SATS – BT
SATS sells UK’s Daniels Group to Hain Frozen Foods for £159m
The sale will allow Daniels Group to achieve its full potential, says SATS
GROUND-HANDLER SATS Ltd has divested UK-based, non-aviation food unit the Daniels Group to Hain Frozen Foods UK for £159 million (S$321.8 million).
In a release to the Singapore Exchange yesterday, SATS said that its wholly-owned subsidiaries Singapore Food Industries (SFI) and Singapore Food Development (SFD) have entered into a share sale and purchase agreement with Hain Frozen Foods UK, a wholly-owned subsidiary of The Hain Celestial Group, for all the issued shares of S Daniels and International Cuisine (collectively the Daniels Group).
The Daniels Group – which manufactures and sells chilled drinks, ready-to-eat meals as well as fresh fruit and pudding – was acquired by SATS in 2009 as part of the latter’s takeover of SFI.
SFI is selling some 167.22 million ordinary shares in S Daniels and 1.28 million ordinary shares in International Cuisine while SFD is selling one ordinary share in S Daniels and 335,006 ordinary shares in International Cuisine.
SATS’ subsidiaries will be paid £151 million (subject to adjustments), plus potential deferred consideration of up to £13 million over the next two years assuming certain Ebitda targets are met by the Daniels Group.
Taking into account the fair value of the deferred consideration, the sale consideration is estimated to amount to £159 million in aggregate, SATS said in the announcement.
Tan Chuan Lye, acting chief executive officer of SATS, said: ‘While SATS has supported the Daniels Group’s growth since 2009 by investing in new production facilities and helping them build trading volumes with new customers, we believe that it made more sense if they were part of another company in the branded products market, who could help them achieve their full potential and growth in this space.’ He added: ‘With the Hain Celestial Group being a leading player in the branded packaged food space in the US, UK and Europe, this is a much better fit for the Daniels Group.’
For the financial year ended March 31, 2011, the Daniels Group earned a revenue of £177.1 million while Ebitda and net profit were £16.3 million and £8.1 million respectively.
According to SATS, the sale proceeds will go towards its capital base, to be used for working capital as well as to drive future growth and create value for its shareholders.
This deal comes weeks after SATS had clarified media reports which said that the group was in advance talks to sell the Daniels Group. At that time, SATS confirmed it was in talks with third parties in connection with the potential sale but also highlighted that there was no certainty of a definitive agreement.
Over the last year or so, SATS has made other investments such as taking up a 40 per cent stake in Saudi-based Adel Abuljadayel Flight Catering Company (AAFC) as well as a 50.7 per cent stake in Japan-based TFK Corporation.
A wholly-owned subsidiary, SATS Investments, has also recently entered into a joint venture with OCS Ventures to provide food and services to companies operating in remote areas – a bid for SATS to grow its non-aviation food business.
‘SATS remains focused on growing and strengthening our gateway services and food solutions businesses,’ Mr Tan said. HSBC acted as financial adviser to SATS in the disposal of the Daniels Group.
SPH – Kim Eng
Interesting insights
Event
• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.
Key Takeaways
• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.
• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.
• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.
• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.
Action & Recommendation
We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).
SPH – Kim Eng
Interesting insights
Event
• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.
Key Takeaways
• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.
• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.
• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.
• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.
Action & Recommendation
We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).
SATS – Phillip
Buy for the attractive yields
•Robust aviation statistics in Singapore
•TFK’s contribution likely to improve sequentially
•Divestment of Daniels Group a positive development
•Upgrade recommendation to Buy with unchanged target price of S$2.73
Robust aviation statistics in Singapore
SATS reported aviation statistics in Singapore that were slightly above our expectations. Passenger related data continued to register robust growth in line with growing traffic at Changi Airport. Unit Meals produced grew at a slower pace than passengers handled at 3.6%y-y. We view this as a reflection of the growing market share of LCC traffic at Changi Airport, which has lower demand for inflight meals than its full service peers. However, volume for Cargo/Mail processed was weak with marginal growth in the quarter.
