Company & Sector Research
Europe
New Street Research
Implications from German TV / FTTH changes
New Street looks at the impact of the Telecoms Law on German apartment buildings - a market of 21m premises - one of the largest “single” markets in Europe. Specifically, they focus on 1) the impact of the break-up of the bulk contracting for TV, 2) the way FTTH could be deployed to these buildings, 3) how in-home wiring could be shared to reduce capex costs. The battle for ultra-fast broadband access into these premises is just beginning. Relevant stocks include Vodafone and Deutsche Telekom, while New Street believes Tele Columbus could be one of the most interesting high-yield names in Europe.
Green Street Advisors
Stuck in a doom loop - the Swedish real estate group has announced its intention to pause dividend payments on all share classes and cancel the SEK 2.6bn rights issue. The announcement followed S&P’s decision to downgrade SBB to sub-investment grade status. The company’s share price has plunged ~45% as a consequence. SBB (class B/D) equity holders will need to face any one of alternative scenarios ahead. All are fraught with risks.
Woozle Research
67% of Woozle’s sources* reported positive outlooks for the next 6 months. New business has started to pick up again and SGE appears poised to win market share, especially among SMEs, as well as a growing presence in the enterprise market with the expansion of Intacct. Competitive pricing, product simplicity and flexibility with SaaS has put the software company on pace to beat 1H23 consensus estimates.
*Woozle conducted interviews with ERP software resellers, channel partners and consultants. Their sample evenly reflects both SAP and SGE, with some sources selling both brands, as well as Oracle and Microsoft. Regional split: 60% Europe / 40% N.America.
Smart Insider
Seven insiders combined to purchase €5.1m worth of stock from April 26th-May 5th at prices ranging from €164-€185. The buyers include four directors, two senior divisional officers and the CEO. Smart Insider ranked this stock +1 on 15th Nov 2022, based on a similar cluster of buying at slightly higher prices (€170-€200). The stock traded as high as €273 in early Feb but has since declined steadily to its current level, below where they ranked it in Nov. It is encouraging to see another solid cluster of buying and so Smart Insider are renewing their +1 rank.
ResearchGreece
It is difficult to describe how bad the investment case is - declining water consumption, net crude water cost and an inflationary cost base have created a perfect EBITDA storm which can only be saved by a RAB model and higher tariffs. However, with this year’s elections and the new water regulator still in the making, a proper framework is unlikely to be in place anytime soon. On ResearchGreece’s new estimates, the shares trade at 11.4x EBITDA 2023 (incl. healthcare and pension liabilities), but their forecasts worsen post 2023 and valuation multiples go higher (13x EBITDA 2024E and 16x EBITDA 2025E).
Willis Welby
Midcap Medtech & Staples have performed well but both look challenging
The share price performance for Willis Welby’s Medtech group has been startling YTD (+23.8%), but revisions are not impressive (the median move in consensus Y2 EBIT over the last 3 months is now a CUT of 1.8%), they have problems with financial productivity and levels of implied to Y3 EBITM ratios are very demanding. Willis Welby highlights Elekta and COMET but cannot make their maths work elsewhere. Financial productivity is also an issue in their Staples coverage and the median consensus Y3 revenue growth number is just 2.8%. Expectations ratios are not as extreme as Medtech's but are still demanding. Glanbia still makes sense, but they struggle elsewhere.
North America
Huber Research Partners
On the surface, the fact that CVNA significantly narrowed its EBITDA loss in 1Q23 was very impressive. And the fact that management is saying the company could be EBITDA positive in Q2 is quite amazing. How is this happening? Management is dramatically shrinking the business; marketing has been cut to the bone and Q1 capital expenditures were $32m vs. $220m LY. The flipside is that CVNA still recorded a net loss of $286m. Interest expense was $159m vs. $64m LY. Total gross debt was >$6.5bn. Douglas’ cash flow projections still assume CVNA will need additional outside debt in 2023. Bottom line, this is still a financing tightrope act. 12-month TP $5.00 (60% downside).
Sandalwood Advisors
LULU ex-NA revenue growing ahead of consensus and continues to outperform in China sportswear sector. The company's online sales normalised in F1Q23 QTD, though still outperformed peers by a large extent, thanks to the continuous popularity of its functional sportswear. LULU China offline sales surged in F1Q23 QTD, thanks to 1) successful Women’s Day promotion, 2) boost by tourist spending in Hong Kong, 3) new product launches, 4) continued store opening, 5) strong branding, and 6) easy comps in Mar which is to continue in Apr / May.
