Homepage
PR Newswire
(16-08-2013, 10:54 AM)Thriftville Wrote: Hi dzwm87, hope to hear your views divesting of CSE UK?
Hi Thriftville,
Not much details have been disclosed in the announcement but some of my thoughts:
1. CSE is already a small to mid cap company, which means CSE UK will be a very small spin-off. At 33% annualized 2013 earnings, CSE UK is only a US$13mln earnings company. Assuming they are selling off at 10x earnings and 10% of proceeds (arbitrary) goes as listing expenses, then net proceeds should be at least US$116mln or around S$0.29/share. I presume they will sell the subsidiary at above current P/E valuations of 8x else there is really no monetizing value at all.
2. My concern is CSE will be divesting 100% of the unit. How will this work? Is this a management buyout from CSE UK? The full divestment won't work well for the listing. Even when CSE spun out back in the 90s, Sing Tech still holds a stake in the company.
3. Minority investors' interests are at the discretion of management's decision. We don't know how much they will pay out as a special dividend. So far, markets are not expecting much - maybe around S$0.04?
4. At the very least, management is streamlining their business. UK division has always been centered in its healthcare segment [Oceano and Rio] but healthcare accounts for only 6% of revenue in 2012, so the rest should comes from their automation segment. Also, how will management use the cash? Acquire other businesses?? With reference to starbugs' comment, CSE has always been making acquisition over the past many years. I guess they have reached a point where diseconomies of scale is setting in and we are seeing issues such as the Middle East cost overruns. Recent acquisitions this FY have not been associate with its UK business, so I doubt they are ramping up their subsidiary to prepare for the listing. In any case, it's more of the opposite - focusing on their other core business.
5. Of course, the final question is whether CSE still holds value. I believe there is in a market which is currently so expensive. Where do you find something that is 8x historic P/E and generates such decent cash flow? Recovery has been MUCH slower than expected and investors are now skeptical which I believe this has been priced in. Unless something drastic happens, I think the downside risk is rather limited. That being said, it's also not that rosy for CSE. It is after all a black box [who really understand their business?] and earnings visibility is rather poor with its order driven nature.
"Criticism is the fertilizer of learning." - Sir John Templeton
