Frasers Property (formerly: Frasers Cpt (FCL))

[greengiraffe]

FCL, CLSA maintain BUY:

Frasers Centrepoint has made a $4.48/sh cash offer for Australand,
representing a 21.7% premium to ALZ’s NTA. The bid tops Stockland’s,
but we caution they may counter. FCL’s objective is to increase recurring
income to ~50% of earnings from 30-40% and we note the group’s
strong track record in Australia. Should the deal complete, gearing is
likely to rise to 80% and we caution investors on the possibility of an
equity raising. FCL is trading at a 43% discount to RNAV. Maintain Buy.
The deal
Frasers Centrepoint has made a $4.48 cash offer each Australand (ALZ AU -
A$4.55 - O-PF) shares (plus the 1H14 distribution), outbidding Stockland’s
(SGP AU - A$4.01 - O-PF) bid which equates to $4.43 per share with up to
12.4% in cash. FCL’s offer represents a 21.7% premium to ALZ’s NTA of
A$3.68 and Frasers has agreed to pursue this with a minimum acceptance of
50.1%. The current proposal is not yet a done deal as Stockland still may
counter bid.
No stranger to Australia
Frasers has a good track record in Australia with its recently-completed
Central Park development and Lumiere apartments in the Sydney CBD. FCL’s
objective is to increase its recurring income to ~50% of earnings from the
current of 30-40%. The commercial portfolio of ALZ is synergistic from this
point and ALZ’s residential landbank can provide FCL with a residential
pipeline in Australia.
Equity raising possible
The offer values ALZ at S$3.0bn and would push FCL’s gearing to 80%, which
is likely to be the highest management would allow. However, we wouldn’t
discount the likelihood of an equity raising either which could dilute major
shareholder’s ThaiBev and TCC which currently hold 28% and 60%
respectively. ALZ’s lower gearing of 27.7% would also average down FCL’s
gearing if the offer is successful in our view.
Valuations still compelling
We like FCL for its high presales of S$2.8bn in unrecognized revenue and a
low landbank (0.9mil sqf) relative to peers making it less sensitive to
residential price decline in Singapore. The Reit listing, high pre-sale,
undervalued retail portfolio and 4% dividend yield support are key positives.
FCL’s valuation is reasonable, trading on 43% discount to RNAV. We have a
BUY on FCL with TP of $2.20.