IREIT Global

 

Stay the course or give it up?

IREIT Global (IREIT) is the first Singapore-listed real estate investment trust (REIT) established with the investment strategy of principally investing, indirectly or indirectly, in a portfolio of income-producing real estate in Europe which is used for office, retail and industrial (including logistics) purposes, as well as real estate-related assets.

IREIT’s current portfolio comprises five freehold office properties in Germany and four freehold office properties in Spain. IREIT is managed by IREIT Global Group Pte. Ltd, which is jointly owned by Tikehau Capital and City Developments Limited (CDL).

In August 2020, IREIT proposed the acquisition of the balance 60% interest in four office buildings in Spain (Spain portfolio). The capital structure adopted for said acquisition was an equity injection through a 454-for-1,000 rights issue. Priced at $0.490 per unit, the announcement of the issue was met with a tumbling share price. Sell-side equity research analysts have downgraded the stock or stopped coverage completely (without any updates as to their recommendations).

Expectations of the REIT were high upon CDL’s involvement in May 2019 and the distribution yield of IREIT had compressed following the announcement.

However, in the face of a rights issue and tumbling share price doubts have surfaced. Coupled with radio silence from analysts, investors are unsure of what to do going forward. Will Tikehau Capital and CDL execute well? Are there more potentially dilutive rights issue further down the road? Should investors double down or cut loss? Should we begin to vest?

I will touch on these questions and present my thoughts on what lies ahead for IREIT and IREIT’s current valuation.

I see REITs as a carry trade in disguise. A carry trade is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return.

Basically, this is no different from how REITs operate. REITs seek inorganic growth through accretive acquisitions. Accretive acquisitions result from buying over an asset with a higher yield compared to a REIT’s cost of capital. REIT’s cost of capital in simplified terms consist of the cost of equity and cost of debt. The lower the cost of capital the greater the pool of assets a REIT can acquire and result in accretion for unit holders. Understanding this fundamental operation of REIT is important for investors to foresee what lies ahead for IREIT.

IREIT’s cost of equity is high compared to its cost of debt. Theoretically, with a cost of debt of 1.5% acquisition of most assets will be accretive to unit holders but a REIT cannot hold unlimited amount of debt. REITs in Singapore are governed by a cap on aggregate leverage. Therein lies the oft-cited need for a balance between equity and debt when structuring a deal.

The proposed acquisition of the Spanish portfolio is dilutive to unit holders because a decision was made to acquire the portfolio with a higher proportion of equity to debt. A high cost of equity (c. 7.6% pre-rights) compared to net property yield of c. 5.0%, huge discount to theoretical ex-rights price (TERP) and market’s desire for IREIT shares post-rights to yield 7.6% or higher resulted in a decline in IREIT’s share price.

The merits of the rights issue are as follow:

1. Existing unitholders are able to subscribe to the rights units at an attractive discount to theoretical ex-rights price and prevailing unit price of IREIT.

2. Net proceeds derived from the rights issue will increase IREIT’s debt headroom through a reduction of its borrowings, hence enhancing its ability to pursue potential acquisitions and asset enhancement plans. Aggregate leverage will shift down to 35% post-rights from 39%.

3. The rights issue will increase the total number of IREIT units and theoretically improve trading liquidity post-rights. Total issued units will rise to 933.3MM from 641.8MM.

For point 1 above, the utility to unit holders depends on their existing cost per unit. Below I append three scenarios:

Rights issue will be unfavorable for units purchased after May 2020. I append below the possible average cost per unit for major shareholder, CDL.

Should rights units be undersubscribed by minorities, the average cost per unit for CDL will be lower than $0.60 further raising the implied yield on CDL’s stake in IREIT. We see support for IREIT share price at this level.

What lies ahead for IREIT? 

I set out to determine the potential quantum of IREIT’s next acquisition and the minimum property yield required for it to be accretive. Two assumptions were made to derive the above two numbers, the target deposited property value and target capital structure for IREIT. I had set these two numbers at € 1.035B and 40% respectively.

The assumptions were based of a Business Times article on CDL’s potential listing of its UK commercial properties on a separate platform.

“I think for us we’d like to get about £1 billion AUM; so that would be about $1.8 billion and then if you put in about 40 per cent leverage, you will get to a market cap of about $1 billion.” – Business Times, 28 February 2020

Based on a forex rate of 1 € to 1.61 $ and working backwards from a market capitalization of $1B with 40% leverage, I arrived at EUR 1.035B.

