Europe

CEN-ESG

Consumer Discretionary

INCH sees its ESG score move above the Consumer Goods sector median following the publication of its inaugural standalone Sustainability Report aligned with GRI Standards. The company also conducted a new double materiality assessment to improve its strategic planning. Environmental disclosure included greater alignment with the TCFD framework, science-based targets for Scope 1 and 2 emissions and the introduction of mandatory sustainability and GHG questionnaires for suppliers. Social benefitted from the global rollout of an updated Code of Conduct with strengthened anti-discrimination policies. Governance scoring improved following the removal of nonmaterial questions from CEN’s V5 assessments. Also plans to integrate ESG metrics into long-term incentive schemes in FY24. Click here to access the report.

the IDEA!

Consumer Discretionary

The company has presented several mid-term strategic plans over the years, however, in virtually all cases the targets set were not achieved, so, why should an investor be enthusiastic this time? Analysts at the IDEA! argue that after having divested most of its automotive activities, the odds of KENDR realising its latest goals have increased strongly. Furthermore, even if history does repeat itself, at the current share price, the stock looks attractive. They see fair value at €17.15 (40% upside). If KENDR fails in growing revenue and improving profitability, the IDEA! expects the company to be delisted by means of a takeover and based on its current balance sheet an offer price would be significantly ahead of the €12.20 it trades at today.

Intron Health

Healthcare

Market fears on pricing are far too pessimistic. Intron models a 2027 Wegovy price of $200/mth in the US (~20% above consensus) and is ~30% above consensus on Novo’s Obesity portfolio in 2030. They believe Wegovy will become the US market leader by volume and will benefit from step edits from 2027 onwards. Intron models Commercial & Medicare channels separately for both price & volume and shows compelling evidence that Novo and Eli Lilly will shut out new entrants in the late 2020’s. Intron’s own cost/benefit analysis shows Wegovy from 2027 has broadly similar value to Ozempic, which has extremely strong market access.

Insight Investment Research

Industrials

ENAV offers investors unique exposure to European ANSP infrastructure, while regulatory protection against most traffic shortfall and all inflation, provides highly defensive and visible FCF. Updating his long term model forecasts, Robert Crimes sees en-route service unit traffic growth +2.7% CAGR to 2040E; FCF pre-dividends averaging c.€190m p.a. in 2024-40E; and continued DPS growth at +5.8% CAGR in 2023-30E. Robert raises his EBITDA forecasts on higher traffic plus higher tariffs after the EC’s published Efficiency Target for RP4 was -1.2% (-c.50bps below Insight’s previous estimate). His DDM based TP increases to €6.6 (65% upside).

Cerundolo Investment Research

Industrials

Guy Cerundolo highlights 10 European long ideas scored and ranked using his multi-factor technical model. These stocks have good absolute and relative structure and either emerged or are starting to emerge from consolidation patterns from which he sees further upside. In addition to PRY (see chart), other companies highlighted include Inditex, MTU Aero Engines, Pandora, Rolls-Royce and Schneider Electric.

Revelare Partners

Materials

Revelare, who hosts ~40 idea events p.a. where 300+ investment ideas are sourced from institutional investment clients, recently spoke with an investor who is long AZE, the second largest pure play specialty chemical and food ingredient distributor globally after IMCD. The investor is bullish because he sees AZE exiting 2024 with positive total organic growth for the first time in seven quarters, leading to revenue / EBITA acceleration in 2025 and associated multiple expansion. He believes the stock can appreciate to a ~€30 stock price at the end of 2025 (55% upside). He also considers AZE to be a very strategic asset that may be acquired by private equity or Brenntag in the medium / long-term.

ROCGA Research

Technology

ROCGA’s Cash Flow Returns On Investments based online platform provides a systematic framework to compare and value companies. ASML scores high on multiple Factors and their DCF valuation tools points to significant upside. Apart from their proprietary economic returns and conventional valuation indicators, data points such as EV/IC against ROIC/WACC are also available. Their interactive tools allow you to model and value one of 2000 companies across Europe and the US. A free consultation and trial can be arranged on request.

