Nera Telecommunication

DMG on 20 Nov 2012

NERA Telecommunications announced yesterday that Northstar Group, a fund that manages US$1.2 billion in committed equity capital dedicated to South-east Asia, has agreed to buy over the group's parent Eltek Asa's 50.05 per cent stake at S$0.49 per share. As a result of the transaction, Northstar will also extend its offer to the rest of Nera's shareholders at the same price. Northstar's offer price is at a 5.8 per cent discount to the last transacted price and amounted to only 8.4 times FY2012 forecast PE and 7.3 times FY2013 forecast PE or 8.2 per cent on dividend yield basis... We recommend investors to reject Northstar and continue to hold on to their shares.

The investment case for Nera: 1) long and established track record, 2) zero borrowings with solid cash hoard and consistent delivery of results, 3) profitable growth and impressive ROE of more than 30 per cent. The counter remains as a top pick in the Singapore technology sector. Reiterate "buy" with target price of S$0.66 based on its five-year historical average of 9.8 times FY2013 PE.

BUY