A detailed calculation for the required minimum net property yield to effect an accretive acquisition is appended below.

IREIT will need to grow assets under management (AUM) by roughly 1.5x and source for acquisition targets offering a property yield above 4.61%.

Is this a tall order?

I think the required property yield is still slightly above market rates but at this level, there should be a sizeable pool of good quality stabilized commercial office assets in the regional cities of Spain, Germany or France to choose from. Incidentally, Suntec REIT announced the acquisition of 50% interest in two Grade A buildings in London, England. The net property yield is about 4.6%. This tells me that my assumption on the investable pool of assets is reasonable.

REIT manager may also elect to pursue opportunities arising from special situations and/or undertake development projects (structured similar to CapitaSpring).

What are special situations?

Common characteristics of special situations are because of the special situation property can be purchased below market price and/or REIT manager can value add to the property. Concrete examples can involve distressed sales, sales-and-leaseback arising from sudden cash crunch and under-rented properties.

Properties in these categories should typically trade at a higher capitalization rate and hence greater accretion. The higher capitalization rate may be to compensate for the liquidity provided to distress vendor or execution/development risks involved.

In order to capitalize on property sales arising from special situations, manager will need to be equipped with the correct resources (management team and readily available source of capital). I see IREIT already equipped with the correct tools to see this strategy through. New REIT manager CEO, Louis d'Estienne d'Orves, spent 11 years at AXA IM Real Assets, mostly recently as the co-head of European transactions, special situations. Market should expect strong origination of off-market opportunities and solid execution by CEO which will be backed up by the strong financial backing of CDL.

IREIT’s current valuation

The following is the valuation of IREIT’s portfolio.

I set out to determine the potential total units in issue post-rights which is an estimated 933.3MM.

IREIT secured a five-year lease for over 3,400 sqm at Il-lumina in June 2020. I worked through the financial reports of Coruna Patrimonial SOCIMI, the vendor of the Spanish portfolio, to determine the gross rent rate of the Spanish portfolio. From there I estimated the possible increase in gross revenue in FY2021 arising from this new lease.

Based on FY2021F distributable income and 8 October 2020’s closing price of $0.62, IREIT will yield 7.66%.

The market had been slowly digesting IREIT’s latest rights issue and we can see it is inching down towards 7.6%.

Taking a step back and looking at the rights issue again, it becomes clear that the decision to raise proceeds from unitholders to acquire 60% of Spanish portfolio and reduce gearing sets the stage for the next phase of growth for IREIT without another potentially dilutive rights issue. This is a one-time pain to provide for a long-term gain.

Paradoxically, the higher the share price for IREIT the more attractive the REIT becomes. As a higher price (and lower required distribution yield) leads to a wider pool of investable properties and quicker growth of IREIT’s AUM.

As market capitalization steadily approaches $1B, IREIT will qualify for investments by most funds and attract a steady stream of liquidity for its stock. Increasing liquidity will reduce the liquidity premium demanded by investors for IREIT’s current small capitalization; raise IREIT’s stock price and compress distribution yield required by investors.

This further perpetuates the virtuous cycle of accretive acquisitions for IREIT.

The content of this post has been prepared by and belongs to pickinggoldenapples.blogspot.com and its author. The contents of this post is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. pickinggoldenapples.blogspot.com and its author is not under any obligation to update this post in the event of a material change to the information contained in this post. pickinggoldenapples.blogspot.com and its author is under no obligation to check or ensure that contents of this post remain current, reliable or relevant and ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information. pickinggoldenapples.blogspot.com and its author shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. pickinggoldenapples.blogspot.com and its author disclaim all responsibility and liability for the views and opinions set out in this report.

Avarga Limited (Part II)

Avarga Limited (Avarga) has generated significant interest after the first article was posted. This is a follow-up on the company with a discussion on corporate actions (some confirmed some speculative) and the impact on shareholders.

In late-June 2020, Avarga declared a dividend policy with a target dividend payout of not less than 40% of net profit attributable to Shareholders excluding non-controlling interests and non-recurring, one-off and exceptional items, with effect from the second half of 2020.