North America

MYST Advisors

While MYST’s generalist events typically offer a diverse set of ideas, they were shocked by the extremely high percentage (>70%) of Consumer-related Shorts (Cheesecake Factory, Dollarama, Ebay, Elf Beauty, Hertz, O'Reilly Automotive, Simply Good Foods, Utz Brands) presented last week! Other themes included companies facing funding issues (AST SpaceMobile, Hawaiian Electric Industries, HTZ) or exhibiting accounting red flags (CAKE, EBAY, UTZ) and stocks priced for perfection (CME Group, DOL CN, Loar Holdings, ORLY).

The ideas presented at MYST’s previous Bear’s Den Forum (Jun 24) dramatically outperformed over 1-month period (~71% hit rate, +7.4% average alpha).

JJK Research Associates

Consumer Discretionary

Janet Kloppenburg is encouraged that product assortments at Old Navy and Gap remain highly innovative and very competitive in Q3 which should support market share gain. At Old Navy, BTS demand strength last month is being followed by wardrobing needs for both women and men, with particular strength in wear to work and outerwear. Furthermore, Gap’s Get Loose denim campaign has been well received and is attracting a younger demographic, a major initiative in its strategic brand repositioning. Janet is also very impressed with the brand’s elevated fashion focus. Similar to Old Navy, Gap’s promotional activity is tracking lower Y/Y. She forecasts $0.61 Q3 EPS and $2.00 for FY24, both well above consensus.

Deep Knowledge Investing

Consumer Discretionary

Despite the Marina Bay Sands in Singapore putting up all-time high EBITDA and a full recovery in Macau visitation, Sands stock has traded poorly this year. The reason has been concern about the Chinese economy. Sands China, the company that owns just under 30% of Las Vegas Sands’ Macau assets has fallen more than 40% since Feb. With Aug visitation in Macau above 2019 levels, strong performance in the high-margin mass and premium mass business, and just a few months remaining to finish a big renovation project, LVS just bought back $103m of Sands China stock bringing its stake to 72%. With over $1bn in capital returned to shareholders this year, DKI believes management is displaying confidence based on excellent fundamental results.

Off Wall Street

Consumer Discretionary

Shorts should beware of complacency - Vans are becoming cool again. Field research conducted by OWS suggests that after 5-6 years of being very much off trend, Vans trainers are becoming notably popular among tastemakers in Paris, a key leading market for fashion trends. At 0.6x sales (practically an equity stub valuation for a business whose historical operating margins were mid-teens) you need to think that the brand is in terminal decline, that VFC will languish at ~breakeven for years, and/or the company will go bankrupt under its debt load, to be actively selling the shares here. OWS does not think any of those scenarios are likely and sees the stock doubling in 2-3 years.

Two Rivers Analytics

Healthcare

ESTA’s product safety claims are based on flawed studies, according to Eric Fernandez. He argues that the studies cited by the company are either very small, self-reported, or produced by conflicted sources. Additional concerns include: 1) Overhyped product innovation - there is little that stands out as the basis for significant market share capture in the US or China, as bulls believe. 2) Competitors have a far longer history and much more resources. 3) Management and governance issues abound. 4) Cash flow is very weak and leverage is high. Eric expects the company to miss forecasts in 2025, causing a downward rerating and shedding of its lofty multiples (trades at 8x sales).

Abacus Research

Healthcare

PODD is on the cusp of a new product cycle for Omnipod 5 for diabetes 2 patients which will drive upside to 2H24 and 2025 consensus estimates. Abacus also argues the market’s GLP-1 fears are overplayed (impact will be negligible over the next decade / have no impact on type 1 diabetes, PODD's core customer). If this is proven, the multiple should expand. Although competitors Medtronic and Tandem will launch new products over next few years, their success is not guaranteed. For now, Omnipod has a first mover advantage. Abacus sees a path to $3.6bn in 2027 revenues (2023-27 CAGR of 21%) and an EPS of $6.50 (25% CAGR).

