Super Group - DBS Research 2016-11-03: Jacobs Douwe Egberts B.V. offers to buyout Super Group

Super Group - DBS Vickers 2016-11-03: Jacobs Douwe Egberts B.V. offers to buyout Super Group SUPER GROUP LTD. S10.SI

Super Group - Jacobs Douwe Egberts B.V. offers to buyout Super Group

  • Jacobs Douwe Egberts B.V. makes offer to buyout Super Group at S$1.30 per share.
  • Key shareholders with a total stake of 60% have given irrevocable undertaking to accept the offer.
  • Offer pre-conditional upon clearance of various anti-trust/monopoly regulations.
  • At S$1.30, Super Group’s valuations rich at 30x FY17F PE; accept the offer at S$1.30.

What’s New 

Takeover offer at S$1.30 per share. 

  • Super Group announced this morning it has received an offer by global coffee and tea company Jacobs Douwe Egberts B.V. (JDE) for all its shares at S$1.30. 
  • The offer values Super Group at 30x FY17F PE based on our earnings estimates and is 34% higher than the previous closing price. 
  • Key shareholders of Super Group including founders Teo and Te family as well as Sam Goi, Yeo Hiap Seng and Tee Yih Jia Food (which collectively own 60% of the shares) have given their irrevocable undertaking to accept the offer.
  •  JDE intends to take the company private and will delist Super Group upon successful takeover.

About Jacobs Douwe Egberts B.V. 

  • JDE is a privately held Dutch-based company majority owned by Acorn Holdings B.V. and Mondelēz International Inc. as a minority shareholder. It operates coffee and tea businesses globally in more than 100 countries through brands including Jacobs, Tassimo, Moccona, Senseo, L’OR, Douwe Egberts, Kenco, Pilao, and Gevalia.

Our View 

Rich valuation of 30x PE, not expecting offer price to be revised. 

  • This event is a surprise to us given our view that the founding shareholders have not shown prior indications of selling out. 
  • In fact, they had been on the look-out for acquisition targets to leverage on its balance sheet with a view to grow its business further. However, the challenging operating environment together with the rich valuation offered of 30x PE may have been the driving factors for the current shareholders to exit. 
  • In our earnings forecast, we were expecting flat earnings for FY16F and FY17F and only 7% growth for FY18F. 
  • The earnings outlook for Super Group is challenging and recent results were lacklustre.

Outlook is weak led by muted regional consumer sentiment, competition, weak demand and pricing.

  • JDE could be looking to consolidate Super Group’s Asian presence into its overall operations. 
  • In addition, Super Group is one of the few coffee companies (apart from Maxwell House and Nescafe in this region at least) to have meaningful upstream ingredient manufacturing capacity/business, which could be attractive for JDE. 
  • We do not expect the offer price to be raised given that the valuation of 30x PE is rich compared to the regional F&B peer average of 22x on next year’s earnings. 
  • In addition, the irrevocable undertaking by the key shareholders does not allow them to terminate their obligation even if there is competing offer at a higher offer price. Therefore, the chances of obtaining a higher offer price are slim.

Offer conditional upon anti-trust/monopoly regulatory clearance. 

  • The offer is pre-conditional at this moment and is subject to clearance by anti-trust/monopoly regulators in various jurisdictions including China and Philippines. 
  • We do not think this is a major stumbling block given that the coffee market is big enough regionally with many subsegments in ground coffee, instant coffee etc. 
  • Besides, this is not a merger between Super Group and Nescafe, who are the two major coffee players in the region that could be concern for monopoly issues. The stock price could move towards the offer price of S$1.30 as these clearances are obtained. 
  • Long stop date for the pre-conditions to be satisfied is 3 May 2017.

Accept the offer. 

  • We have held a neutral fundamental view (HOLD recommendation) on the stock based on the company’s earnings outlook. 
  • As previously mentioned, the recent share price re-rating was not linked to fundamental earnings but rather corporate activity. At this juncture, we recommend shareholders to accept the offer based on 
    1. key shareholders have given an undertaking to the offeror in respect of a significant 60% stake; 
    2. difficult operating outlook vis-à-vis rich valuation of 30x PE; and 
    3. in view of JDE’s intention to take Super Group private, shareholders should use this opportunity to exit or risk holding shares in an unlisted private company. 
  • We hold the view that the offer is likely to go through at S$1.30 and as such we are raising our TP to S$1.30. We advocate shareholders to sell at or accept the offer at S$1.30.

Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | 2016-11-03
DBS Vickers SGX Stock Analyst Report ACCEPT OFFER Maintain HOLD 1.30 Up 0.870