Company & Sector Research

Europe


HelloFresh (HFG GR)

Sector: Consumer Staples

Provider: StockViews

StockViews' machine intelligence system (Dragonfly) identifies two working capital red flags following the publication of HFG’s interim report - 1) Inventory Days have risen sharply. Having a month’s worth of inventory on the books for a company offering highly perishable goods should raise concerns. 2) Increase in Days Payable was responsible for a massive cash inflow of £120m (this represents over half of the £232m FCF in H1). Furthermore, it appears HFG is stretching out payment beyond 4 weeks for many suppliers. Considering management’s pride in the sustainability of its supply chain, this trend is worth watching closely.


Transgene (TNG FP)

Sector: Healthcare

Provider: Intron Health

With BT-001 advancing into phase I trials, TNG now has four oncology assets in clinical development and multiple important catalysts in the coming 12 months. TG4001 has started phase II, TG6002 reported first positive human data in April with a further readout in Q4 and most importantly, TG4050 is expected to report an immunological readout in Q4 which could demonstrate proof-of-concept for the technology. The company has financial runway to the end of FY23. Intron’s SOTP values TNG at €3.20/share (40% upside).


Overwhelming Valuation Case for Large Cap Pharma

Sector: Healthcare

Provider: Willis Welby LLP

Pharmaceutical stocks are significantly cheaper than Consumer Staples (which look expensive and vulnerable) and should form part of the defensive ends of portfolios - half of Willis Welby’s Pharma coverage comes in with implied to Y3 EBITM ratios that are less than 100 and these ratios exclude the imponderable benefit of new science and consequently numbers are MUCH MORE conservative. Top picks: GlaxoSmithKline, Sanofi, Roche and Novartis.


Ashtead (AHT LN)

Sector: Industrials

Provider: 2Xideas

Size Matters - AHT to double its market share to 20% in highly fragmented US equipment rental market. The two market leaders (United Rentals and AHT) can consolidate their collective share toward 50% over the next 10 years. 2Xideas expect a revenue CAGR from FY21 to FY27E of 10.4% (8% organic) and net profit growth of 14.8% p.a. Margin expansion will result from productivity gains, operating leverage and a higher contribution from its Specialty segment. RoAIC to rise from 9.8% to 13.6%. Annualised total return of 12.6%.


British Land (BLND LN)

Sector: Real Estate

Provider: Green Street Advisors

A monster disposal? According to React News, a Green Street news publication, BLND is about to agree terms for the sale of a 75% stake in its Paddington Central holding (London’s West End) to Singapore’s sovereign wealth fund GIC. Pricing of “just over £800m” implies a c.£1.1bn value (~£1,150/sf; est. 4% EPRA NIY), in line with Green Street’s spot valuation est. of the c.1m sf inner London estate. While selling a stake in Paddington would be a win for shareholders, deleveraging is not on the cards as BLND has several external growth ambitions…


North America


TEGNA (TGNA)

Sector: Communications

Provider: Huber Research

One of two things likely to happen over the next 18 months: 1) TGNA gets a takeover bid significantly higher than the current stock price - Craig Huber estimates the private market value is $33 per share (90% upside), based on 9.5x 2022/23E EBITDA for the TV stations and 22.75x for Premion. 2) TGNA does more accretive, sizable TV station acquisitions of its own - with a net-debt-to-EBITDA 2021/22E ratio of only 3.1x, this would likely be well received by investors given how low interest rates are and the accretion to FCF.


Lyft (LYFT)

Sector: Communications

Provider: Northcoast Research

No lasting impact from the pandemic - Northcoast’s channel work confirms consumer demand is returning for ride hailing consumption. Management’s efforts to address driver shortages also bodes well for long-term market share gains. Given recent moves in the Tech/Auto space a pure-play network such as LYFT will be increasingly attractive from an M&A standpoint to the future winners of the autonomous race.


