SINGAPORE (Sept 3): CSE Global on Monday announced it was acquiring a 100% stake in industrial power systems manufacturer Volta LLC via wholly-owned subsidiary CSE Americas.
The consideration for the acquisition deal was US$25.1 million ($34.8 million), payable in cash and subject to adjustments for working capital amount. CSE Global will finance the deal using a combination of internal resources and bank borrowings.
Volta is a US company that develops, designs, manufactures, and services custom-engineered electrical equipment centres (EEC) that distribute, control, and monitor the flow of electrical energy, and provide protection to motors, transformers, and other electrically powered equipment.
In an SGX filing on Monday, CSE Global says the acquisition is in line with the group’s long-term plan to expand through acquisition of companies with specialised technologies complementary to its existing businesses and through geographical coverage.
In addition, by combining CSE Global’s engineering, automation and instrumentation and electrical service capabilities with Volta’s capability to design and fabricate large-scale electrical equipment centres, the group says it will have a full-stream offering for the midstream energy and petrochemical industry.
CSE Global says the acquisition of Volta will add $4.1 million to FY2019 profit after tax. In FY2018, the group had recorded a profit after tax of $26.6 million.
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In 1H19, Volta generated a net profit before tax of US$5.9 million. In a CGS-CIMB Research report, analyst Cezzane See says assuming this accounts for 75% of the FY19F’s earnings and assuming a US corporate tax of 25.7%, Volta will have a FY19F annualised net profit to US$5.8 million, implying a “reasonable P/E of 4.3x for the deal”.
Even assuming FY18’s estimated net profit of US$3.6 million -- excluding tax on pretax net profit of US$4.9 million -- the deal would have been valued at a 6.9 times FY18 earnings. As at June 30, Volta had a net book value US$10.5 million.
And while See believes CSE Global’s FY19F debt could increase to $70 million, she still views the acquisition as net profit accretive.
“We are positive on this acquisition as it increases CSE Global’s depth in the onshore oil and gas market and supplements its growth. CSE Global continues to be our preferred small-cap O&G pick. We raise our target price to 68 cents from 60 cents previously, based on an unchanged 13.5x FY20F P/E,” says See.
As at 10.51am, shares in CSE Global are up 1.5 cents at 46 cents on Tuesday.
