Check out the key picks for this week by SaxoStrats team
FX FOCUS - Swedish Kroner
- With the elections now behind us, the uncertainty premium on the Swedish kroner should start to petering away. Fundamentals in Sweden are better than those for the Euro-zone with 2Q GDP in at 3.3% vs 2.2% for the EZ & 2.2% vs. 2.1% for Inflation. Added to which the Riksbank is likely to move before the ECB as they get more accommodative, with indications of a move either in Dec or Jan vs. the ECB which is expected to be on hold until middle of 2019.
- The backdrop of all of this is that the Swedish Krona is cheap & at multi-year lows vs a broad range of currencies. Our Global Macro Strategist KVP, favors being short the EURSEK from these c. 10.50 lvsl with a medium-term target of 10.00 before a long-term target in the 9.00 to 9.50 range.
- TRADE YOUR VIEW WITH SAXO EURSEK
I. Emerging Markets a Tactical Bounce?
- Whilst the house view is still one of caution & KVP thinks we need to see things get a lot worse in EM before they get better. Near-term sentiment is very bearish, some positions have been cleaned out & there could be arguments for a short-term tactical bounce. Those looking for broader EM play could consider these ETFs for exposure
- TRADE YOUR VIEW WITH SAXO EEM:arcx & 02802:xhkg
- Mercedes Benz can trace back its roots in the auto industry since 1879, that’s +139yr – its as blue chip as they come in the auto sector. Currently German listed Daimler is trading at multi-year lows, a 6.6% its dividend yield is the highest in the Auto world. And from a valuation perspective its compelling at fwd P/E of 6.0 & at a 2.0x EV/EBITDA ratio. Compared to the DAX which has a dividend yield of 3.2% & a fwd P/E of 11.46 – almost twice that of Mercedes
- Traders looking to build long positions may consider timing their entry once there is better line of sight on the impact of trade wars / tarrifs and as a result autos.
- TRADE YOUR VIEW WITH SAXO DAI:xetr
- Spotify’s share price is up 42% from the IPO price and up 13% from the first secondary market price (the open price on April 3, 2018). For years, the music industry was under pressure with falling revenue and rampant piracy by consumers. With Spotify and the music streaming revolution, things have changed; 2015 was the first year that saw total music revenue grow again since the mid ‘90s according to Spotify’s Investor Day slides.
- We believe strong profitability will come to Spotify but it may take five years. Spotify will win the music streaming war and remain industry leader as consumers want choice instead of concentration with Amazon and Apple.
- We expect margin expansion through the new monetisation phase as the business is hitting economies of scale. Free cash flow generation will likely surprise many analysts and investors as the business ramps up. In addition to (and because of) the margin expansion, we believe Spotify’s valuation multiples may expand
- Investing in Spotify naturally comes with many different risk sources – high valuation, increasing competition, less bargaining power compared to Netflix.
- TRADE YOUR VIEW WITH SAXO
IV. Upcoming IPO: Meituan-Dianping
- Meituan is China’s leader in O2O (offline-to-online) services, creating a one-stop super app for a range of services, from haircuts, manicures and massages, to movie tickets, food delivery and hotel bookings. Meituan has delivered impressive revenue growth at 744% from 2015 through to 2017, but despite growing revenue at a startling pace the company is still unprofitable.
- Meituan is targeting a valuation of $50-55bn, so the company is valuing itself at 5.1x FY18 revenues. To put this in perspective Alibaba, comparable in terms of the online marketplace with a food delivery component (Ele.me), trades on an EV/FY18 Sales ratio of 10.05. CTrip.Com, China’s most popular online travel agency and Meituan's biggest competitor in the travel services industry, trades on a EV/FY18 Sales ratio of 4.9. It must be noted that both these businesses are profitable while also growing rapidly; Alibaba grew revenues 61% in the last year while remaining profitable. In April 2018 Meituan had 290m monthly active users (MAU) and last generated over 5.8bn transactions with over RMB 357bn in gross transaction volume. Comparing with Alibaba, which has 576m MAU spending more than RMB 5 trillion this year, the valuation discount seems warranted.
- The problem for Meituan comes from its food delivery segment, which accounts for two-thirds of revenue. This segment of the business is cash-burn heavy and operates on thin margins of just 9%. According to the company’s prospectus, the daily average food delivery for the four months ending April 2018 was 14.1m. During this time period, the revenue generated from the food delivery segment of the business was RMB 9.7bn but the cost of revenue was RMB 8.7bn. This works out as an average cost/food delivery of RMB 5, with revenue/delivery of RMB 6.
- Meituan's travel and hotel segment of the business is far more profitable, operating on gross margins of 88%. This segment of the business is similar to Groupon and allows users to purchase vouchers for services like massages and manicures, as well as booking hotels and other travel-related services.
- The IPO will provide funds for Meituan to compete within the growing Chinese e-commerce industry, allowing the firm to grow user numbers at the same rapid pace and sustain growth, which is a necessity for Meituan to drive eventual long-term profitability through economics of scale as revenue growth will then surpass operating costs.
- Investors in Meituan will need to focus on the extreme top line growth and wait for the company to deliver on profits.
- TRADE YOUR VIEW WITH SAXO
Weekly Most Traded A-shares*
|Stock Code||Stock Name||Saxo Code||Average Daily |
RMB (6 Sep - 12 Sep)
|000063 CH Equity||ZTE CORP-A||000063:xsec||2,671,148,200|
|601318 CH Equity||PING AN INSURA-A||601318:xssc||2,546,679,000|
|600519 CH Equity||KWEICHOW MOUTA-A||600519:xssc||1,977,631,200|
|000651 CH Equity||GREE ELECTRIC-A||000651:xsec||1,800,736,200|
|300059 CH Equity||EAST MONEY INF-A||300059:xsec||1,551,844,700|
|000858 CH Equity||WULIANGYE YIBI-A||000858:xsec||1,367,513,200|
|600309 CH Equity||WANHUA CHEMIC-A||600309:xssc||1,364,848,600|
|600887 CH Equity||INNER MONG YIL-A||600887:xssc||1,349,575,980|
|000977 CH Equity||INSPUR ELECTRO-A||000977:xsec||1,251,916,760|
|600050 CH Equity||CHINA UNITED-A||600050:xssc||1,221,028,160|