Super Group - CIMB Research 2016-11-03: Receiving a super offer

Super Group - CIMB Research 2016-11-03: Receiving a super offer SUPER GROUP LTD. S10.SI

Super Group - Receiving a super offer

  • Jacobs Douwe Egberts B.V. (JDE) has made a pre-conditional general offer of S$1.30/share in cash. 
  • The offer price represents an attractive 60-63% premium over the 1- and 3-month VWAP. Implied CY17 P/E is 27x. Super’s historical mean is 19.7x (+1 s.d. is 26x).
  • Major shareholders (representing 60% of issued shares) have undertaken to tender all their shares in acceptance of the offer. We recommend minorities take the offer.

Pre-conditions unlikely to be a hurdle

  • The offer is subject to the satisfaction (or waiver by JDE) of: 
    1. anti-monopoly laws in China, 
    2. competition acts in the Philippines, and 
    3. anti-trust authorisations in Singapore. 
    The long-stop date is 3 May 2017.

Background of JDE

  • JDE is a private global coffee and tea company with a presence in over 100 countries. Their brands include: Jacobs, Tassimo, Moccona, Senseo, L’OR, Douwe Egberts, Kenco, Pilao and Gevalia.
  • In terms of global coffee market share, JDE is number 2 and only behind Nestle.
  • JDE has annual revenues of over EUR5bn (more than 15 times that of Super) and number 1 or 2 positions in countries across Europe, Latin America and Australia.

Our view on where the offer valuation stands

  • Consumer peers are trading at 15-20x forward P/E but can easily trade above 20x in good times. In today’s environment of macro headwinds and slowing discretionary spending, we think the implied 27x P/E offer price is an attractive one.
  • Relative to Super’s own historical trading band, the offer is also above its historical mean of 19.7x and above the +1 s.d. level of 26.0x.
  • Overall, we think the offer price is an attractive one, reflecting both Super’s strong presence in the region and JDE’s ambitions to become a true global player.

Our view on the rationale of the acquisition

  • We think the offer comes as part of JDE’s global coffee strategy, especially given JDE’s lack of presence in Southeast Asia. Super is number 1 or 2 in most of its markets and this acquisition immediately expands JDE’s footprint into the growth regions of Southeast Asia.
  • We also note that JDE recently acquired Keurig Green Mountain, America’s number 1 single serve coffee brand, for 26-27x trailing P/E. Super’s acquisition is therefore part of a broader global strategy to consolidate the coffee market.

What you should do

  • Our current target price of S$0.82 is pegged to 17x CY17 P/E (peer average). We have a Hold rating, premised on Super undergoing consecutive quarters of yoy profit declines as it is being hit by weak regional currencies and slowing demand. 
  • We therefore view the conditional offer positively and believe minority shareholders should accept the offer.

Jonathan SEOW CIMB Research | 2016-11-03
CIMB Research SGX Stock Analyst Report ACCEPT OFFER Maintain HOLD 0.82 Same 0.82