Tencent Music Entertainment Group [NYSE: TME] - Worth More Than the Name Suggests?

(Credit: Tencent Music Entertainment Group [NYSE: TME] - Worth More Than the Name Suggests?) Tencent Music Entertainment Group [NYSE: TME] - Worth More Than the Name Suggests?
April 27
3:17 PM 2021

A liquidity crisis centering on fund manager Archegos Capital's Bill Hwang, formerly of the troubled Tiger Asia, has triggered a Tencent Music Entertainment Group ('TME') stock-price short-term crash and a possible feeding frenzy for savvy investors. 

TME, founded in 2012, maintains a number of online music entertainment platforms within China, providing social and interactive music streaming and online karaoke services and a broad range of audio content. TME has also partnered with the Auto industry in order to embed music services within a range of cars and other vehicles.  

Family Office Achegos was heavily exposed, Reuters reports, in ViacomCBS whose stock fell 9% on 23 March 2021. When further collateral was unavailable to meet the US banks' calls, a liquidating frenzy was triggered on Hwang's various equity stock positions including TME. Starting with Goldman Sachs, Banks started selling billions of securities that were backing Archegos's positions. Morgan Stanley and Deutsche Bank followed suit with Credit Suisse and Nomura abandoning the ship shortly afterwards. TME lost up to one-third of its value over the material period. Stocks in ViacomCBS, Baidu Inc and others were caught up in selling.

To get a further insight on this and whether or not this is a big opportunity play for traders I caught up with Yahoo Finances Top Trader To Follow in 2020. Samuel Leach from Samuel and Co Trading. 

Samuel goes onto explain, that he has looked in-depth at a number of key indicators and investing in TME more broadly, and have confidence that it is a stock to monitor closely as the situation develops. 

He has bought TME for the following reasons: 

  1. With share prices currently down at $17.80, but with a fair value up near $21 the company is currently c.16% undervalued, passing the Buffet test safely;

  2. Fundamentally, TME's stock price has been affected by external factors, and does not reflect the merits of the business and by extension, the stock's true value; 

  3. TME's has announced a $1 billion share buyback, its biggest in its history, to take place over the course of the next 12 months. The Company's board chairman is quoted as saying that this reflects the confidence in its outlook and long-term strategy;

  4. 15 current 'buy' analyst ratings and 7 'hold', the Wall Street Journal reports;

  5. Both its short-term and long-term reported liabilities are well exceeded by its short-term assets boding well for continued satisfactory debt and interest coverage.

Despite a rumoured US Securities and Exchange Commission clampdown on foreign firms in relation to auditing practices, reflecting on these factors, TME appears to have been caught up in a storm far from its own making. The considerations set out above indicate that TME is a buy for me, at least for the time being. 

I wanted to explore this further so I spoke with a leading FX broker called FXChoice and their analyst team. They kindly reviewed Tencent Music Entertainment Group from a technical aspect. Their review of the stock mentioned that they are now trading above the support level of the $18 range and the support level is holding the price impressively. Price has rejected this level rather strongly over the past few weeks. We have also seen the first bullish candle on the weekly charts form which we have not had for five weeks. 

The MACD, a lagging indicator, is still bearish. Whilst the RSI is a forward looking indicators indicates the fall has lost its power. We see that price action is in a correction phase and the uptrend that started a year ago is about to potentially resume.

This information does not constitute advice or a personal recommendation and you should seek advice concerning suitability from your investment adviser. As with any investment your capital is at risk. Past performance is not an indicator of future results.

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