The main reason why ALZ attracts a premium over books is due to the development sites that they have - accounted for in the books at lower of historical and market valuation.
Such landbank can only be progressively developed over time and hence development profits are not reflected in book value.
However, given the longer gestation of developments Down Under, it will take at least 7 - 10 years just to complete a project.
If we have been reading how Australian apartment King Meriton has been building up his landbank, then surely the landbank in ALZ should appeal to any suitors looking for a clean and sizable platform.
FCL is one of them alongside with Stockland. Hence it may be a price to pay in the short term but who knows about the future.
Asian Towkays have good experience of accumulating wealth via real estate over time given ineffective monetary policies over decades, their hedge against long term asset inflation and constantly decling value of money may not be wrong.
GG
why pay over 20% premium over book?
when there are so many property counters selling at book or with a discount?
So far in Australian only CPA has changed hands in recent years. It is a pure Australian office property trust with limited development potential and in addition, office segment outlook hasn't been great.
CPA was sold for 1.106x books. SGP is willing to pay 1.182x books for ALZ. Hence there is already a floor there.
Running a real business is harder than pure equity investments. You are always welcome to source for a comparable target and present it to potential buyers. I m sure you will stand to make huge commission for find such targets.
The liquidity flush world now is facing a shortage of quality assets in well regulated and transparent environment for acquisitions. China of course is excluded and we all know about the problems. Why do you think FCL only decided a big move down under and not in China like Capland?
Good luck with your shorts - FCL is a cornered stock and short sellers may ended up helping future share price performance should potential investors are convincing by the materialisation of deals and FCL emerged as a major index counter. Note that FCL market cap remains firmly ahead of Kepland and UOL even after yesterday's correction is the lack of free float (usually at least 15%) is the main factor that FCL remains a non index stock for the time being.
GG
(05-06-2014, 09:39 AM)ValueMaster Wrote: [ -> ]why pay over 20% premium over book?
when there are so many property counters selling at book or with a discount?
FCL, cimb maintain ADD:
A transformational proposal
We believe FCL’s plan to buy up to 100% of Australand makes strategic sense
but has a slightly negative financial impact. We have yet to factor in the
transaction but estimate it can lead to a 3% reduction in RNAV/TP using 1.1x
RNAV/NTA for ALZ (its historical average P/BV). We believe that is more
than priced-in with FCL’s 4% correction post announcement. We maintain our
Add call and raise our target price (30% disc. to RNAV) slightly for the recent
accretive take-up of FCT private placement. We will revisit our Add call if a
bidding war occurs and FCL significantly overpays for ALZ.
What Happened
FCL announced a non-binding conditional proposal to acquire up to 100% of
Australand’s (ALZ AU, Not Rated) shares via an off-market takeover offer for
cash of A$4.48/share. FCL has an exclusive period of four weeks to conduct
due diligence before finalising a binding Implementation Agreement. FCL’s
share price fell 4% post the announcement.
What We Think
Makes sense strategically. This move is in line with management’s strategy
of building up recurring income and scale in core markets. If 100% of ALZ is
acquired, FCL would more than double its recurring income, and Australia
would form ~40% of its total assets.
Financial impact slight negative. Assuming full debt funding, gearing
could rise significantly from 0.5x at Mar 14 to ~1x and potential equity fund
raising may lead to dilution. Assuming ALZ’s RNAV/NTA is at 1.1x, the
transaction can reduce our RNAV and TP to S$2.88 and S$2.02 respectively,
still 56% and 9% higher than FCL’s current price.
Risk of overpaying more than priced in. The offer price is at 1.2x ALZ’s
NTA, above peer average and its historical P/BV of 1-1.1x. Stockland has an
existing all-scrip offer that values ALZ at A$4.35 and we do not rule out a
counter bid. We however believe the risk of overpaying has already been priced
into FCL’s current valuation, which reflects a scenario where FCL pays
~A$5.50/share for ALZ (assuming a 30% discount to RNAV for FCL).
What You Should Do
Add. We are positive on the move from a strategic angle and believe the
negatives have been priced in. We will revisit our call if a bidding war occurs.
if the deal is successful, gearing will go above 1x
at such high levels of debt, risk is very significant
also rights issue will be a worry
in the end, shareholders will pay the high price
(05-06-2014, 09:12 AM)Art or Science Wrote: [ -> ]Even if Towkay, who has 88% of FCL, wouldn't want to do a bad deal, 25% premium over their book value seems to be a tad high.
Have to research more to find out though.. Didn't expect this roller coaster ride though. Thought it will be just FCL off loading assets into Reits, etc.
Agree. None of us monitoring the stock epected this. Next step we thought would be likely FNN and FCL swap. Might be a timing issue that Stockland bid for Australand forcing towkay's hand to move.
But if this Australand deal goes through, likely there will be a rights issue to squeeze the last drop from ThaiBev first. ThaiBev gearing has been dropping.
I think selling after the news is due to expectation of fund raising and also maybe overpayment for Australand. But I think fund raising should not be a concern as major Thai shareholder own 88% so any fund raising they will have to fork out most. They will have to get the big money to subscribe for the rights, not the 12% public. So the Thais will know what to do.
If there is placement instead it is also good because then maybe a new big shareholder will own a stake in it apart from the Thai guys.
As Fraser grows into a bigger property company with more free float as a result of placement, the bigger funds will want to own the stock too. So this is positive.
Also Capland is known to sell at the wrong time, so Fraser is more likely to be right in buying Australand.
Put it in this way, if someone bought an egg for 30c 6-months ago, I would not happy to fork out 40c for the same type of egg now.
probably the eventual selling of assets into REITS will be used to offset the purchase , it is perhaps better than to keep a huge cash hoard from the proceeds to pay dividends if the company could reinvest the cash into its own business which is likely to generate better returns in the long run. In such a case, Rights would be unlikely if the proceeds are more than enough to cover for the purchase to bring down the gearing in the long run.
(Vested and could very likely be biased)