European Weekly Summary

Key points:
The Stoxx 600 remains in an Uptrend Under Pressure and is trading along its rising 50‐DMA (key support) but
facing strong resistance at its 200‐DMA. As both moving averages are now close to each other, actions in the
next few days should bring indications about the next market trend.

Ireland, Finland, Switzerland, and the U.K. were moved to a Confirmed Uptrend this week. Five markets are now in
a Confirmed Uptrend, ten are in an Uptrend Under Pressure, and two are in a Rally Attempt.

Leadership remains very concentrated in capital equipment and basic resources stocks. In this report, we bring
to investor’s attention a list of actionable ideas among these sectors.

We added Puma (PUMX.DE) to our European Focus List (EFL).

HelloFresh (HFGX.DE) was added to our Conviction Laggards List, while H&M (HMBF.SE; $24B market cap) was
removed from this list.

China Feihe

What’s happened? Developed Focus List constituent CHIF.HK announced the
acquisition of its largest milk supplier YuanShengTai Dairy Farm (YSHT.HK) in an
HKD 3B (RMB 2.6B) cash deal, a 1.6% premium over YSHT last closing price.
YSHT has six dairy farms in Heilongjiang Province and one dairy farm in Jilin
Province

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The Stoxx 600 remains in an Uptrend Under Pressure with nine distribution days. We continue to watch the July 31 low (356.33) as the key support level for the index.
  • Through the recent rotation toward value, we maintain a very cautious approach, particularly toward growth stocks. We would generally hold off on new purchases but would continue to hold existing positions where key support levels are holding, such as the 50- or 21-DMA, while trimming or cutting stocks that breach these levels.

China Feihe

Key points from this report:

 

  • China Feihe (CHIF.HK, Focus List name since June 18), headquartered in Beijing, is the largest and most recognizable Chinese infant milk formula (IMF) company with an 11% market share as of 2019. In the premium space, where the company generates two-thirds of its revenue, it has about 30% market share.
  • The company announced the acquisition of its largest milk supplier YuanShengTai Dairy Farm (YSHT. HK) in an HKD 3B (RMB 2.6B) cash deal, a 1.6% premium over YSHT’s last closing price. While meaningless on China Feihe’s financials, we see this deal as a strategic move, in line with the industry’s vertical integration, to secure its supply of raw milk.
  • Since early July and allegations of misleading accounting practices released by Blue Orca, shares have been consolidating, trading sideways to their 50-DMA. Key support is at HKD 14.29. Hold positions. Buy at a breakout of HKD 18.04.

Nissin Foods Company

What’s happened? Developed Focus List constituent NISS.HK reported H1
results today. Overall, revenues grew 16% y/y, in line with estimates while net
profit grew 34% y/y, beating consensus. We recommend that investors add the
stock once it retraces back to its 50-DMA.

Yihai International Holdings

What’s happened? Developed Focus List constituent YIHA.HK reported strong
H1 results. Revenue grew 34% y/y, beating estimates by 5%, while net profit
grew 52% y/y, beating consensus by 5%. We recommend that investors add to
positions once it traces back to its 50-DMA.

Key Metrics:
Revenue: Consistent with our investment case, revenue growth was driven by sales to third-party customers, which grew 82% y/y. E-commerce sales to third-party customers grew 35% y/y. However, sales to Haidilao restaurants declined 31% y/y owing to the effect of COVID-19.

Malibu Boats

What’s happened? U.S. Focus List constituent MBUU reported strong Q4 FY20
results. Revenue declined 39% y/y compared with consensus of a 48% y/y
decline. EBITDA margin was 13.1%, declining 530bps y/y beating estimates by
430bps y/y. We recommend that investors add to positions here.

Key Metrics:

Revenue: The company lost its operations for almost five weeks due to COVID-
19. Volume dropped 43% y/y and there was an impressive 8% y/y increase in ASP driven by favorable product mix.

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The Stoxx 600 remains in an Uptrend Under Pressure with five distribution days. Key resistance level remains at its 200-DMA.
  • A majority of indices are in an Uptrend Under Pressure. The average distribution count remains elevated at 5.5. Denmark, Finland, and Ireland are in a Confirmed Uptrend. The U.K.’s FTSEE 100 is the only index in a Downtrend.  
  • Our rotation chart suggests short-term momentum (four-week) improving for Cyclical, Retail, Energy, and Capital Equipment.
  • The European Focus List continues to be a source of outperformance. We have not made any changes last week.
  • Actionable names in the Focus List include Schneider Electric (QT@F.FR; SU:FP), Simcorp (SIM.DK; SIM:DC), Hypoport Finance (HYQX.DE; HYQ:GR), and Cranswick (CWK.GB; CWK:LN).
  • Stocks of Interest: Hypoport (HYQX.DE; HYQ:GR) is actionable after breaking out of consolidation.

Savola Group

What’s happened? Frontier Focus List constituent SAG.SA reported mixed Q2
results. Revenues grew 3.3%, missing estimates by 6% while net profit grew
272%, beating estimates by 64%. We recommend that investors hold on to the
stock and add to positions once it reclaims its 21-DMA.

Cranswick

What’s happened? Developed Focus List constituent CWK.GB reported a strong
Q1 (April to June) trading update yesterday. Revenue was up 24.8%, including
like-for-like sales growth of 19.2%. Consensus estimates were not available, but
the top-line growth acceleration versus last year was driven by home
consumption, new business wins, and poultry sales from the new Eye facility –
all are clear positive factors from this trading update. We recommend that
investors add to positions