A big deal? Singapore Airlines (SIA) announced recently that they are
looking to divest their 49% stake in Virgin Atlantic (VA), an investment
they made for GBP600m some thirteen years ago. While the news itself
wasn’t a big surprise, it was intriguing to see a wide range of offer
prices quoted by news publications, from SGD200m (The Business
Times) to ~USD1.2b (Bloomberg, CNBC). Both quoted Delta as the
alleged interested party. Our take: fair value is likely to be closer to
SGD1b, and this could result in an attractive special dividend.
One man’s meat, another’s poison. SIA’s investment in VA has been undermined by Richard Branson’s unwillingness to accede control of the airline to SIA, as well as the inking of a Singapore-UK agreement allowing SIA to fly the trans-Atlantic route from Britain. This trans- Atlantic route and prized landing slots at London’s Heathrow are exactly what Delta is after: a lucrative market for premium passengers.
Our view on Virgin’s worth: ~SGD1b. We did a simple comparison with International Airlines Group (IAG), parent of British Airways, Iberia and BMI, to make an educated guess on a fair value for VA’s business.
Sale could result in 8% special dividend yield. SIA has a much- vaunted net cash pile of close to SGD4b, which likely means any significant cash proceeds from a VA sale could be distributed to shareholders via a special dividend. SGD1b in cash proceeds would translate to ~SGD0.85 / share, or a potential 8% yield. Fundamentally, our HOLD call on SIA is maintained, still premised on a neutral outlook for the aviation sector. But things could start to look interesting for SIA.
Potential special dividend if cash sale goes through. Our VA valuation suggests an attractive special dividend should a cash sale be sealed. We do list two criteria for investors to watch for: confirmation of the transaction which is in-line or even exceeding our SGD1b estimates, and for the deal to be paid in cash.
One man’s meat, another’s poison. SIA’s investment in VA has been undermined by Richard Branson’s unwillingness to accede control of the airline to SIA, as well as the inking of a Singapore-UK agreement allowing SIA to fly the trans-Atlantic route from Britain. This trans- Atlantic route and prized landing slots at London’s Heathrow are exactly what Delta is after: a lucrative market for premium passengers.
Our view on Virgin’s worth: ~SGD1b. We did a simple comparison with International Airlines Group (IAG), parent of British Airways, Iberia and BMI, to make an educated guess on a fair value for VA’s business.
Sale could result in 8% special dividend yield. SIA has a much- vaunted net cash pile of close to SGD4b, which likely means any significant cash proceeds from a VA sale could be distributed to shareholders via a special dividend. SGD1b in cash proceeds would translate to ~SGD0.85 / share, or a potential 8% yield. Fundamentally, our HOLD call on SIA is maintained, still premised on a neutral outlook for the aviation sector. But things could start to look interesting for SIA.
Potential special dividend if cash sale goes through. Our VA valuation suggests an attractive special dividend should a cash sale be sealed. We do list two criteria for investors to watch for: confirmation of the transaction which is in-line or even exceeding our SGD1b estimates, and for the deal to be paid in cash.
No comments:
Post a Comment