SLF sale does not alter fundamentals

ComfortDelGro’s shares tumbled by 13% today on news of a stake sale by its major shareholder, Singapore Labour Foundation. We believe the market’s knee-jerk selling is overdone and the share price could bounce in the near term.

Nevertheless, we maintain our fundamental Neutral rating, EPS and S$1.94 target price (DCF, 7.3% WACC) as challenging domestic operations and margin compression from higher opex continue to call for caution.

What Happened

ComfortDelGro’s share price skidded 13% today on news that its major shareholder, Singapore Labour Foundation (SLF),trimmed its stake from 12% to 4%.SLF placed out its shares at S$1.94apiece, at the low end of its reported S$1.94-2.03 offer range. The identity of the buyers remainsunknown, but we think they could be long-term investors. Regulatory filings will be made by 28 May, should there be changes to CD’s substantial shareholders.

What We Think

CD’s share price has fallen below its S$1.94 placement price. We think the pullback is overdone and the shares may rebound in the near term, in view of :1) CD’s unchanged fundamentals with defensive earnings; 2)3% dividend yield support; and 3) the absence of dilution from the placement, which involves only vendor shares. While the reasons for SLF’s divestment are unknown, we understand that its ownership of CD’s shares was legacy-related. SLF has, over the years, been paring down its stake in CD, to 4% today.

What You Should Do

Further deterioration in CD’s share price could present opportunities to accumulate. We would turn buyers at S$1.82 or 14x CY14 P/E, its 5-year mean.

SLF sale does not alter fundamentals

ComfortDelGro’s shares tumbled by 13% today on news of a stake sale by its major shareholder, Singapore Labour Foundation. We believe the market’s knee-jerk selling is overdone and the share price could bounce in the near term.

Nevertheless, we maintain our fundamental Neutral rating, EPS and S$1.94 target price (DCF, 7.3% WACC) as challenging domestic operations and margin compression from higher opex continue to call for caution.

What Happened

ComfortDelGro’s share price skidded 13% today on news that its major shareholder, Singapore Labour Foundation (SLF),trimmed its stake from 12% to 4%.SLF placed out its shares at S$1.94apiece, at the low end of its reported S$1.94-2.03 offer range. The identity of the buyers remainsunknown, but we think they could be long-term investors. Regulatory filings will be made by 28 May, should there be changes to CD’s substantial shareholders.

What We Think

CD’s share price has fallen below its S$1.94 placement price. We think the pullback is overdone and the shares may rebound in the near term, in view of :1) CD’s unchanged fundamentals with defensive earnings; 2)3% dividend yield support; and 3) the absence of dilution from the placement, which involves only vendor shares. While the reasons for SLF’s divestment are unknown, we understand that its ownership of CD’s shares was legacy-related. SLF has, over the years, been paring down its stake in CD, to 4% today.

What You Should Do

Further deterioration in CD’s share price could present opportunities to accumulate. We would turn buyers at S$1.82 or 14x CY14 P/E, its 5-year mean.

Aussie Bus Buy Value Accretive

ComfortDelGro (CD) announced that it is buying Driver Group’s Melbourne bus business for AUD22m (SGD27m). The acquisition’s estimated EV/EBITDA is 5.8x while CD is currently trading at 6.5x FY13 EV/EBITDA. As we are positive on the acquisition, we raise our FY13/14 earnings forecasts by 0.6%/1.1%. Maintain BUY, with a higher SGD2.25 TP (vs SGD2.20 previously), based on DCF (WACC: 9.0%; TGR: 2.5%).

A value accretive acquisition. We think the acquisition offers good value to CD as the purchase was done at 5.8x EV/EBITDA, lower than CD’s FY13 EV/EBITDA of 6.5x. We note that CD’s Australian bus segment commands lucrative EBIT margins of 19% – the highest amongst its bus segments. The EBIT margin for this acquisition is estimated at 22%. CD’s Australia bus unit is also its biggest contributor to bus profits, making up 22% of group operating profit.

Only buying the metropolitan bus routes and fleet. The Driver Group is a family-owned company based in Melbourne. It operates metropolitan bus routes in Melbourne’s eastern suburbs, as well as operates school services, tourist shuttles and charter services. However, CD is only buying the group’s five metropolitan bus routes and its fleet of 42 vehicles. CD is expected to gain some synergy from operating from its existing depots in Oakleigh.

Still positive on group’s overseas businesses. As the rail and bus operators in Singapore continue to face challenges, we are positive on the growth potential of CD’s overseas businesses, which make up 46% of operating profit and fetch higher operating margins of 13.2% (versus 10% for Singapore). Management is targeting for its overseas profit contributions to hit the 50% level.

Stock still offers value. At a FY13 P/E of 16.8x, CD is still more attractive than SMRT’s 25.0x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances its overseas growth prospects. We view this as a distinct advantage given the challenges facing the domestic land transport market.

Aussie Bus Buy Value Accretive

ComfortDelGro (CD) announced that it is buying Driver Group’s Melbourne bus business for AUD22m (SGD27m). The acquisition’s estimated EV/EBITDA is 5.8x while CD is currently trading at 6.5x FY13 EV/EBITDA. As we are positive on the acquisition, we raise our FY13/14 earnings forecasts by 0.6%/1.1%. Maintain BUY, with a higher SGD2.25 TP (vs SGD2.20 previously), based on DCF (WACC: 9.0%; TGR: 2.5%).

A value accretive acquisition. We think the acquisition offers good value to CD as the purchase was done at 5.8x EV/EBITDA, lower than CD’s FY13 EV/EBITDA of 6.5x. We note that CD’s Australian bus segment commands lucrative EBIT margins of 19% – the highest amongst its bus segments. The EBIT margin for this acquisition is estimated at 22%. CD’s Australia bus unit is also its biggest contributor to bus profits, making up 22% of group operating profit.

Only buying the metropolitan bus routes and fleet. The Driver Group is a family-owned company based in Melbourne. It operates metropolitan bus routes in Melbourne’s eastern suburbs, as well as operates school services, tourist shuttles and charter services. However, CD is only buying the group’s five metropolitan bus routes and its fleet of 42 vehicles. CD is expected to gain some synergy from operating from its existing depots in Oakleigh.

Still positive on group’s overseas businesses. As the rail and bus operators in Singapore continue to face challenges, we are positive on the growth potential of CD’s overseas businesses, which make up 46% of operating profit and fetch higher operating margins of 13.2% (versus 10% for Singapore). Management is targeting for its overseas profit contributions to hit the 50% level.

Stock still offers value. At a FY13 P/E of 16.8x, CD is still more attractive than SMRT’s 25.0x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances its overseas growth prospects. We view this as a distinct advantage given the challenges facing the domestic land transport market.