c. 52%.
- My fair value estimate (DCF based) is 1,206p, which could presumably be enough for the founder to sell its 12.1% stake (enough to prevent a squeeze-out).
- At1,206p (71% premium to the price prior to disclosures), a financial buyer could obtain a 15.3% cumulative IRR by year 8. Long HSV LN.
Joe Biden’s Visit to South Korea: Hyundai Motor Ready to Announce $7 Billion Investment in EVs in US
- The US President Joe Biden is planning to visit South Korea on 20 to 22 May to meet the new South Korean President Yoon Suk-Yeol.
- Hyundai Motor is likely to announce investments of nearly $7 billion for building a mega EV facility in Georgia which was leaked in the media in the last few days.
- Hyundai Motor is aggressively penetrating the global EV markets and it is becoming an increasing threat against Tesla. Hyundai Motor has outperformed Tesla in the past 6 months.
Before it’s here, it’s on Smartkarma