The Bindle Paper

Industrials

Another successful short idea from The Bindle Paper - with the recent decline in ATKR’s price, the stock is very close to their TP of $75 and they recommend covering for a 45% gain. Click here to access their initiation report where they argued that ATKR is a commodity company generating outsized returns on invested capital/margins, and the combination of weak structural demand, soft end market demand, increased competitive intensity, and rising imports along with inventory destocking at distributor customers would lead to earnings misses for the company over the next 12-18 months.

Thompson Research Group

Industrials

TRG sees more change ahead that is positive for GVA’s profitability, cash flow and the multiple that investors should apply to the stock. They believe the business is evolving to look more like Knife River and Construction Partners - KNF trades at ~10x FY25 Street estimates and ROAD ~13x (vs. GVA at ~7x TRG’s estimates). Upcoming catalysts include: 1) Positive operating backdrop and rising margins. 2) Increased disclosures for the Materials segment. 3) Updated multi-year guidance to be provided on the 3Q24 conference call. TRG has been bullish on the name for a few years now (the stock is up c.100% over the past year) and they continue to believe the shares are undervalued.

Trivariate Research

Technology

1) Lower interest rates might not be good for growth stocks. 2) Tech analyst estimates are higher than normal for Q4. Without a massive economic acceleration, Trivariate sees material downward revisions to numbers. 3) Tech investors must focus on high quality stocks, with low beta and low forecasted revenue growth wildly outperforming the overall growth universe (stock specific ideas are available on request). 4) Gross margins work for stock selection in Tech - since 2020, big winners have shown an average of 5% Y/Y gross margin growth. 5) Short term, Trivariate likes mean reversion on valuation as a tool. 6) Own at least market-weight the Big 6. 7) Stock-based compensation to revenue matters when Tech is underperforming. Risk officers need to consider being SBC-to-revenue neutral!

Japan

JapaneseIPO.com

Consumer Discretionary

Once a darling among investors, the stock now trades below ¥4,500, a decline of over 50% from its 2020 high. In her latest report, Yuka Marosek assesses the company’s new growth initiatives including Workman Colors which aims to become a store chosen for its style and design as a fashion brand. In addition, to grow its functional apparel line, which is the foundation of the brand, Workman is adding unique features to casual items, such as pollen-resistant materials and materials less prone to insect bites. Yuka believes the recent improvement in same-store sales makes the stock an interesting prospect for investors looking for recovery plays and a stronger yen beneficiary.

Asymmetric Advisors

Financials

Strike has been consistently growing profits (averaged +35% p.a. for the last 5 years) and has avoided the taint of scandal that some competitors have suffered from. The PER is currently ~15x and tightening industry regulations are helping improve practices and driving dodgier players out, which should boost confidence amongst investors in the larger listed players in the segment. Asymmetric expects consensus forecasts for FY9/24CoE of OP +35% to be beaten. Strike has ¥16bn cash, no debt and generated >¥6bn FCF last year. Management has admitted it does not need this much cash and has raised the payout ratio to 34% while also considering a buyback.

Astris Advisory Japan

Valuations for payment assets have become increasingly important as LY Corp (PayPay IPO) and Rakuten (fintech restructuring) look to public markets for eventual validation. Kirk Boodry thinks both are worth more than ¥1,000bn, although he gives a slight edge to PayPay on better visibility. Whilst there has been talk of a PayPay IPO for years, Rakuten will probably be the first to move as it has set a Jan deadline for its fintech restructuring. Meanwhile, online banks have been market darlings with SBI +87% YTD and Rakuten Bank +45% even with the uncertainty over a deal with the parent company.

Emerging Markets

Galliano's Financials Research

Financials

Victor Galliano screens 10 China banks, including the “Big Four”, using his proprietary database to build bank metrics up-to the 2Q24 results season. He examines the banks’ core profitability and their credit quality metrics to better identify banks that are attractive value, have good earnings growth prospects and have the potential to deliver healthy returns, even in the face of a potentially tough credit quality cycle in China. China Construction Bank is a core GEM bank Buy for its deeply discounted valuations and strong balance sheet; Ping An Bank is the deep value contrarian pick; China Minsheng Banking is Victor’s fundamental Sell.

