Monday, 19 October 2015

Singapore Post

OCBC on 16 Oct 2015

Singapore Post (SingPost) announced that it is acquiring 96.3% of TradeGlobal Holdings, Inc from TradeGlobal Parent LLC, which is owned by the private equity firm, Bregal Sagemount for US$168.6m (~S$236m). TradeGlobal is a provider of integrated e-Commerce enablement solutions, including fulfillment, customer care, logistics, web development, software and marketing services for the fashion retail industry; it is currently profitable on the EBITDA level. This move will boost SingPost’s eCommerce reach and capabilities, but time will be needed to see how fast and successful the integration will be to enjoy the benefits of its expanded e-Commerce operations. We currently have a BUY rating with S$2.19 fair value estimate on SingPost.

Acquiring 96.3% of TradeGlobal for S$236m
Yesterday, Singapore Post (SingPost) announced that it is acquiring 96.3% of TradeGlobal Holdings, Inc from TradeGlobal Parent LLC, which is owned by the private equity firm, Bregal Sagemount for US$168.6m (~S$236m). This will be funded by cash; as at end 1QFY16, SingPost was in a net cash position of S$329m.

Acquisition target and the deal
TradeGlobal is a provider of integrated eCommerce enablement solutions, including fulfillment, customer care, logistics, web development, software and marketing services for the fashion retail industry. It is valued for its customer networks, technology and other intangibles – a significant amount of the consideration will go towards the acquisition of intangible assets, as SingPost’s NTA (as at 31 Mar 2015) would drop from S$1,164.8m to S$946.3m after the transaction, based on a proforma analysis. NTA/share would drop from S$0.54 to S$0.44. According to SingPost, TradeGlobal is profitable on an EBITDA level and is generating positive cash flows. Valuation of the deal was in line with industry, based on EBITDA.

Taking a “one world” approach in e-Commerce
SingPost expects its e-Commerce revenue to increase significantly post the transaction; it is currently about 28% of the group’s revenue. SingPost’s clients can expand their businesses into the US, and TradeGlobal’s clients will have access to the e-Commerce landscape in Asia Pacific. Clients can also leverage on integrated technology and fulfillment capabilities, creating a one-stop global solution. 

Time needed to integrate e-Commerce capabilities
Given the insufficient details on hand, we believe that any synergies from this deal will likely be longer term in nature although it will complement its existing operations in the e-commerce area, especially to widen its customer networks, technology and fulfillment capabilities. However, time will be needed to see how fast and successful the integration will be to enjoy the benefits of its expanded e-Commerce operations. We currently have a BUY rating with S$2.19 fair value estimate on SingPost.

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