Tesla (TSLA)

Sector: Consumer Discretionary

Provider: Silk Road Research

Tesla China: July registrations dropped to 15-month low (-~70% m/m and -23% y/y). Signs of weakened Model 3 demand increasingly evident. After hitting a high of ~25K units in Mar ’21 (the month prior to when TSLA's controversies escalated in China) Model 3 regs have averaged ~10K over the past four months. Prices have been cut four times since Jan 2020. MIC Model Y regs were down -80% m/m and registered its second lowest monthly deliveries since Jan '21. The Model Y standard variant (newly launched on 8 July) was priced below expectations at 276,000 RMB.

SRR's data tracker for TSLA China includes insurance registrations by model and their proprietary tracking of TSLA's domestic superchargers network, pricing and lead time by model.


Grocery Outlet (GO)

Sector: Consumer Staples

Provider: Quo Vadis Capital

GO’s model implodes - could turn out to be John Zolidis’ best short call of the year. The Street is materially overpaying for the growth of this low-margin, low-ROIC business. There has never been a 50% closeout food retailer that has been able to scale. GO faces substantial risks as it expands into new markets and the increase in online food ordering has exposed the lack of flexibility in its model. The multiple for this stock is wrong (15x EV/EBITDA), it should trade at a similar multiple to peers (6x EBITDA).


Whole Earth Brands (FREE)

Sector: Consumer Staples

Provider: R5 Capital

This small cap niche company is quickly becoming a dominant force in the in the healthy-sugar/sugar-substitute market while also targeting the broader and rapidly growing free-from category. Led by CEO Albert Manzone, FREE's highly experienced management team is one of the key reasons why Scott Mushkin believes investors should take a hard look at the company. Management’s integration and streamlining of operations is already paying dividends through shelf gains in stores, as well as better Amazon search placements. TP $24 (>100% upside).


Allegion (ALLE)

Sector: Industrials

Provider: Abacus Research

High quality compounder at an attractive valuation - ALLE consistently generates the highest operating margins (>20%) and ROIC (20%) in a market where the top-3 players have ~80% of the US market. Abacus forecast 20% EPS growth from 2021-23 driven by improving margins, increasing penetration of electronic locks and a cyclical bounce in non-residential spending. Inflation fears are overstated and Abacus do not consider Latch to be a long-term threat. A valuation gap has also opened vs. Assa Abloy which is not justified by fundamentals. 12-month TP $181 (30% upside).


Kratos Defense & Security Solutions (KTOS)

Sector: Industrials

Provider: Alembic Global Advisors

Skyborg fears overdone - Pete Skibitski believes there will be very little, if any, backing away from drone purchases by the Air Force. Investors should keep in mind that KTOS, just won a $338m six-year contract for Air Force target drones, and Pete expects additional orders from the Navy and other customers before the year is out. The recent selloff from $30.00 (stock currently trades at $21.40) provides a compelling opportunity for investors to augment/initiate drone exposure.


Palantir (PLTR)

Sector: Technology

Provider: Obex Capital Research

Aaron Gabin questions the logic behind PLTR shares climbing 11% on 2Q21 earnings - what is going on here?! Is no one paying attention?! 59% (!!) of the total contract value signed in the quarter came from companies that PLTR has recently invested in (the firm has bizarrely decided to invest $250m in 10 SPACs in the last 3 months). Growth is forecast to decelerate from 49% to 33% Q/Q... and yet it trades at 28x forward sales. Meanwhile, CEO Alex Karp has already cashed out $391m since the stock listed 9 months ago; $253m of which occurred in 2Q. Biggest short in software.


Square (SQ)

Sector: Technology

Provider: Galliano's Latin Notes

Victor Galliano questions the eye-watering multiple being paid following news that SQ plans to acquire Australian fintech company Afterpay for $29bn - as SQ enters the BNPL arena, credit risk will need to be managed very carefully, especially in a business experiencing rapid growth. Investors should also expect increased regulatory scrutiny and oversight, especially from financial regulators in the US, who may want to constrain the pace of growth in consumer instalment credit sales. The clear winners are Afterpay shareholders who Victor believes should cash in their SQ shares post exchange.


