ComfortDelgro (CD): CD has announced the incorporation of Metroline Rail Limited for GBP1 to seek rail business opportunities in UK. CD is in the concessionaire shortlist to run the London Overground for a contractual term of 7.5 years with a possible 2-year extension.
Given that 1) number of stations would increase by 34% in mid-2015, 2) transport for London’s recent 4-car to 5-car conversion (25% capacity increase), potential earnings for new operator could reach GBP12m/annum, which results in earnings accretive in 2017 by 5% if CD wins bid.
CD is looking to invest, with focus on countries such as Australia and UK with potentially attractive ROIs (assuming that the London Overground is run on an asset-light basis).
Thus, Deutsche believes management would be pressed to find a good investment soon or return cash to investors through higher dividends. The house has reiterated its BUY rating with TP: $3.48.
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