Propitious Research

Technology

Quality Gen AI play trading at a discount - Samsung has witnessed a strong recovery in its most important end markets, including global smartphone demand and memory-related semiconductor prices. However, following the recent correction, the stock now trades on an 8.9x NTM PE ratio (7.2x ex-cash), which is more than one standard deviation below its 5-year historic average trading range and a level which has historically proved to be an excellent buying point. Samsung also trades at a discount to its global peer group on both a forward PE ratio and growth adjusted PEG ratio basis, despite a relatively stronger balance sheet (net cash at 19% of M/Cap). A further improvement in returns and a peak in the Capex cycle should support a further re-rating in the valuation.

New Street Research

Technology

Having published a deep dive on TSMC’s revenue growth outlook for 2025 in which New Street forecasts material upside to consensus estimates (nearly 30% growth without relying on beats in datacentre AI), they recently published a second instalment focused on the company's margin profile. New Street expects a beat on gross margins next year, primarily driven by higher utilisation and an easing of the headwind related to the ramp of N3, partially offset by the ramp of foreign fabs and N2. Overall, they expect gross margins to expand by 3 points to 57%. TP NT$1,375 (45% upside).

Developed Markets

Stray Reflections

To grasp the nuances of today’s market, it is helpful to look back at the 1960s – a decade known for its own market upheavals and speculative excesses. By exploring how the current environment mirrors that earlier period, Jawad Mian uncovers insights that might illuminate the path forward. Jawad’s main finding is this: after a climactic event like the 2021 peak exhausts speculative energy, the next phase isn’t another vigorous bull market but a more subdued one with less upside. This isn’t 1995 anymore; we’re back in 1968.

CrossBorder Capital

Mike Howell’s analysis indicates that global liquidity levels are rising steadily. Mike has highlighted in recent reports that collateral values have been the main driver and the latest data show that this trend continues. That said, the PBoC has resumed liquidity injections and the latest Fed data are showing signs of improvement too. Last week saw the ECB lower key policy rates and this week the Fed has followed suit. Mike expected Q3 to bring better liquidity news and so far, so good.

Harlyn Research

The European Telecom sector has a proud record of value destruction over the last 15 years. So, when Simon Goodfellow sees investors flocking towards it, he tends to think that there is some other explanation, apart from a sudden change in the fundamentals. Simon thinks it is part of the general trend towards defensive sectors, which he has been talking about since mid-June. It is also consistent with the move towards underweighting global equities, which he expects to happen in the next few weeks, and a sudden enthusiasm for German Bunds in his fixed income model. In June, he had enough room to fund the move into defensives out of a reduction in cyclicals like Energy, Materials and Industrials. These resources are now close to being exhausted, which leaves Financials as the only remaining overweight, capable of funding the next stage. Time to start reducing exposure.

Capital Alpha Partners

Byron Callan has assessed the Draghi Report on the “Future of European Competitiveness”. Byron notes that the Report’s recommendations and potential impact on government policies and corporate actions could have a significant impact on financial and strategic outlooks. The Report "proposes a new industrial strategy for Europe" that includes an "increase in defence capacity". It sees some foundational issues regarding low investment and low innovation to address. Some include higher energy costs than the US, research and development that has been focused on the automotive and, to a lesser extent, pharmaceutical sectors, burdensome regulations, emphasis on bank financing, and fragmented university research. With respect to the section on Defence, the impact on contractors will depend on what steps are taken in Europe in 2025-28.

Macro Intelligence 2 Partners

Why so much recent speculation on 50bps? Julian Brigden’s suspicion is that incentives and politics play a part. The Fed might be independent but this is a very close political race. Better lower rates / higher asset prices now, worry about any post-November hangover later. After all, the new incumbent policymakers can address any problems then. Could there be any downside to cutting too much? Well, strong data, and particularly high CPI prints are potentially embarrassing for the current FOMC: hence Bowman’s dissent. Right now, the balance of policymaker risk / reward suggests officials will try to look through unfriendly data. The worst case would be that surprisingly strong data might mean they had to subsequently reverse policy easing. But in the great scheme of things, would that really be such a disaster?

