Silchester International Investors, already a substantial shareholder of ComfortDelGro C52 Corp, continued to raise its stake with more acquisitions. On Dec 1, the fund manager acquired four million shares on the open market at or about $1.29 each or $5.16 million in total. This brings Silchester’s stake in ComfortDelGro to nearly 133 million shares or 6.14%, up from 5.96% previously.
New York-based Silchester, which was formed in 1994, first emerged as a substantial shareholder of ComfortDelGro on Nov 7 after it bought just over 1.5 million shares at about $1.34 each. The acquisition increased its stake to 5.026% from 4.955% earlier.
As the asset manager describes on its website, Silchester focuses on “maximising intrinsic value” measured via the earnings, assets and dividends of the companies it invests in. “We implement this by a strong price discipline — lower multiples of earnings, assets and dividends means more earnings, assets and dividends at the outset — and by a quality appraisal which seeks to identify companies capable of increasing earnings, assets and dividends by their own efforts,” says Silchester.
The acquisition by Silchester came just a week before ComfortDelGro announced on Dec 6 a higher fare structure to help drivers cope with higher costs including the impending Goods and Services Tax starting in the new year. The last fare revision was made just last March. In its note on Dec 7, DBS Group Research, which is keeping its “buy” call and $1.67 target price on the stock, estimates that ComfortDelGro will enjoy an additional $3 million in commission with the new fare structure.
Demand for taxis is not likely to be affected. “With overall point-to-point market being driver constrained, we expect demand for taxis to remain strong,” says DBS, which is expecting other smaller taxi fleet operators to follow suit.
See also: UHUY HEHE 123 DBS CEO sells more shares, pockets proceeds of $13.8 million thus far this month
In any case, before the fare structure adjustment, the company has been enjoying a recovery in its earnings.
Another fund management firm, Ameriprise Financial, trimmed its stake in ComfortDelGro. On Nov 14, it sold 862,4000 shares on the open market at $1.32 each. It now holds nearly 107.9 million shares or 4.982%, down from 5.021% earlier. As its stake has dropped below the 5% mark, there is no further obligation to disclose additional selling, if any.
In its 3QFY2023 ended September business update on Nov 14, ComfortDelGro reported a 3.8% y-o-y increase in revenue to $996.6 million. Earnings jumped 54.5% y-o-y to $49.9 million. This brings its 9MFY2023 earnings to $128.4 million, up 9.6% y-o-y, excluding a one-off gain of $30.5 million from the sale of a property in the UK.
See also: Chairman and CEO Kuok raises stake in Wilmar International following softer 1Q
According to ComfortDelGro, it was able to collect higher fares for running buses in the UK, which had earlier suffered from higher costs without an immediate corresponding increase in contractual revenue it could collect from the UK authorities. This helped the company report an operating profit of $6.1 million for 3QFY2023 after four straight quarters of losses.
Meanwhile, demand for taxi and private hire rides in Singapore “remains high” although competition has been increasing. The introduction of a “platform fee” to be paid by users booking rides on its Zig app since July helped lift the bottom line too. As at Sept 30, ComfortDelGro’s cash balance stood at $849.9 million, which helped contribute to its net asset value per share of 116.8 cents, versus 118.8 cents recorded in December 2022.
Analysts from DBS Group Research are bullish on the stock. Besides the better-than-expected 3QFY2023 numbers, they see further upside with several developments in the company’s favour, prompting them to raise their target price from $1.65 to $1.67. The platform fee for the Zig app, for one, is seen to add between $12 million and $15 million per year to the company’s bottom line since it was introduced in July.
Separately, with public transport operators given the go ahead to raise fares by 7% amid increasing ridership, there should be both top and bottom line uplift for the company. “The sequential improvement seen in 3Q23 and for the past two quarters should lend confidence to the recovery trajectory of the group, and that the worst has passed,” state analysts Andy Sim and Chee Zheng Feng in their Nov 15 note.
“With expected earnings recovery in the coming FY2024, valuations at 1.1x P/B and 13.4x P/E look undemanding, along with its strong balance sheet,” they add.