Quo Vadis Capital
SFM has now exceeded analyst estimates for 15 consecutive quarters with the average EPS beat of $0.11 representing ~30% upside. The stock trades at less than half the multiples the market is granting investment-banking darling Grocery Outlet even though SFM boasts dramatically better margins, returns and FCF with an identical unit growth rate. John Zolidis estimates that the average store generates over $2.5m in cash p.a. As the store base grows, so will earnings and cash flow and he believes this will occur at rate well above what is currently discounted in the shares and bearish expectations. 17 analysts cover SFM, yet only 1 has a Buy rating vs. 6 Sell ratings. Short interest is 16%.
Abacus Research
Solar demand will continue to grow at a fast pace for at least a decade driven by the "game changing" US clean energy bill and Europe’s need to replace Russian gas / decarbonise. Abacus believes the US duopoly of Enphase and SEDG is well protected. In Europe, they expect both firms will take share from string inverters but will continue to face competition from cheaper Chinese products. SEDG should be able to expand operating margins from 15% to ~18-19% over the next few years despite the higher growth in lower margin areas such as commercial and batteries. Abacus’ EPS estimate for 2025 is ~25% ahead of the street. TP $430 (45% upside).
Galliano's Financials Research
US Banks: Is system deposit flight being contained?
Deposit outflows for 1Q23 in the most affected of the mid-sized US banks were in low double digits, much less severe than the deposit collapse suffered by First Republic. In fact, since the end of 1Q23, some smaller banks have reported slightly positive deposit flows, and the recent usage of Fed and FHLB funding lines is not alarming. Victor Galliano reviews a select group of mid-sized US banks focusing in on a number of key metrics; despite the challenging times, he likes M&T Bank and Western Alliance. Victor also believes that market concerns regarding PacWest’s viability may be overdone.
Portales Partners
It is well known that JPM got a good deal in its takeover of First Republic. Simply put, the bank acquired a market yielding asset with considerable funding benefits and significant cost cutting opportunities. While most analysts are plugging $500m ($0.17 a share) of added net income into their earnings models for the next 12 months, Charles Peabody is keen to highlight other dynamics of the deal that suggest that there are a lot more benefits to JPM of which many may be unaware.
ROCGA Research
ROCGA’s proprietary Cash Flow Returns On Investments based platform helps identify and value companies. WOR appears on an enhanced US GARP screen. The company has been modelled, valuation back tested, and projected forward using expected earnings, and is looking undervalued. A total of 57 companies appear on this screen and warrant further investigation. The screen can be adjusted to target US large or small, UK large, or small, & Europe. Once identified, ROCGA’s Cash Flow Returns On Investments based systematic DCF models will help determine valuation. Click here for further details. A free trial is available on request.
Lynx Equity Strategies
KC Rajkumar continues to see substantial downside to the stock from current levels as and when investors come to appreciate the secular decline in Product revenue and stagnant Services revenue. He forecasts iPhone revenue down 10% this year and down 5% in FY24. KC expects (overall) FY23 revenue to be down 6.5% vs. consensus down 2% and FY24 revenue to be down 3% vs. consensus up 7%. He models FY23 at $369bn/$5.6 vs. consensus at $386bn/$5.9 and FY24 at $358bn/$5.4, significantly below consensus at $414bn/$6.6. TP $110 (35% downside).
Paragon Intel
A multi-month deep-dive into Rob LoCascio including conversations with more than 12 former colleagues paints a picture of a CEO who is unfit to be in the seat. Paragon Intel’s sources revealed that LoCascio can be a patronising bully who has created an intimidating culture. He lacks the strategic focus required of CEO and his desire for fame makes him a worse operator. Sources repeatedly spoke about LoCascio blurring the lines between his personal endeavours and company resources. His ManagementTrack Rating of 2.3 is one of the lowest on Paragon’s platform.
Sales Pulse Research
SPR’s latest channel checks have picked up more examples of ZS being replaced, primarily by Palo Alto, but also by Netskope as well as customers switching to Cloudflare and Cato Networks. One regional VAR commented "ZS is looking worse, more discounting and deal flow is slowing”, while another said “Customer feedback, or perception, is that ZS functionality in CASB, DLP, and Zero Trust is falling behind PANW and Netskope". Elsewhere, SPR has picked up some signs of improvement for SentinelOne, while views on CrowdStrike have been fairly positive and a little better than the mixed views from the past few quarters.