Based on the back-of-envelope calculation in my previous post on Avarga, this translates to a dividend per share of 1.63 Singapore cents. Based on the counter’s closing price of 26 Singapore cents, this represents a whooping 6.38% dividend yield for 2H2020!

But what I think is more important, is the fact that management has delivered on what they had promised. Referring to page 5 and 6 of Avarga’s 2019 Annual Report on Chairman and CEO’s Statement:

“Going forward, barring the occasional major capex needs and opportunistic acquisition deals, we would ideally like to have a dividend payout policy of 40-50% of net profit, to be paid out on a quarterly basis. This will provide shareholders with a constant and regular stream of dividends.”

Basically, management is exhibiting credibility and following-up on what they had earlier preached. This is a rare commodity for a listed company with small capitalization on the backdrop of shenanigans going on with some other small capitalized companies.

A careful read-through on the annual report also details the return on investments. Avarga had grown from a single paper manufacturing business to include a power plant in Myanmar and Taiga in Canada and USA without stretching the balance sheet. The company have also distributed a staggering $80MM back to shareholders in total dividends in the past eight years.

What can we expect going forward?

Firstly, I think the probability of periodic share buyback is high. Avarga stopped buying back shares in FY2019 as cash flows from UPP (Power) were used for major overhauls. With the next major overhaul due in mid-2024 to 2025, new capital expenditure requirements will be low. An exceptional performance that looks likely to roll over into 2021 for Taiga also guarantees ample arsenal for conducting share buybacks.

Secondly, management has also shared on 24 August 2020 that it is reviewing opportunities and are implying plans for capital recycling in the short-term. I think this is a fantastic endeavor. As previously mentioned, Avarga as an investment holding company suffers a holding company discount to the summation of its investments’ value. As good as the constituent investments are, the holding discount is detrimental to shareholders. A track record of realization of value through asset disposals (be it through an outright sale or listing), will compress future holding discounts.

While management had implied that their investment criteria is based on stable businesses producing steady cash flows, the synergy derived from these 3 disparate companies are not immediately noticeable. This could have resulted in a larger holding discount.

A capital recycling exercise can return some cash back to shareholders and allow management to further sharpen their investment criteria to facilitate lower investment holding discount.

Which investment is likely to go?

Please refer to the following from Avarga’s reply to SGX query.

“As an investment company focused on creating value through strategic investments, the Company is constantly considering possible corporate actions and exercises to increase shareholder returns.

At present, the Company is exploring opportunities relating to its paper manufacturing business. These opportunities include the expansion and/or a potential listing of this business. However, such exploration is still at a preliminary stage. There is no assurance as to whether any transaction will materialise or as to the structure of any such transaction. The Company will make appropriate announcements in the event that there are any material developments in this regard.

The Company has also been considering a possible transaction which will allow it to monetise its investment in the power plant located in Yangon, Myanmar. The terms of such possible transaction are still not finalised and are still under consideration. Again, there is no assurance as to whether any transaction will materialise or as to whether any definitive agreement will be reached. The Company will also make appropriate announcements in the event that there are any material developments in this regard.”

Based on the wording of the reply, it is evident that monetisation of UPP (Power) is in a more advanced stage as compared to UPP (Paper).

The merits of the monetisation of UPP (Power) are as follows:

1. Reduce Avarga’s exposure to the fluctuations of foreign currency exchange rates of a developing nation.

2. Return partial cash proceeds from monetization back to shareholders and recycle capital into higher yielding assets.

3. UPP (Power)’s exemption from income tax had ended in 2019. While cash flows from UPP Power remain steady, the absence of a tax-free status causes it to look less shiny an increase in revenue from higher utility usage in Myanmar will not be 100% passed down to Avarga. (While getting taxed in a business is the normal course of affairs, I reckon management will also agree that not getting taxed will be better. The monetization of this business at this current juncture is great timing when interest in investments in ASEAN infrastructure is heating up.)

Based on the above, I think the motivation to drive monetization of UPP (Power) to completion is present.

The merits of the expansion and/or potential listing of UPP (Paper) are as follows:

1. Listing of UPP (Paper) will inject fresh capital into the business with no need to depend on existing retained earnings. Reliance on retained earnings can mean that expansion is slower. UPP (Paper)’s listing will also provide it with an additional avenue for capital whenever it requires expansion; it can do its separate equity or debt issuance with little or no reliance on Avarga to grow.

