- Acquires stake in Finzsoft, NZ tech company, at only 6.4x annualised EPS.
- Geographical expansion, earnings upside potential.
- Maintain BUY. DCF-based TP is SGD1.40 (WACC 9.3%, TG 3%).
Silverlake Axis (SAL) has formed a new 51:49 company, Silverlake HGH, with Andrew Holliday, MD of Finzsoft Solutions, a New Zealand-based financial technology company. Silverlake HGH will make a full takeover of Finzsoft (FIN NZ, Not Rated) at NZD3.00 a share or 48.1% discount to Finzsoft’s last closing price of NZD5.78.
Mr Holliday has committed to accepting the offer for his 65.9% stake in Finzsoft. In its press release, SAL highlights potentially strong synergies and the natural alignment of its target customers in the Asia Pacific.
Three positives
Geographical expansion. This deal will allow SAL to expand beyond ASEAN into Australia and New Zealand. Geographical expansion was highlighted as a key plank of its growth thrust in our recent corporate day (note).
Attractive valuations. The offer price implies 6.4x annualised EPS for FY3/15E or a 48.1% discount to Finzsoft’s last price on 17 Dec. Earnings potential. The earnings impact is currently negligible, in our assessment. However, venturing into a new market with a local partner raises possibilities for SAL from cross-selling. SAL’s 51% stake in the new company implies a cash outlay of NZD8.6m (MYR23.0m) for 65.9% acceptance and up to NZD13.1m (MYR35.1m) for 100% acceptance. It can comfortably fund this with its net cash hoard of MYR421m as at end-Sep 2014. Maintain BUY & DCF-based TP of SGD1.40 (WACC 9.3%, TG 3%).
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