North Cove Advisors

Canada’s household debt service ratio rose to 15% in Q2, in line with all-time highs seen in late 2007 and again in 2019. This ratio remains a full 5 percentage points above the US equivalent, and the household debt-to-GDP ratio remains 25 percentage points higher - good reminders of the relative interest rate sensitivity of Canada’s household sector. The debt service ratio would have been even higher were it not for another quarterly decline in principal repayment which fell to the lowest share of income since 2004. At the same time, interest paid as a share of income jumped to the highest since 1992.

Japan Foresight

In their initial proposals and their platforms, the Liberal Democratic Party’s (LDP) nine candidates have shown that there are major divisions within the party on how Japan’s economy should be governed. The three schools (neoliberal reformers, Kishida-ists and Abe-ists) have different priorities for growth and macroeconomic policy, suggesting that the eventual winner will have to manage these competing views. However, Tobias Harris points out that these policy differences will not necessarily be what decides the race, as both LDP lawmakers and rank-and-file members will be weighing which candidates have the popularity, leadership qualities, and relationships within the parliamentary party to extricate the LDP from the political crisis that followed revelations of widespread failures to account for political funds.

Emerging Markets

Enodo Economics

According to Diana Choyleva, imminent cash-flow pressures on Chinese corporates make a 5-10% yuan appreciation in the coming months feasible. Exporters have hoarded dollars abroad, and must convert them into yuan to fulfil end of year financial obligations. Diana says this remains true regardless of whether the Fed cuts rates or the outcome of November's US presidential election. Enodo's model shows the yuan undervalued by around 1% to the dollar and the PBoC is happy to let it appreciate. Timing is everything in forex and positioning now for a 5-10% decline in the USD/CNY rate over the next 4-5 months could be a savvy bet.

East Asia Econ

Economic momentum slowed further in August. Paul Cavey says it looks like China’s GDP growth is only running at around 4% YoY, and is trending down, a slowdown that is likely to be intensified by comparison with the base effect created by the acceleration in growth that happened in 2H23. There continue to be two big drivers of the weakness. One area of weakness is retail sales. Growth ticked down to just 2.1% YoY in August. The second area of weakness is property. After all the mortgage rate cuts, city-level loosening and tentative movement on absorbing excess inventories, the collapse in property market activity continues. Starts, completions and sales all fell to new lows in August. Given that, industrial production continues to look rather firm, rising at an annualised rate of around 4% in August. One support for IP is coming from the new economy products that are so important to the current administration, with the government today highlighting that "output of EVs, service robots and integrated circuits increased 30.5% YoY, 20.1% and 17.8% respectively" in August.

Emerging Advisors Group

Crystal Cheng points out that China's efforts to slow soaring term deposit inflows by slashing deposit rates to all-time lows had seemingly started working this year, when she saw a net decrease in deposits in April. However, digging deeper into the data for listed banks, there appears to be a lot of nuance packed into that. Corporate deposits did indeed contract in the first half of 2024, but retail term deposits conversely have continued their relentless growth, hitting an all-time high of 83% of net new deposit growth this year. The extreme risk aversion among China households that began with Covid-zero policies continues to persist. The rapid growth of expensive liabilities also weighs heavily on bank net interest margins (NIMs), threatening banks' capital adequacy over the longer term. However, more worryingly is the pall it casts on the possible comeback of the Chinese consumer or investor.

Greenmantle

Brazil’s economy may be growing faster than expected as moderates win a prolonged battle over the future of monetary policy, but continuing fiscal uncertainty is still casting a shadow over the country’s prospects. Despite Finance Minister Fernando Haddad’s dogged efforts to stabilise public finances ahead of local elections next month, the pressure to spend remains high and private sector analysts expect Brazil’s indebtedness to continue rising. Niall Ferguson agrees. And the political situation is far from ideal, pushing the country toward higher spending amidst a high debt pile.