280First
FirstAlert: 10Q/10K analysis module
280First's flagship product rapidly extracts actionable insights from financial filings through quantitative and qualitative inputs. Recent alerts include: 1) Casella Waste Systems - targeting larger, more strategic acquisitions which would require additional financing either in the form of debt or equity. 2) Halliburton - no longer focusing on increasing cash returns to shareholders. 3) Monolithic Power Systems - loss of customers and less bullish on margins. 4) Prestige Consumer Healthcare - worries around demand elasticity and market share. 5) Seagate Technology - large hyperscale DC customer concerns.
Japan
Asymmetric Advisors
Amir Anvarzadeh has been bullish the stock for much of the past 3 years and the share price is up 38% since he added SCREEN back to his buy list in early Nov 22. Despite this strong performance Amir still thinks it looks very undervalued, especially given the firm's high exposure to EUV and logic chips and its low exposure to memory which has insulated the name from weak order trends seen by its bigger peers, namely Aysmmetric's two short sell picks, TEL and Lasertec. Trading at a significant discount to its front-end equipment peers, at around 10x P/E and 4.6x EV/EBITDA, Amir thinks SCREEN should be trading closer to ¥20K (75% upside).
Emerging Markets
Westlake International
China eCommerce primary research report
Based on a variety of data and feedback from 27 eCommerce professionals, Westlake observed 1Q apparel sales recovered the strongest among online discretionary categories, cosmetics rebounded modestly but appliances sales softened slightly. Mar & Apr saw a marked acceleration in online discretionary category sales growth (except for skincare), likely due to further consumption recovery and a low base last Mar & Apr. Alibaba, JD.com, Pinduoduo, Vipshop and Kuaishou eComm can likely at least meet 1Q China-related eComm sales or marketing revenue expectation. JD Retail had relatively weaker 1Q given the restructuring and soft appliance & general merchandise sales.
Tabbush Report
Daniel Tabbush sees no reason why the Malaysian bank should be reporting impairment costs at near record lows. The figure recorded in 4Q22 of MYR 191m is only slightly higher than the trough seen in 4Q18, after which Maybank booked nearly 4x higher impairment costs in the following period. Operationally, Daniel believes there is downside risk to NII and NIM (as is happening with Singapore banks). He wonders if figures end up being far lower in 1Q23, with lessor loan volume, higher COF and more defaults (less interest payments). And then there are soaring costs - personnel costs increased by 20% Y/Y and marketing costs were up 54% Y/Y in 4Q22.
Creative Portfolios
TTB’s PH Score™ of 9.45 (out of 10) is indicative of superior relative returns going forward. The Thai bank has seen improvements across all key variables - in Profitability, in Capitalisation, in Margin/Spread, in Asset Quality, in Provisioning and in Liquidity. The shares trade on a PBV and FV of 0.64x and 10%, respectively. The Earnings Yield utilised in Paul Hollingworth’s Score stands at 11.0%. The Dividend Yield is 4.9%. The Total Return Ratio stands at 1x. Re. technical momentum, the shares show some traction - as do Krung Thai Bank and Bangkok Bank which Paul also rates relative to other EM banks.
AlphaBox Advisors
Strong fundamentals with demand supply dynamics expected to become more favourable as nuclear energy generation across major economies gains significance supported by an increasing need of a cheap and reliable clean energy-based baseload energy capacity. While geopolitical concerns are the main reason for its low P/E, the likelihood of any operational disruption looks low, and AlphaBox believes these concerns should subside as time passes by. KAP is a cheaper way for investors to gain exposure to Uranium price recovery. Its nearest peer, Cameco is trading at a trailing P/E of 70.6x vs. KAP at 9.6x. Sees 45% upside over the next 2-3 years and an estimated 7.4% DY for FY24.
Macro Research
Developed Markets
CrossBorder Capital
The turning point? Wait… it’s already happened
Global liquidity is going up and inflation is falling. What better boost could risk assets get? Paradoxically, the worse the economic news, the better the future outlook! Inflation should skid lower sooner and policymakers will scramble to support sluggish economies. Less is more? In his latest report. Michael Howell explains why equity investors worry more about structural inflation than cyclical recession. Look toward stocks instead of bonds as they gain from a re-rating as inflation expectations subside and liquidity expands.
Topdown Charts
Central bank pause-o-meter
In April, Callum Thomas’ chart, which tracks the proportion of central banks who neither cut nor hiked rates during the month, reached the highest level since mid-2021 (just under 90%). At this point the bulk of tightening is most likely behind us as inflation pressures ease off and recession risks come into focus. But pause is the keyword – nobody wants to be the central bank that cut rates and saw inflation resurge. Clear and unarguable deterioration in the data will have to come before we see any rate cuts underway.
