SGX

SGX has reached agreement to acquire British maritime data supplier The Baltic Exchange in a bid to expand its revenue stream beyond the sluggish securities trading business.

The £87m ($153m) cash offer comprises £160.41 for each Baltic share, as well as a special dividend of £19.30/share, representing a steep valuation of 58.3x FY15 P/E and 3.4x P/B for the supplier of key shipping data, including the Baltic Dry Index, which is used to price freight and freight derivatives.

The acquisition will be implemented via a scheme of arrangement and SGX has received irrevocable undertakings from Baltic directors and certain shareholders representing 74% control to vote in favour of the deal.

SGX plans to develop new products and services and enhance Baltic's suite of shipping benchmarks by working more closely with Asian shippers and include their weightage in shipping indices.

Despite its monopoly in Singapore, we do not see any near-term catalysts for SGX given that measures to shore up liquidity and boost trading volumes have so far proven to be ineffective.

While SGX's forward P/E of 22.3x and dividend yield of 3.7% appear relatively cheaper than close peer HKEx (36.5x, 2.7%), the latter's valuation is backed by stronger growth prospects arising from its upcoming Shenzhen-HK stock connect link.

The street has mixed views on SGX, with 7 Buy, 8 Hold and 2 Sell ratings, and a consensus TP of $7.80.