AusGroup

DMG & Partners Research, Sept 25

GAME-changing news. AusGroup announced yesterday that it is moving ahead with its April-2011 plans to list on the Australian Securities Exchange (ASX). The key change is that instead of dual listing, it now plans to spin off its operating subsidiaries on the ASX and distribute shares in this new Australian-listed (entity) to the current shareholders of AusGroup.

If this plan goes through, AusGroup shareholders stand to gain as the industry average forward P/E on the ASX is 10x versus AusGroup's 5.4x. This represents a clear near-term catalyst.

If the deal is blocked by SGX, AusGroup will still be worth $0.755, based on 9x FY13F EPS. It will definitely have benefited from the increased market attention as a result of this action, which should help the stock re-rate on its successful operational turnaround and strong earnings growth profile.

The intrinsic value of this business will not be affected. All operations will continue whether or not this plan goes through. As such, our valuation of $0.755 remains unchanged, and we maintain our "buy" call.

BUY