Friday, September 23, 2011

Comfort Delgro

Comfort Delgro: the 51/49 ComfortDelgro Cabcharge (CDC) JV in Australia, has reportedly indicated interest in Grenda Corp’s bus business, and has apparently suggested a potential purchase price range of A$300-500m. The idea was mooted by Cabcharge, and Comfort has not made any related announcement.

As background, Grenda operates route-bus services predominantly in the Southeastern regions of Melbourne and accounts for ~25% of Melbourne's public transport system. The co has a fleet of > 650 buses which operate under contract from the State govt and are focused within the metropolitan areas (vs mix of metropolitan and regional contracts operated by CDC's existing Melbourne bus operations). Notably, Grenda's contracts operate on a similar cost-plus model to CDC's existing bus business.

Deutsche notes, the potential Grenda acquisition could almost triple CDC's existing bus fleet in Melbourne with positive scale and efficiency implications. Views Comfort’s interest in developing the Australia bus operations positively, given the potential synergies.

The Australia bus business currently accounts for 13% of Comfort's revenues and 18% of Group operating profits. 1H11 revenues from this segment grew 19% YoY (or 13% YoY excluding FX impact).

The stock trade at 12x FY11E P/E, offers 4.3% FY11E yield.
Deutsche has a Buy rating with TP $1.70.

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