Cheung Kong Property Holdings (1113.HK): Buying Hong-Kong Property at half price

Cheung Kong Property (111.3.HK), HK$ 47.55
Buy rating, Target price range HK$ 66.00 - HK$ 75.00

Bulls say
● Disciplined approach to property acquisitions manifested through high quality and low cost land bank
● Low debt levels (net cash on balance sheet by end-2016) and plenty of “dry powder” to buy land should the opportunities present themselves
● At HKD$47 shares are trading at 28% discount to net book value (HK$66) and 56% discount to market value (HK$105).
● P/E ratio low at around 10x

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Bayer AG (BAYN.DE) - Worth a look at the right price (add@EUR85)

Summary

  • bayer logoBayer (BAYN) stock continues to trade at the unassuming levels owning to the concerns over weak late-stage drug pipeline and pending Monstanto acquisition.
  • Bayer continues to be a life science conglomerate made up of 4 key divisions: pharma consumer health, crop sciences and material science (Covestro), see Table 1 for divisional contribution to sales and earnings. The most appropriate valuation method is the sum of the parts valuation (SOTP), which we attempted below in Table 2. SOTP valuation indicates fair value estimate of Eur105 per share, some 9% below current levels. We believe that given the execution risks and additional leverage associated with Monsanto deal, investor should demand 20% margin of safety and add to position at Eur85 a share. This is at the bottom end of 52 week trading range.
  • In our opinion, Monsanto acquisition will help Bayer to strenghten its competitive advantage in seeds and crop protection business, whilst divesting the no-moat material science business. We believe that regulatory risk to the deal are manageable due to little overlap between Monsanto and Bayer crop portfolios. Whilst Monsanto focuses on seeds, Bayer remains mainly a player in crop protection chemicals.
  • Bayer's leverage post-Monsanto will be significant, however we believe that Bayer has a strong inherent capacity to generate cash and pay down the debt. Bayer will generate some $10bln of annual EBITDA in 2017.

    Read more: Bayer AG (BAYN.DE) - Worth a look at the right price (add@EUR85)