From
DMG,
NeraTel announced this morning that Northstar Group, a fund that manages US$1.2 billion in committed equity capital dedicated to Southeast Asia, has agreed to buy over the group’s parent Eltek Asa’s 50.05% stake at S$0.49/share. As a result of the transaction, Northstar will also extend its offer to the rest of Nera’s shareholders at the same price.
Northstar’s offer price is at a 5.8% discount to the last transacted price and amounted to only 8.4x FY12F P/E and 7.3x FY13F P/E or 8.2% on dividend yield basis.
Key reason for Eltek Asa’s sale is motivated by its stretched financial position and high gearing (gross gearing 102%), rather than any changes in Nera’s strong fundamentals.
Since NeraTel’s incorporation in 1978, the group has cultivated strong branding value, and developed sticky relationships with many reputable Telco providers, especially in the MENA region.
The change in majority ownership to Northstar Group could in fact put Nera on a more stable footing given the former’s track record as an established private equity investor.
We recommend investors to reject Northstar and continue to hold on to their shares. The investment case for Nera:
1) long and established track record,
2) zero borrowings with solid cash hoard and consistent delivery of results
3) profitable growth and impressive ROE of > 30%.
The counter remains as a top pick in the Singapore Tech sector. Reiterate BUY with TP of S$0.66 based on its 5-yr historical average of 9.8x FY13 P/E.
From
Lim & Tan,
- Northstar Group (which manages US$1.2bln in committed equity capital dedicated to Southeast Asia) has made its first foray into the Singapore market having bought Eltek ASA’s controlling 50.05% stake
in Nera Tel at 49 cents a share (representing a 5.77% discount to Nera Tel’s last traded price of 52 cents and 11.71% discount to the all time high of 55.5 cents achieved on 18 Oct ’12).
- As a result, Northstar Group is launching a mandatory unconditional cash offer at 49 cents a share and does not intend to revise the offer price.
- The above offer is another disappointment for minority shareholders (after the failed 45 cents offer from ST Engineering in June ’12) who had chased the stock up to an all time high of 55.5 cents on 18 Oct’12 and in the last 1.5 months, Nera Tel’s share price has been stuck in a range of 51-55 cents.
- While Eltek ASA cannot complain as the latest offer (coming only 5 months after the failed takeover from ST Engineering) is a significant 17.8% higher (49 cents plus the 4 cents interim dividend), we note that the 49 cents offer price values Nera Tel at a trailing PE of only 8.2x.
- This is meaningfully below its historical average range of 10-11x.
- Nera Tel’s usual 4 cents a share in dividend payment (in Feb ’13) means that its yield remains an attractive 8.16% at 49 cents a share.
- We understand that Eltek ASA is facing pressure from its bankers in Europe to reduce its debt obligations and given that Nera Tel is its crown jewel and the most attractive asset in its portfolio that can be sold to immediately reduce its gearing ratio.
- We had upgraded Nera Tel to buy on 19 Oct ’12 in anticipation of its attractive dividend payment of 4 cents in Feb ’13 and believe the above offer is not attractive for minorities and recommend investors to hold on to their shares and not accept Northstar Group’s offer.