Eurointelligence
Markets too optimistic about EU interest rates
With several more interest rate hikes to come and a large presence of inflationary dynamics in the economy, Wolfgang Münchau sees markets as being too optimistic about the interest outlook. In his baseline scenario, core inflation will fall in the second half of the year but remain stickier than most estimates suggest at a range of 3-4%. In that scenario, the ECB would increase rates to ~4%, yet current money market prices imply a rate of just under 3.6% in September. Current rates have already taken a toll on bank lending, on supply and demand, and recent German data suggests this important economic sector may be hitting a recession.
Intertemporal Economics
US growth and inflation: Cooldown or recession?
The case for recession must be acknowledged, but Brian Pellegrini explains how the US has entered an inflationary equilibrium where the central bank has much less control over the timing and scale of recessions. Households are smart enough to realise the lack of political will to force a recession will adapt their behaviour accordingly. The Fed is depending on tightening credit conditions and a completion of consumption rebalancing to “fix” its inflation problem. Unfortunately, bankers will figure out that bailouts are waiting in the wings. Worse yet, the imbalance between consumption of goods and services was likely constrained by low supply. Easing of credit or monetary conditions will light a fire under unmet demand and reawaken inflation in short order.
WallStreetCourier
Feeling bearish
All bear markets started with a regime of capped upside potential together with an increasingly high risk for waterfall declines and stronger corrections, but not every such regime caused a bear market. The short-term trend condition is negative, and the mid-term trend condition is weakening. Weak trading days are often just the starting point for stronger losses. If the market enters that regime, take profits, reduce leverage and define a close hard stop level to exit. Afterwards, stay on the side-line up until the market enters a positive (biased) regime.
Minack Advisors
A good reporting season is no guide to future earnings
US earnings have surprised quite a lot, consistent with generally better-than-expected macro data in the March quarter. Forecast earnings now assume a no-landing economic outlook. If there is a recession – Gerard Minack’s base case – earnings will fall well short of current forecasts. This is not priced in: equity markets do not bottom much ahead of EPS forecasts. Beyond the cycle, structural changes – the prospect of higher rates and higher taxes – point to a lower peak in margins. According to Bloomberg, S&P 500 earnings are beating forecasts by 6¾% - the biggest beat since September quarter 2021 (see graph).
North Cove Advisors
Risks in Canadian housing are no longer to the downside
Last month, Ben Rabidoux stressed that if there isn’t an uptick in new listings in the very near term, we may see a dramatic tightening in the resale market that could reignite speculative demand/FOMO. He thinks signs of this are prevalent in the preliminary April data, forecasting a 10% upside in house prices in short order. This will be reflected in a more hawkish Bank of Canada stance in their coming comments. It’s clear that immigration policies are doing more harm than good, at the risk of alienating young Canadians who are major supporters of the current government, which may well cost Trudeau the next election.
Emerging Advisors Group
And then there’s Hong Kong property
With Hong Kong property prices perking up since the beginning of the year, Jonathan Anderson asks if the worst is now over? He has no problems with a rally in 2023, with the ongoing reopening of Hong Kong and China bringing back overall economic activity and property demand – which is why Jonathan is in the Hang Seng index this year – and prices should firm up over the coming 12-18 months. Yet the structural outlook remains bleak. This is still the biggest property bubble in the world in terms of relative price movements, leverage and yields, and deflation is the outlook for the coming decade.
Emerging Markets
PRC Macro
Bearish short-term views on base metals and RMB stay intact
Xi’s economics team recently emphasised the “accelerating the construction of a modern industrial system” and “supporting Chinese-style modernization with high-quality population development”. These are clearly longer-term objectives, but they are still relevant to short-term sentiment as China gets back to work after the May 1 holiday. So far, William Hess’s short-term views on base metals and the currency from recent pieces remain intact. He notes that onshore positioning in copper, for example, has turned decisively in this direction after the Politburo Q1 meeting. The latest update to his cyclical indicator for China continues to show a loss of recovery momentum.
Alberdi Partners
Colombia: Brace for a credit rating cut
Marcos Alberdi retains his pessimistic scenario of a scant 0.6% real GDP expansion in 2023. High core inflation coupled with sticky inflation expectations saw the central bank tighten the policy rate by 25bp, and Marcos expects them to be the last LatAm inflation targeter to start easing rates. In his latest report, he discusses estimates for the future trajectory of Colombia’s credit rating, given the current deterioration of the country’s institutional foundations. Even under relatively benign assumptions on the trajectory of macroeconomic aggregates, Marcos sees an inevitable credit downgrade.