2. Listing of UPP (Paper) immediately provides investors with a market value of UPP (Paper) removing ambiguity to its valuation which creates a more stable share price for Avarga.

3. Listing of UPP (Paper) can result in partial monetization of shares and result in bumper one-off dividend for shareholders. We are seeing companies like Wilmar International Limited taking this route.

4. UPP (Paper) can expand its brand recognition through a listing exercise.

5. Nine Dragons Paper (Holdings) Ltd (2689 HK) had announced their results last week, and they had performed above analysts’ expectations. Analysts from HSBC, Credit Suisse, Daiwa and Goldman Sachs had lifted its target price on the back of the positive surprise and expectations of improving performance going into 2021. This bodes well for paper manufacturing businesses looking to seek a listing as they are able to achieve a higher valuation.

Listing is a process that needs to run its course and based on Avarga’s reply we know this is still in its preliminary stage but certainly provides more upside than downside for investors.

Avarga has a strong track record of returning cash to investors when they dispose assets, this allows investors in Avarga to share in the fruits of the company’s success. The plans for UPP (Power) and UPP (Paper) will likely catalyze further upside to shareholder's dividends.

Following up on Taiga, I noticed plenty of news flow in USA on lumber prices staying elevated despite a down season for home improvement and building activities. This is beneficiary for Taiga as higher lumper prices typically translates to higher selling value for Taiga’s products.

The content of this post has been prepared by and belongs to pickinggoldenapples.blogspot.com and its author. The contents of this post is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. pickinggoldenapples.blogspot.com and its author is not under any obligation to update this post in the event of a material change to the information contained in this post. pickinggoldenapples.blogspot.com and its author is under no obligation to check or ensure that contents of this post remain current, reliable or relevant and ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information. pickinggoldenapples.blogspot.com and its author shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. pickinggoldenapples.blogspot.com and its author disclaim all responsibility and liability for the views and opinions set out in this report.

Avarga Limited (Part I)

 

Investing amidst COVID-19

Avarga Limited (Avarga), formerly known as UPP Holdings Limited, is an investment holding company.

The investment holding company holds ownership in three core businesses, 1) paper manufacturing, 2) power generation and 3) building materials distribution. As at the market’s last close on 15 September 2020, this counter with a track record of racking up at least $1.4B revenue annually for the last three years, has a market capitalization of $217.8MM.

Avarga has been attracting a lot of attention from the investment community due to a positive surprise in its 2Q 2020 results. This set of results sparked bullish sentiments for stocks associated with the lumber industry but the lumber party was short-lived.

What are Avarga’s businesses? What do they do?

Below is a visual representation of Avarga’s various businesses and its effective stakes.

Source: Avarga, Golden Apple

Building materials distribution: This business is represented by Taiga Building Products Ltd (Taiga). Taiga is Canada’s largest wholesale distributor of building materials, such as lumber, panels, mouldings, sidings, etc.

Taiga is listed on the Toronto Stock Exchange. Taiga has 15 distribution centers across Canada and 2 in Northern California, USA as well as 6 reload stations in Pennsylvania, New York, Michigan, Vermont and Illinois.

Taiga’s customers include Home Depot, Lowe’s and Rona.

Paper manufacturing: UPP Pulp & Paper (M) Sdn Bhd (UPP Paper) represents Avarga’s interests in the paper manufacturing industry. UPP Paper is one of Malaysia’s top 5 paper mills and produces almost 10% of Malaysia’s domestic output of brown packaging paper.

The pulp and paper mill sits on a 32.5-acre land in Kuala Selangor, Malaysia (north-west from Kuala Lumpur).

Power generation: UPP Power (Myanmar) Ltd (UPP Power) accounts for ~2% of Myanmar’s total power generation. UPP Power is contracted to sell a minimum of 350MM KwH annually, for 30 years, to the Myanmar Government.

How is Avarga’s performance year-to-date?

Source: Avarga, Golden Apple

The impact of COVID showed up in Avarga’s performance through a battered paper manufacturing business, a resilient power plant business and an unexpected windfall for the building products business.

Taiga experienced higher selling prices for its commodity products during the 1H 2020. Despite the significant decline in revenue (sales decline of over 30%) during April, Taiga still brought in ~S$40MM of revenue and also enjoyed gross profit margin expansion!