Australia


BHP (BHP)

Sector: Materials

Provider: Global Mining Research

Pass-the-parcel - you can only give so much away before there’s little left to unwrap. Divesting the Petroleum business leaves BHP with little to differentiate it from Rio Tinto and Vale. BHP should have used its petroleum expertise and customer base to build a hydrogen / ammonia business taking a leaf from Fortescue’s playbook. From a ROCE and CO2-e perspective the met coal business would have a greater overall impact on the business if it were divested. However, the problem appears to be a lack of interested buyers.


Japan


Lasertec (6920)

Sector: Technology

Provider: MYST Advisors

ASML on steroids - Lasertec offers EUV-exposure with more upside beta vs. ASML since it can continue to beat numbers, while the Dutch giant will be unable to do so given supply constraints from their two main German suppliers. Only a matter of time before China begins to adopt EUV technology which will significantly expand the TAM for Lasertec’s equipment. The company offers “scarcity value” - there are very few Japanese firms growing revenues ~40% p.a.; share price can compound in the high-20%s over the next few years.


Emerging Markets


Indian Telcos: Extreme Consolidation

Sector: Communications

Provider: New Street Research

Is India, home to 1.4bn people, really about to be left with only 2 private mobile operators? For anyone that remembers when India had 12 or 13 operators in each region, it is amazing that a series of poor regulatory decisions and intense competition from Jio has brought the market to this stage, but the answer is probably, yes. Implications are significant for investors in both the Telcos and the Towers…


MicroPort Medbot

Sector: Technology

Provider: Aequitas Research

Pre-IPO research - Medbot is looking to raise around US$1bn in its HK listing. It designs, develops and commercialises surgical robots. The company is pre-revenue but its flagship products are near the registration approval stage. Globally, Intuitive Surgical with a M/Cap of US$100bn+, dominates the market. Intuitive’s products are the industry standard but are expensive which might allow Medbot to penetrate. It is a subsidiary of MicroPort, which will make it easier for it to enter hospitals.


China job postings data provides on-the-ground insights that foretells future market trends

Provider: Datayes

By tracking job postings information on the mainstream job boards in China, Datayes shares with you a comprehensive picture of the listed companies' hiring plan as well as the corresponding statistics aggregated by company, industry, location, etc. Job posting data serves as a forward-looking indicator during your investment decision-making process to help you unveil alpha-generating opportunities. Click here for the recent case study.


Macro Research

Developed Markets


G7 output back on a declining trend

Provider: High Frequency Economics

Optimists can claim the V-shaped recovery has evolved just as they predicted it would. However, the recovery is incomplete: Carl Weinberg likens it to a backwards-J instead. The rebound from 2020 lows has left output substantially lower than pre-Covid and industrial output is on the declining trend once again in G7. Before Covid, Carl warned of an oncoming global recession outside of China. Now it’s coming true.


A sharply negative week for global data

Provider: Coldwater Economics

Michael Taylor’s shocks & surprises index is up for inflation, down (very sharply) for confidence, and fractionally negative for growth activity signals. Last week it sank in for the world that there is no immediate or even medium-term exit from the pandemic. Those with mass-vaccination will learn to live with the endemic, and those without face mortality and isolation. Michael claims we will never see a return to normality, and the breakneck de-globalisation we are living through is here to stay.


US: Growth stocks to fade

Provider: MRB Partners

Growth stocks have been trading as if they are the new defensive plays, outperforming even classic safe-haven sectors such as Consumer Staples and Utilities. It will not last, according to Salvatore Ruscitti. Many of these stocks, which benefitted directly from the pandemic, will be unable to maintain the big earnings upsides that investors have grown accustomed to. Salvatore remains neutral on such growth stocks; if you want outperformance, look towards select cyclical sectors such as Financials and Energy.


Reflation’s revival

Provider: Ironsides Macroeconomics

Barry Knapp comments that the transitory inflation narrative was predicated on the view that removal of Covid restrictions would result in a 2Q inflation spike that would see a quick reversal. Confidence in this narrative was integral to the monetary policy and investor psychology that contributed to the 2Q rally in UST’s and stronger performance of long duration, high growth tech sectors. As we move through 3Q, this narrative is falling apart due to secular trends and cyclical factors. Multiple supply shocks are working their way through the system to ensure that the decades of goods prices deflation are now over.


