INNOVALUES LIMITED
591.SI
Innovalues Ltd - Take the full cash offer
- We deem 9M16 core EPS in line at 71% of our full-year forecast, as we expect a stronger 4Q16F.
- 3Q16 results were impressive, in our view, with both sales growth (up 11.5% yoy, 4.4% qoq) and gross margin expansion (+1.3% pts qoq, +4.5% pts yoy) to 32.9%.
- After trading halt, announcement on proposed acquisition by Northstar (PE firm) and Precision Solutions Partners, valuing Innovalues at S$331.4m (13.3x FY16F P/E).
- We downgrade to Hold and think shareholders should take offer for: a) S$1.01/share in cash, not b) S$0.61 in cash and one HoldCo share (issue price: S$0.40).
Proposed takeover by private equity (PE) fund at S$1.01/share
- Innovalues announced a proposed acquisition by Precision Solutions Group (“HoldCo” and “Offeror”), a SPV and indirect wholly-owned subsidiary of Northstar Equity Partners, at an offer price of S$1.01 per share. This implies valuation of 14.2x FY15 P/E/13.3x FY16F P/E, and FY15/16F EV/EBITDA of 9.0x/8.1x.
- Past transactions have fetched P/E multiples of 12-16x and 4.8-10.8x EV/EBITDA, while companies with good customer base, regional footprint and operating leverage may command a premium.
Offer price at 30.5% premium over 12-month VWAP up to 6 Apr 16
- The Share Scheme price of S$1.01/share is not only close to our DCF-based target price of S$1.03 (WACC:12.9%), but also represents a 30.5% premium over the twelvemonth volume weighted average price (VWAP) up to 6 Apr 16, the date Innovalues first announced a possible transaction, and 18.1% premium over the closing price on 30 Sep 16 (most recent update announcement).
- We downgrade the stock from Add to Hold due to limited upside, and recommend that investors take up the offer which we view as fair.
Conditions of the scheme
- The Share Scheme requires approvals from majority of Innovalues shareholders, representing not less than 75%, and has received irrevocable undertaking from key management amounting to approximately 39% of total shares. Innovalues CEO and Executive Director will reinvest c.23.9% and 1.6%, respectively, in the new HoldCo, and continue rendering their services. Once the share scheme becomes effective and binding, Innovalues will delist from the SGX.
Prefer the cash option for clean exit
- The scheme consideration allows shareholders to elect either:
- S$1.01 in cash, or
- S$0.61 in cash and one HoldCo share at an issue price of S$0.40.
- We believe option a) offers investors a clean cash exit opportunity, while option b) may be viable for those who see longer-term potential in Innovalues.
- Should a competing offer arise, the offeror has the right to launch a voluntary conditional cash offer with similar or better terms, and conditional upon acceptance level of just over 50%.
3Q16 results in line; with topline growth and margin expansion
- Innovalues reported 9M16 topline of S$88.9m, which comprised 70%/71% of our/Bloomberg consensus full-year forecasts. 3Q16 revenue rose 11.5% yoy and 4.4% qoq, driven by growth in both automotive (AU, 12.0% yoy, 2.9% qoq) and office automation (OA, 9.5% yoy, 9.7% qoq) segments.
- Gross margin also expanded by 1.3% pts qoq to 32.9% in 3Q16 (9M16: 31.9%).
- Excluding FX gains, 9M16 core net profit improved by 14.6% yoy, also in line at 71% of our FY16 forecast.
NGOH Yi Sin
CIMB Research
|
William TNG CFA
CIMB Research
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http://research.itradecimb.com/
2016-10-26
CIMB Research
SGX Stock
Analyst Report
1.03
Same
1.030