Alberdi Partners

The provinces improved their fiscal situation in 1H24, in spite of the sharp drop in revenues. Although Marcos Buscaglia did not expect this at the beginning of the year, it is not that unusual given the usual political cycle: Governors are building buffers to expand fiscal policy next year, ahead of the midterm elections. To bring a fiscal surplus, they adjusted wages and capital spending. All the provinces recorded important improvements in their fiscal stance in the first half of 2024. The Province of Buenos Aires (PBA) recorded the lowest improvement and Neuquén the biggest. The provincial wage adjustment was brutal. Most provinces were harsher on their workers than the federal government in 1H.

Churchill Research

The 2030 dollar bond is back to 59 cents on the dollar. President Milei presented a 2025 budget to Congress recently, with forecasts for 5% GDP growth and a 1.5% fiscal surplus. Normally, pushing for fiscal surpluses is not helpful, though in Argentina’s case the driver of currency weakness has been something close to printing money to pay bills, so Mike Churchill says that it may be different in this case. Mike points out that another important driver for the Argentine bond rally is probably just DXY weakness.

Teneo

State-owned Nigerian National Petroleum Company Limited (NNPCL) has notified the Nigerian Upstream and Downstream Petroleum Regulatory Authority (NMDPRA) that it will no longer import petroleum products from 1 October “if local pricing is competitive”. Given the country’s historical reliance on fuel imports and its negative impact on foreign exchange, the development is potentially game changing for Nigeria. However, recent public spats between NNPCL and the local crude refinery (the expected main supplier for the market), including over pricing modalities, operational risks and logistical challenges, risk undermining any potential benefits.

ESG

Adelwise

With the UN Ocean Conference less than a year away, this is an opportune moment to highlight Adelwise's proprietary country scorecard, which assesses global progress on the UN "Life Below Water" targets. Sophie Biro aims to offer investors a useful macro-level tool for understanding the broader landscape of ocean sustainability. While there has been some progress, significant work is still required to protect marine ecosystems. Countries such as Portugal, Australia, Greece, Germany and Norway are most in line with the UN SDG 14 targets, whereas others like China, India, Turkey, South Korea and Peru encounter substantial challenges. To achieve these global targets, there is an urgent need for increased investment in ocean health, improved regulatory enforcement and more extensive data collection.

Commodities

CPM Group

In this presentation, Jeffrey Christian discusses the factors leading to record breaking gold prices as well as a surge in silver prices. He discusses how economic and political developments, including expectations of lower interest rates and recent inflation data, are influencing the markets and whether CPM Group expects precious metals markets to continue to go up. Jeffrey also discusses why silver gains seem to be lagging gold and whether there is an expectation for silver to "catch up". The presentation concludes with some insights into potential recession risks as well as information about economic expansion and tariffs.
Click here to watch.

Vanda Insights

After crashing through the $70 psychological mark to three-year lows last week, Brent has since moved back up above $74/barrel. A dead cat bounce? A respite before heading back towards $60? There are all shades of oil bears out there who would say a resounding “yes”. Vandana Hari is not among them. But that is not to say that the next stop is $80. Waves of demand bearishness that have been lashing over the market over the past two months or so are unlikely to retreat. But as Vandana has been saying, what has tipped the scales is growing nervousness over the US economy, which has triggered bouts of sell-off across risk assets and filtered through to crude.

Astris Advisory Commodities

Looking into Q4, Ian Roper believes metals consumption should pick up sequentially, while tight supply issues remain for many. Chinese macro and construction activity is unlikely to worsen further from here, with room for the government to aid a seasonal improvement in activity by implementing further stimulus spending or easing up on rigid fiscal discipline at local governments. The prolonged monsoon season in India should finally be finishing soon and construction activity will reaccelerate sharply in the coming weeks as the economic drivers remain sound with robust government investment plans. Iron ore prices have fallen below $100/t, but are still yet to break $90/t despite minimal supply exits to date. With battery materials prices already depressed, iron ore looks to have been the last domino to fall and Ian expects metals prices across the board to move higher with met coal, aluminium and copper still the favourites.