Teneo
Israel: Next political crisis will arrive at the end of May
Netanyahu is locked in a three-front battle with the opposition, his own coalition, and his corruption trial, and none will end soon. After a month-long parliamentary break, hundreds of thousands of Israelis continue to take to the streets regularly to rally for and against Netanyahu. While his efforts to give parliament a stronger voice on judicial appointments have lost some of the urgency they had in March, his coalition’s popularity is plummeting, and it is growing more restless with his leadership. Because Israel’s political chasm is so deep, it is increasingly hard to imagine when stability will return to Israeli politics, and hard to imagine it will occur under Netanyahu’s leadership.
Grey Investment
Will investors return to India soon?
The MSCI India in USD has been rangebound for 10 months, following a very shallow retracement of the 2020-22 bull market. The shallow correction, combined with the relative performance vs the MSCI World, show what an investor favourite this market was post the Covid-19 bear market lows. An upside breakout from the 10-month range would likely trigger investment flows from global investors again.
Greenmantle
Thailand’s elections
Thailand heads to the polls on May 14 against a mixed economic backdrop. The return of tourism has strengthened the currency and bolstered consumption and services, but weakening global demand is starting to hurt the export sector. The populist Pheu Thai party looks set to win the popular vote decisively. The military’s preferred candidate is likely to emerge as prime minister, maintaining political continuity. Niall Ferguson believes monetary and fiscal easing is coming, supported by normalisation in tourist arrivals from China, and is therefore OVERWEIGHT Thai assets against EM peers.
Smart Insider
Asian insider trading in April
Smart Insider’s monthly report covers insider trading activity in 13 Asian countries and corporate buyback activity in 12 Asian countries. In their latest report, insider trading evaporated in April in India, which isn’t unusual due to trading restrictions. Based on March’s ratio (Sell/Buy Ratio 1.54), sentiment is bullish with 8 positive ranks and 3 negative ranks. Thailand saw insider sentiment improve again, and sentiment is bullish with 7 positive ranks and 0 negative ranks. China’s insider buying remained flat vs. March, and sentiment is neutral (S/B Ratio 2.63 vs 5.63 in March). Light buying and average selling in Malaysia has led insider sentiment to deteriorate from Bullish to Neutral.
Commodities
Global Macro Investor
A great crypto trade
Raoul Pal sees three positives for crypto: the broken banks, near government debt default, and more liquidity to come (Raoul’s backdrop for future liquidity is extremely positive). In fact, Ethereum (ETH) today looks a lot like Bitcoin (BTC) back in 2013, suggesting a possible sharp rally could come (see chart). He thinks there’s a decent chance that equities fall and ETH spikes higher into the end of June. But maybe he’s wrong and both equities and ETH get hit, or both rise due to future liquidity. Then buying puts on SPX and calls on ETH are a great trade, and the risk/reward is too insanely good not to give it a go! BUY June 30th SPX 3850 puts for 1% ($40) and BUY June 30th ETH 2500 calls for 1% ($18).
Global Mining Research
Canadian mines for Canadian owners?
The recent moves related to Teck Resources has prompted some jingoistic statements from mining participants and the government about Canadian ownership of Canadian assets. David Radclyffe examines the ownership of mines in the country, finding that, although Canadian gold mines are mostly owned by the country’s miners, Canada represents just one-quarter of the value of mines owned by Canadian domiciled gold stocks. Should the jingoism be contagious, Canadian miners will be the losers if the insistence of local ownership spreads. Preferred Canadian domiciled gold stocks are Barrick and B2Gold among the senior stocks and Lundin Gold as a junior stock.
Marex
Silver: Changing trend
N23 Silver: the 20-day average (red line) near 25.55 is a key inflection point and effective market barometer. The sentiment is not derived from a positive close above or negative settlement below the average. Rather the slope of the line/average is key. When a change in the slope for 2 consecutive days occurs (up for bullish and downward for bearish) often a new trend is unlocked. Monitor today for a second straight down shift on the bearish side basis today's close. The stop would be a close back over the average or 2 consecutive days of an up-sloping average.
CPM Group
The truth about gold and silver premia
In his latest video, CPM Group's Jeffrey Christian discusses some of the premia costs physical gold and silver investors pay over the spot price. He discusses what spot price is, and how dealers can use it as a tool to mislead investors, and whether gold and silver retail products are "good deals" compared to other commodities.
Click here to watch.