ComfortDelgro

ComfortDelgro: Group acquired a London bus business for $109m, comprising of 494 buses and routes operated out of 5 garages (Alperton, Greenford, Hayes, Uxbridge and Willesden Junction)- an area fairly close with Group's wholly-owned Metroline’s existing operations in North/West London. Annual turnover of GBP111m (S$211m), This compares with ComfortDelgro’s $564m FY12 UK bus revenues. EBIT margin of 8%, slightly higher than Group's current UK bus operations of 7.8%. Acquisition is priced attractive at a historical EV/EBITDA of 5.2x, but lower than UK competitor Go-ahead's FY13e ex-rail EV/EBITDA multiple of 6.8x. DB view the acquisition as moderately positive for ComfortDelgro over the near-term. Operationally, this will increase ComfortDelgro’s London bus fleet size to 1,700 (from 1,200), and raise its share of the London bus market to 19% (from 12.5%) and lift its market positioning to #2 (from #4). Within the ComfortDelgro Group, UK bus (16% of Group revenues, 11% of Group operating profits) is more profitable than Singapore bus and operates under a fairly low-risk costplus model. The acquisition will be funded by a mix of borrowing and cash at the Metroline level, though the mix is not certain at the moment. Even if fully funded by cash, the acquisition will only utilise 16% of the group’s cash hoard as at end-FY12, while the group continues to generate free cash flow in excess of $200m. Nomura has a BUY, with TP of $2.13; DB has a BUY, with TP of $2.13;