Analysts from CGS-CIMB Research, DBS Group Research, OCBC Investment Research (OIR) and UOB Kay Hian are positive on the proposed privatisation deal of Singapore Press Holdings (SPH) by Keppel Corporation.
See: Keppel Corp makes $2.2 bil offer to acquire SPH's non-media portfolio; SPH valued at $3.4 bil
Under the terms of the offer scheme, SPH shareholders will receive a total consideration of $2.099 per share, which comprises cash of 66.8 cents per share, 0.596 Keppel REIT units valued at 71.5 cents per SPH share, as well as a distribution in specie (DIS) of 78.2 units in SPH REIT valued at 71.6 cents per SPH share.
See also: Is a merger between Keppel REIT and SPH REIT on the cards? DBS seems to think so
The consideration will not be reduced by any potential cash dividend declared by SPH for the FY2021.
To the analysts, the deal of $2.099 per share, which is valued at 1 times price-to-net asset value (P/NAV) for SPH, seems fair at a 39.9% premium to SPH’s last traded price of $1.50 prior to the announcement of the media company’s strategic review. It is also 11.6% above SPH’s last-traded price of $1.88 before the joint announcement.
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The valuation excludes the DIS of 45.4% of units in SPH REIT.
To CGS-CIMB analyst Eing Kar Mei, the deal is also close to her post-restructuring fair value deal of $2.03.
“The deal appears fair when compared to the mean of 0.6 times P/NAV of listed developer and landlord peers in
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Singapore, hence the implied significant premium,” she writes in an Aug 2 report. “We also note other benefits including a transaction structure that provides deal certainty with low regulatory approval risk.”
The deal also provides shareholders with an opportunity to take part in the “recovery of the retail and commercial sectors” at attractive dividends of 4% to 5%.
To this end, Eing has kept her “add” call on SPH with an unchanged sum-of-the-parts (SOTP) target price of $2.19. Her earnings per share (EPS) estimates are also maintained for the FY2021 to FY2023, pending the completion of the transaction.
DBS’s research team has recommended SPH shareholders to accept the “attractive privatisation offer” from Keppel Corp at a 1.0 times price-to-book (P/B).
“[The offer] will give shareholders an opportunity to monetise stakes in the non-media business post the sell-off of SPH’s media business,” writes the team in an Aug 3 report.
“The offer grants unitholders a chance to trade up for stakes in SPH REIT and Keppel REIT, both of which are supported by growing yields of 2-4% y-o-y going into FY2022,” it adds.
The DBS team has kept “hold” on SPH with an unchanged target price of $2.10.
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The OCBC research team has, similarly, kept “hold” on SPH with a fair value estimate of $1.92.
Unsurprisingly, the deal “looks fair” to the team in terms of providing a balanced outcome for value unlocking for SPH shareholders.
The deal, according to the team, also avoids a situation where prime assets may be “cherry-picked”.
UOB Kay Hian analyst Lucas Teng has also urged investors to accept the offer, "which appears to be fair", barring a superior offer from SPH as a whole.
According to Teng, the offer price of $2.099 per share stands at some 5% above his previous target price of $2.
That said, he thinks "[the] valuation could be slightly higher, but not by much".
Similar to the OCBC team, Teng is positive on the full privatisation offer as it prevents SPH's assets from being cherry-picked.
To him, the most appealing part of SPH's portfolio is its student accommodation assets.
"Peers in the UK, such as GCP Student Living and Unite Group currently trade at approximately 1.2-1.3 times P/B. The asset type is increasingly sought after given its resilience to Covid-19 effects from a rising domestic student population," he writes in an Aug 3 report.
"Assuming a blue sky scenario, and that we raise the valuation of these assets to 1.2x book value (currently implied value of 1.0x book value, based on cap rate of 5% in our SOTP target price), our target price rises to $2.16/share (assuming ceteris paribus), only slightly (3%) above the offer value of $2.099," he adds.
For now, Teng has pegged a target price estimate of $2.10 on SPH as he lowers his conglomerate discount for the company to 5% from 10% previously.
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An extraordinary general meeting (EGM) will be called around August or September to seek shareholders’ approval for the restructuring of the media business. Another EGM relating to the acquisition proposed by Keppel Corporation will take place in October or November to approve the scheme meeting and distribution in specie of SPH REIT units. The deal is expected to be completed by December, where SPH will eventually be delisted and taken private should the proposed acquisition be successful.
As at 11.42am, shares in SPH are trading 2 cents lower or 1.0% down at $1.90, or 0.9 times P/B, according to OCBC’s estimates.
