ComfortDelGro’s acquisition of a portion of FirstGroup plc’s London bus business for approximately S$109m will increase its London bus fleet significantly by 494 to 1,700, and bring its market position to joint-second alongside Arriva London with a market share of around 19% (previously 12%). In addition, its UK bus revenue and operating profit should increase by ~37% as a result (assuming FY12 figures). With the outlook for ComfortDelgro’s overseas ventures in FY13 remaining positive, our focus shifts domestically where we expect a fare increase to materialise by mid-2Q13, which we feel much of the street has already priced in. Pending its upcoming 1Q13 results, we maintain our HOLD rating on ComfortDelgro with an unchanged fair value estimate of S$1.95.
S$109m acquisition announced
ComfortDelGro announced yesterday that its wholly-owned subsidiary, Metroline Limited, will acquire a portion of FirstGroup plc’s London bus business and assets for approximately S$109m, which equates to a valuation of 5.2x EBITDA. Pending the necessary regulatory approval, this deal is expected to be completed by mid-FY13.
Significant boost for London bus operations
We view this deal positively as it will increase ComfortDelgro’s London bus fleet significantly by 494 to 1,700 and bring its market position to joint-second alongside Arriva London with a market share of around 19% (previously 12%). In addition, with an annual turnover of ₤111m (~S$211m) and an operating margin of ~8%, ComfortDelgro’s UK bus revenue and operating profit should increase by ~37% to ~S$775m and ~S$61m respectively on a full-year basis (assuming FY12 figures). Another point to note is that the acquired routes have about four years remaining on their service contract (typical contract life is seven years).
Awaiting domestic developments
Coupled with a full year contribution from Deane’s Bus Lines – acquired in Aug 2012 for S$69.2m (valuation of 6.8x EBITDA) – the outlook for ComfortDelgro’s overseas ventures in FY13 remains positive, and we adjust our projections upwards to account for a half-year contribution from this deal (~S$105m top-line increase). In addition, we expect the SG fare adjustment to materialise by the middle of 2Q13, which should help alleviate pressure on operating margins for the SG bus operations.
Maintain HOLD pending results
Although our top-line projection increases with this acquisition, our fair value estimate remains unchanged at S$1.95. Pending its 1Q13 results release, we maintain our HOLD rating on ComfortDelgro as we feel that the street has already priced in the potential near-term catalyst (i.e. a SG fare increase).
ComfortDelGro announced yesterday that its wholly-owned subsidiary, Metroline Limited, will acquire a portion of FirstGroup plc’s London bus business and assets for approximately S$109m, which equates to a valuation of 5.2x EBITDA. Pending the necessary regulatory approval, this deal is expected to be completed by mid-FY13.
Significant boost for London bus operations
We view this deal positively as it will increase ComfortDelgro’s London bus fleet significantly by 494 to 1,700 and bring its market position to joint-second alongside Arriva London with a market share of around 19% (previously 12%). In addition, with an annual turnover of ₤111m (~S$211m) and an operating margin of ~8%, ComfortDelgro’s UK bus revenue and operating profit should increase by ~37% to ~S$775m and ~S$61m respectively on a full-year basis (assuming FY12 figures). Another point to note is that the acquired routes have about four years remaining on their service contract (typical contract life is seven years).
Awaiting domestic developments
Coupled with a full year contribution from Deane’s Bus Lines – acquired in Aug 2012 for S$69.2m (valuation of 6.8x EBITDA) – the outlook for ComfortDelgro’s overseas ventures in FY13 remains positive, and we adjust our projections upwards to account for a half-year contribution from this deal (~S$105m top-line increase). In addition, we expect the SG fare adjustment to materialise by the middle of 2Q13, which should help alleviate pressure on operating margins for the SG bus operations.
Maintain HOLD pending results
Although our top-line projection increases with this acquisition, our fair value estimate remains unchanged at S$1.95. Pending its 1Q13 results release, we maintain our HOLD rating on ComfortDelgro as we feel that the street has already priced in the potential near-term catalyst (i.e. a SG fare increase).
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