![]() ![]() Even at the lowest combined de-constructed (pro-forma) EBITDA in years, the combined entity trades on a pro-forma basis of about 3x EBITDA. That impacted the stock price of the main asset – Hindustan Zinc. The company took a tax hit on dividends it did not receive, then took the dividend after the balance sheet photo.None of this is negative for the company given where things were on 31 March. As India comes off lockdown, volumes will pick up. All the commodity inputs are doing well at the start of this fiscal year from where they were written down to or indicated as of end-March. Other commodity prices are up since the fiscal year end. The oil price is up 60% since that write down. The company wrote down 22% of the book value of its non-Hindustan Zinc assets.The way this could unfold is a little complicated, involves the possible use of the Delisting Rules as yet untried, and there are discrete risk points (including Q2 earnings) between here and there. The stock price falling by half is a pretty good one. Vedanta Ltd (VEDL IN) (Mkt Cap: $5.5bn Liquidity: $42mn)īecause of the way that Indian Delisting Offers work (see Travis’ and Janaghan Jeyakumar‘s guide here), and the way opportunistic take-private situations work in general, it helps to have an opportunity. In Jardines: Holy Bargain Basements!, this was a clear Long JSH/ Short JMH trade. I see JM at a 33% discount, which is historically wide. Separately, the NAV discount spread is ~15.5% against a one-year average of ~17%. ![]() Recent buying suggests management considers current levels to be optimum. The positive newsflow is with JMH from hereon. The average ratio since buybacks resumed last year is 1.86x, and 1.99x since the resumption (again) late May. It is all but restricted from buying more shares in JSH on account of the public float. However, JM received US$2.2bn from its sale of Jardine Lloyd Thompson Group P (JLT LN) in 2018, leaving ~US$1.8bn to continue buying back shares in itself.The JM/JS ratio has been reverting to its mean since the 19 March, and it could be argued this will continue. The longer-term average (as far back as CapIQ goes) is 1.8x. The simple ratio was at 1.90x (at the time of the insight) against a ~10-year average of 1.71x. ![]()
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