Source: Avarga, Golden Apple

It appears the impact of COVID-19 was felt more keenly in the Canadian market which posted a ~C$10MM decline in revenue.

Diving deeper to uncover the actual revenue growth of Taiga in 2Q 2020. I assume revenue for Taiga in 2Q 2019 is evenly spread out and divided it by three to obtain sales on a typical April. Following which I applied a 30% discount to the April revenue and deduct it from 2Q 2020 revenue. This will be the implied revenue for May and June 2020.

Source: Avarga, Golden Apple

The implied yoy revenue growth is an astounding 16%!

A boom in home renovations amidst the pandemic had caused a jump in in-store and online spending for home improvement products. The spending boom had in part been driven by COVID-19, as people looked to improve their living spaces which they had to spend more time working or learning in. This had led an increase in revenue and gross profits.

Where is the meat?

The performance of Home Depot’s 2Q 2020 results are indicative of Taiga’s 3Q 2020 performance in North America.

Source: Home Depot 2Q2020 10-Q

Link:https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/reports-and-presentations/quarterly-earnings/2020/2Q/HD_10Q_vf.pdf

The robust demand in US is also evident in Canada. In Home Depot’s 2Q 2020 earnings call, Home Depot described a broad-based strong demand with a high degree of performance uniformity amongst their three US divisions and Canada. 

The market upswing for home building products in Canada is further corroborated with Lowe’s 2Q 2020 earnings call where Lowe’s shared that they posted positive comps that exceeded 20%, driven by similar consumer focus on the home.

Significantly, lumber prices experienced its own “Tesla” moment. The following charts are historical one-year and five-years lumber prices.

Source: https://tradingeconomics.com/commodity/lumber

Prices of building materials typically fluctuate in similar direction to lumber prices. But as Taiga accumulate inventory, it continues to roll in significant inventory gains. Between 1 July 2020 to 16 September 2020, lumber prices jumped a whooping 114%. This meant that Taiga is set to book significant inventory gains in the coming quarter.

However, building products is a seasonal business. As winter sets in, home improvement and home building activities tend to dial down. This will spell a decline in demand for building products and this decline will be reflected in lumber prices. Already, lumber futures expiring in November 2020 traded at $640 while those expiring in January 2021 traded at $590.

A breakdown of Taiga’s quarterly revenue shows a seasonal impact of its business during the winter months.

Source: Avarga, Golden Apple

In 4Q 2020, we should expect yoy increase in revenue albeit a lower one. Sales in value should come down along with sales in volume but we should bear in mind (if futures prices are a good proxy for spot prices) that the expected lumber prices in end-2020 is still higher than when 2020 started which can mean higher sale in value in end-2020 than in end-2019. However, management should exercise caution to prevent excessive inventory pile-up which can lead to significant inventory losses as lumber prices start to decline in the winter season.

Below is my back of envelope forecast for Taiga’s revenue and gross profit in FY2020.

Based on the above, Avarga is trading at an implied FY2020 PE of 4.1x.

Is Avarga undervalued? Typically, investors will value the individual businesses. From the summation of the value of the different businesses a holding discount will be applied.

Valuation for paper manufacturing is straightforward. Readers may refer to listed peers such as Nine Dragons Paper (Holdings) Limited (2689 HK) to obtain their PE ratio and apply towards the earnings of UPP (Paper).

As for valuation of UPP (Power), readers may wish to apply a discounted cash flow model based off the EBITDA of the business.

As for Taiga, we may simply use its listed share price on the Toronto Stock Exchange. However, if readers are only interested in the building products business and feel that it is undervalued, perhaps a direct investment on the listed entity will offer a more direct exposure. This is in the light that Avarga suffers from a holding discount as an investment holding company.

Avarga has excellent disclosures which provides many useful information for investors. Management have also made efforts to educate investors on their various businesses and how to look at them. These can be accessed through their corporate website and annual reports. Detailed disclosures are a real help for an under-covered stock like Avarga. In my opinion, this should be encouraged by the exchange and emulated by other stocks which feel that they are similarly unnoticed by analysts.

I think this willingness to disclose and educate investors is in no small part influenced by Mr Tong Kooi Ong, the Executive Chairman and CEO of Avarga.

Mr. Tong is an entrepreneur and an analyst. 