TFK’s contribution likely to improve sequentially
SATS’s inflight catering subsidiary in Japan, TFK Corp, is likely to report a significant sequential improvement for the quarter. Following the Earthquake in March, flight traffic in Japan had been improving sequentially. As a proxy to the performance for this subsidiary, TFK’s key customer, Japan Airlines (JAL), reported a 36% increase in average monthly international traffic for the first two months of 2QFY12 (July & August) over 1QFY12.
Divestment of Daniels Group?
SATS acknowledged recent speculation on the possible divestment of Daniels Group, but caution that discussions are not definitive and may not lead to an eventual sale. Due to its limited synergy with the rest of the Group, we view a divestment of Daniels Group as a positive development for SATS. However, the price paid by potential acquirers might be low given the weak market conditions and difficult operating environment in the UK. An eventual sale could trigger a special dividend payout for shareholders.
Valuation & Conclusion
We kept our earnings estimates unchanged pending the announcement of its 2QFY12 results, but see upside risk to our forecasts with the better than expected aviation statistics in Singapore and improving traffic conditions in Japan. For the quarter, we expect SATS to report profits of S$35mn on sales of S$505mn. In valuing the stock of SATS, we used a DCF model (WACC: 8.6%; terminal g: 1%) to arrive at our target price of S$2.73. SATS’s share price declined significantly after our downgrade in July 11 and at the current market price, SATS would generate attractive dividend yields of 6% in FY13-14E after its earnings bottom out in FY12E. Hence, we upgrade our recommendation to Buy, expecting total return of 28% over the next 12months.
SATS – Phillip
Buy for the attractive yields
•Robust aviation statistics in Singapore
•TFK’s contribution likely to improve sequentially
•Divestment of Daniels Group a positive development
•Upgrade recommendation to Buy with unchanged target price of S$2.73
Robust aviation statistics in Singapore
SATS reported aviation statistics in Singapore that were slightly above our expectations. Passenger related data continued to register robust growth in line with growing traffic at Changi Airport. Unit Meals produced grew at a slower pace than passengers handled at 3.6%y-y. We view this as a reflection of the growing market share of LCC traffic at Changi Airport, which has lower demand for inflight meals than its full service peers. However, volume for Cargo/Mail processed was weak with marginal growth in the quarter.
TFK’s contribution likely to improve sequentially
SATS’s inflight catering subsidiary in Japan, TFK Corp, is likely to report a significant sequential improvement for the quarter. Following the Earthquake in March, flight traffic in Japan had been improving sequentially. As a proxy to the performance for this subsidiary, TFK’s key customer, Japan Airlines (JAL), reported a 36% increase in average monthly international traffic for the first two months of 2QFY12 (July & August) over 1QFY12.
Divestment of Daniels Group?
SATS acknowledged recent speculation on the possible divestment of Daniels Group, but caution that discussions are not definitive and may not lead to an eventual sale. Due to its limited synergy with the rest of the Group, we view a divestment of Daniels Group as a positive development for SATS. However, the price paid by potential acquirers might be low given the weak market conditions and difficult operating environment in the UK. An eventual sale could trigger a special dividend payout for shareholders.
Valuation & Conclusion
We kept our earnings estimates unchanged pending the announcement of its 2QFY12 results, but see upside risk to our forecasts with the better than expected aviation statistics in Singapore and improving traffic conditions in Japan. For the quarter, we expect SATS to report profits of S$35mn on sales of S$505mn. In valuing the stock of SATS, we used a DCF model (WACC: 8.6%; terminal g: 1%) to arrive at our target price of S$2.73. SATS’s share price declined significantly after our downgrade in July 11 and at the current market price, SATS would generate attractive dividend yields of 6% in FY13-14E after its earnings bottom out in FY12E. Hence, we upgrade our recommendation to Buy, expecting total return of 28% over the next 12months.