ComfortDelgro

ComfortDelgro: 21 May: On a buying spree in the quest for overseas expansion Fresh after its London bus acquisition, the transport group again announced that its 51%-owned subsidiary CDC Victoria will acquire family-owned Australian bus operator Driver Group (DG) for A$22m. DG operates five metropolitan bus routes under a long-term contract with the Victorian government in the eastern suburbs of Melbourne using its fleet of 42 vehicles. Excluded from the transaction are the school services, tourist shuttles and charter services currently operated by DG. The latest acquisition will increase ComfortDelgro’s fleet in Victoria from 378 to 420 buses. The deal is expected to be value accretive, attractively priced at a historical EV/EBITDA multiple of ~6x, within the range of its previous purchases in Australia - Deans Bus Lines and Transborder Express were acquired in Aug 12 for A$53m or 6.8x multiple, and lower than ComfortDelgro’s 2012 EV/EBITDA of 6.8x. Based on historical earnings, DG is also estimated to enhance the group’s net profit by at least $1m or 0.5% of FY14 earnings. Within the land transport sector in Singapore, most brokers hold a more favourable view of ComfortDelgro over SMRT, given its overseas growth angle and exposure (46% of group operating profit), as well as its relatively cheaper valuation. At $2.09, ComfortDelgro trades at 17.3x historical P/E as compared to SMRT’s 26.3x. 23 May: Sell-off may present good entry point The counter saw a huge sell-off earlier this morning, declining as much as 13.5% to $1.885 at one point. The share price slump was triggered by newswire reports that a long-term shareholder Singapore Labour Foundation (SLF) has sold 170m shares (8.1% stake) at $1.94 or 11% discount from yesterday's closing price of $2.18. The sale was effected on 22 May through UBS as the sole bookrunner and wil reduce SLF’s holdings to 3.9% from 12% previously. The deal reportedly attracted over 50 investors and was comfortably covered with a good balance of long-only accounts and hedge funds, and was fully covered by Asia-based investors, complemented by orders from US. ComfortDelgro's share price has had a strong run this year, up 22.5% against the 14.8% slide by peer SMRT. Among the two land transport firms, brokers hold a more favourable view towards ComfortDelgro over SMRT, given the former’s overseas-driven growth plans. Bloomberg consensus estimates has ComfortDelgro's 12-mth TP at $2.03 (5.5% upside from current $1.925) versus SMRT's 12-mth TP of $1.18 (17.5% downside from current $1.43).