He has business interests in media, property development, digital technologies and other businesses in Singapore, Malaysia and Canada. He is on the board of M+S Pte Ltd, a joint venture between Khazanah Nasional Berhad and Temasek Holdings (Private) Ltd. 

He is a director of Taiga Building Products Ltd., a wholesale distributor of building products, listed on the Toronto Stock Exchange and Non-Executive Chairman of 3Cnergy Limited, listed on the Singapore Exchange. 

He has interests in the media companies that publish The Edge Singapore, The Edge Malaysia. The Edge Financial Daily, TheEdgeSingapore.com and TheEdgeMarkets.com. He also has interests in the property portals EdgeProp.sg and EdgeProp.my.

The content of this post has been prepared by and belongs to pickinggoldenapples.blogspot.com and its author. The contents of this post is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. pickinggoldenapples.blogspot.com and its author is not under any obligation to update this post in the event of a material change to the information contained in this post. pickinggoldenapples.blogspot.com and its author is under no obligation to check or ensure that contents of this post remain current, reliable or relevant and ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information. pickinggoldenapples.blogspot.com and its author shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. pickinggoldenapples.blogspot.com and its author disclaim all responsibility and liability for the views and opinions set out in this report.

Medtecs International Corporation Ltd (Part II)

 Investing amidst COVID-19

I really like what McKinsey & Company had done in this research article and will greatly suggest you take some time to read it.

https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/on-pins-and-needles-will-covid-19-vaccines-save-the-world#

McKinsey & Company is a US-based management consulting firm. The company offers a range of advisory services and is recognized as a credible thought leader.

In summary to their article published on 29 July 2020, all evidence suggests that COVID-19 vaccines are likely to become available for focused populations somewhere between 4Q 2020 and 1Q 2021. The initial set of vaccine candidates will likely be small and supply constrained. Additional candidates could receive approval and be manufactured on a broader scale and approved for broader populations in late 2021.

“Aight, I’m outa here”

That is the lay investor’s view when it comes to vaccination news. I do not blame them for associating the introduction of vaccination spelling the end of MED’s growth spurt. But do spend the time to digest this:

To be honest, right now I feel very lucky to be in Singapore. I think the government have managed the situation well and have largely placed a lid on community cases. The same cannot be said in many parts of the world, Asia, Europe and US continue to register new infections daily.

In Asia, while India continues to hog the headlines, countries like Indonesia and South Korea are fighting tooth and nail to keep soaring infections/ reinfections from overwhelming their healthcare systems.

In Europe, many European countries are beginning to see a resurgence of the virus. The Economist provides a good visual representation of the situation in Europe (https://www.economist.com/graphic-detail/2020/07/03/tracking-the-coronavirus-across-europe), please scroll down to view the line graphs of various European countries.

In the US, infection rates continue to remain elevated albeit seeing a reduction. The New York Times provide a good visual representation of the infection numbers in various states (https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html).

This means that PPE burn rates have not substantially come down across major populous countries (they cannot begin stockpiling) except in China. Putting this aside, nations that have managed to put COVID-19 under control for now are also conducting an ongoing process of building up a strategic national stockpile of PPE. This further exacerbates the tight demand faced globally.

Do I see sustained demand for PPE well into 2021? Yes, I certainly do as research has already suggested mass production for broader population vaccination will likely come in late 2021. Between 4Q 2020 to late 2021, the on again off again relationship with COVID-19 and stockpiling efforts by various countries will come together and continue to spur demand for PPE. These twin drivers of demand will also keep prices elevated.

To address the elephant in the room, is Trump going to deliver on the vaccine? It is possible given the amount of resources and momentum behind vaccine research.

But is this vaccine going to be widely available by 1Q 2021? "errr..."

The next article we will talk about stockpiling and hopefully (if time permits), delve into the FY2021 numbers for MED.

The content of this post has been prepared by and belongs to pickinggoldenapples.blogspot.com and its author. The contents of this post is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. pickinggoldenapples.blogspot.com and its author is not under any obligation to update this post in the event of a material change to the information contained in this post. pickinggoldenapples.blogspot.com and its author is under no obligation to check or ensure that contents of this post remain current, reliable or relevant and ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information. pickinggoldenapples.blogspot.com and its author shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. pickinggoldenapples.blogspot.com and its author disclaim all responsibility and liability for the views and opinions set out in this report.