Overcrowded stock markets headed for a tumble

Provider: Belkin Report

Michael Belkin claims the three major US stock indexes may well have topped; investors should play the VIX to benefit from major upside when the bloom is off the rose. He advises taking advantage of the current stealth rotation out of cyclicals/Financials into defensive sectors, with recommendations including shorting Tech and buying Utilities, Real Estate and Healthcare. Michael is also long the USD against EMs.


Covid-19: Houston, we have a problem

Provider: Intron Health

An Israeli study published recently showed that the vaccine efficiency against the Delta variant after ~6 months was down to just 16% for those with January vaccinations. Intron Health highlights those UK studies which have been providing comfort on such matters will be far too optimistic. If the study is replicated, severe consequences are around the corner; even if lockdowns don’t continue, growth will be dampened significantly.


US: Afghanistan matters

Provider: Independent Strategy

David Roche believes the recent Afghan disaster is likely to mark the start of the collapse of Biden’s credibility. We may have to wait for the democrat’s fiscal nonsense and the fed’s denial of inflation to finish the job. China and Russia will seek to profit from the US’ loss of credibility. Start by ending strong USD positions, short US Treasuries and be wary of equities globally. For safety, buy the NOK.


US: Infrastructure spending will result in crowding out

Provider: HCWE & Co.

Don’t rely on a multiplier effect from Biden’s infrastructure plans, David Ranson warns in his latest empirical report. Historical evidence undermines the argument in favour of federal infrastructure spending as such large-scale transfer payments fail to promote economic recovery, even holding it back slightly. Biden’s spending will help to crowd out the private sector and slow the US on the long road to recovery.


Black-Green under threat in Germany

Provider: Forefront Advisers

The CDU has no choice but to significantly up its game if it is to regain a comfortable lead. It is the first time in months that the SPD is within striking distance of the Chancellery, mainly due to their lead candidate Olaf Scholz. Leopold Traugott still sees a CDU/CSU & Greens coalition occurring but recognises that a traffic light coalition is becoming increasingly possible, although this will unlikely be a disruptive left-wing alliance or the so-called ‘Germany coalition’.


Japan: Land of the Falling Sun

Provider: Andrew Hunt Economics

The nation has suffered two shocks in the form of the 2019 consumption tax hike and the pandemic. The economy is flatlining and monetary conditions are tightening at the margin, and Andrew Hunt can’t help but think this is “the straw that broke the camel’s back”. Expect little economic growth for the foreseeable future. the high domestic saving level will create a gentle appreciation of JPY, although the BoJ will be pressured to find a way to ease. Andrew doesn’t see the BoJ succeeding in getting 10-year yields down to its 20bp target this year.


Emerging Markets


China: New outlines for strategic industrial policies

Provider: PRC Macro

Beijing’s recent “Government Building” document is centred around fulfilling long-term strategic industrial policies. William Hess believes it focuses on ensuring policymakers stay on script when it comes to realising long-term economic objectives and represents a 180-degree reversal in the “decisive role of markets” in resource allocation, where policymakers and economic agents must direct resources to the strategic objectives set out by Beijing. For sectors and supply chains central to those objectives, this document is very bullish!


It’s time to separate China from EM

Provider: Harlyn Research

China should be taken out of the main EM indices, according to Simon Goodfellow’s latest report. His analysis reveals how beneficial two separate indices would have been to investors over the past two years: EM ex China would have brought investors 2.20% return-on-risk over the past year compared to China + HK’s measly 0.18%. Times have changed and indices need to catch up!


China: Economy moving in a downtrend

Provider: Horizon Insights

July’s industrial output, fixed-income sentiment and retail sales all confirm China’s downward trend post-Covid. It all stems from a flurry of reasons: the delta variant, extreme weather, government controls on debt growth and carbon reduction ambitions. The market liquidity situation will improve in H2, but the add-up of fund flows doesn’t support a bull run in the equity markets.


Argentina: The peso is overvalued

Provider: Alberdi Partners

Marcos Buscaglia is confident that Argentina’s economic imbalances will accumulate from now until the elections and will make any policy decision taken afterwards very risky. The country badly needs a weak Peso, but right now it’s overvalued – Marcos’ equilibrium model suggests the price should be 20% lower (inflation-adjusted). For the economy, things will turn out worse than the consensus believes.


Argentina: Parana river levels are dangerously low

Provider: Oxford Analytica

Drought has reduced water levels on Argentina’s main transport route down to record lows, burdening companies with increased transport costs and logistical nightmares and citizens with a shortage of electricity generation and water provision. A new La Nina event could extend the drought until 2022, affecting the next harvest. It poses yet another problem for Argentina’s government who will be responsible for managing river maintenance over the next 12 months.


South Africa: Missing inflation

Provider: Intellidex

July CPI surprised consensus to the downside at 4.6/3.0% yoy and Peter Montalo sees no underlying pressures, and even some signs of disinflation appearing. Electricity, food and petrol prices may shake things up a little, but the SARB are unlikely to force a November hike, and investors should expect a 75bp rise in January instead.


Weakness in Taiwan is concerning

Provider: Nautilus Investment Research

Be wary of Taiwan, claims John Karle. The Taiwan TWSE index has registered seven consecutive lower daily closes coming off a one year high (published Aug 13th) – History warns us that this will be problematic, and investors should expect further volatility over the short-term. Even more crucially, the index is at the very peak of Nautilus’ long-term cycle analysis, reaching the highest point since the 90s.


Turkey: A road to recovery

Provider: Totem Macro

Whitney Baker comments that the problems plaguing TRY last year are no more. The currency is outperforming, core inflation is plummeting, and foreign exposures are now economically insignificant so selling can’t pressure asset prices in a sustained way. Meanwhile the currency is no longer supported. In fact, the opposite is true and prolonged tight rates make it all the more likely that foreign inflows will resume. Buy the banks and take up a long bond position – the c.18% yield is unsustainable in current events. The market is currently priced for distress, but Whitney doesn’t see that happening, so investors should take the opportunity to buy here.


ESG

ESG


Including Scope 3 emissions in ESG scoring

Provider: Curation Corp

There are growing calls for indirect Scope 3 emissions to be accounted for in companies’ carbon assessments. Curation Corporation warns this could spell trouble for big tech from an ESG viewpoint. Popular amongst ESG investors for their low direct emissions, commitments to decarbonisation and stable returns, big tech could tumble down the ESG preference list if their indirect emissions are to be accounted for. A lot of ESG investment products’ performance in recent times has come from big tech - that could be about to change.


One last chance for concentrated solar power?

Provider: Rethink Technology Research

Concentrated Solar Power (CSP), which has lain moribund for a decade, is about to be reborn according to a new report from Rethink Technology Research, expecting global capacity to increase several times over by 2030. It will claim its place serving power grids in California, China, Spain and elsewhere. This all stems from recent technological advances, including the ability of CSP to provide temps of up to 1000C, to help decarbonise cement, steelmaking or mining industries. By 2030, this will be a $10bn global industry, so watch out for lucrative opportunities!


Commodities

Commodities


Cotton prices could climb even higher

Provider: Commodity Intelligence

The market is unsure how long the bonanza will last, but Mark Latham doesn’t see a correction happening soon. Cotton demand has grown significantly, with US consumption the highest in 13 years. Output has already fallen due to the previous uncertain demand outlook in H1/2020 and extreme weather has damaged yields further. Nothing short of a dramatic rise in output would save the day unless China offloads its strategic reserves as it did in 2011, which Mark views as extremely unlikely.


Gold to post a modest recovery with upside capped by headwinds

Provider: Metals Focus

The precious metal has seen its appeal as a safe-haven asset reduced lately, with its price struggling to benefit from higher inflation readings and gloomier economic forecasts. Despite speculative inflows among short-term investors being curtailed by lack of upside in the last few months, Metals Focus still sees gold recovering to $1,900 later this year, especially in the backdrop of unwinding USD strength and transitory inflation.