Super Group (SUPER SP) - UOB Kay Hian 2016-11-04: A Super Offer; Accept When It Becomes Unconditional

SUPER GROUP LTD. S10.SI

Super Group (SUPER SP) - A Super Offer; Accept When It Becomes Unconditional

Dutch company JDE has made a pre-conditional offer of S$1.30 per share for Super Group, where the offer is subject to receipt of regulatory approvals.
We deem the offer price as generous, where at S$1.30, it represents a 34% premium to its last traded price, and an implied 2017F PE of 30x, well above the peer average of 20x.
We recommend shareholders accept the offer of S$1.30 when it becomes unconditional.

Netherlands pure-play coffee producer group Jacobs Douwe Egberts (JDE) has made a pre-conditional cash offer of S$1.30 per share for Super Group. This price represents a 34% premium to its last traded share price of S$0.970 (31 October) and a 62.5% premium to the undisturbed share price on 4 Oct, before a query regarding trading activity was received on 5 October.

Shareholders of Super including the Te and Teo family, Goi Seng Hui, YHS Investment and Tee Yih Jia Food Manufacturing, who in aggregate own about 60% of the issued share capital, have irrevocably proposed to tender all of their shares in acceptance of the offer.

The commencement of the offer is subject to the receipt of regulatory approvals by JDE on or before 3 May 17. This includes receiving approvals from:
1. authorities under the Anti-Monopoly Law of the People’s Republic of China,
2. Philippine Competition Commission under the Philippine Competition Act, and
3. the anti-trust authorisation by the Securities Industry Council of Singapore.

JDE’s offer will be conditional upon JDE receiving more than 50% of Super’s issued shares. JDE intends to make a compulsory offer for remaining shares and privatise Super if it acquires 90% of the issued shares pursuant to the offer.
JDE is of the view that delisting will allow greater control and management flexibility in implementing strategic initiatives and operational changes at Super as well as dispensing with compliance, costs associated with maintaining its listed status.

Looking ahead to 2017, we expect operating conditions for Super to remain challenging, given the slowing economic outlook as well as an increasingly competitive coffee industry for which we have modelled a 3-year earnings CAGR of 7% for 2016-18. At the offer price, the implied 2017F PE is 30x, which is well above (47.1% premium) the peer average of 20.4x.

We think the acquisition by JDE may provide an earnings uplift and synergies to Super, as it gives the latter a passport to the global tea and coffee network of the offeror.
Similarly, we note JAB Holdings, which owns a majority of JDE, has been on an acquisition spree (involving Mondalez International Coffee business and US-based Keurig Green Mountain), signalling its intention to consolidate the global coffee industry.
In our view, Super is a strategic asset for JAB to pivot the Southeast Asia market, which likely also explains the premium ascribed to the offer price.

Recall the Dec 15 pre-conditional offer of S$1.30 made by CMA-CGM for Neptune Orient Lines. On the first trading day after announcement, the share price was trading at a 6% discount to offer price. Subsequently, between then and until the offer became unconditional (10 Jun 16), the share price was on average, trading at 3% discount to the offer price.
We believe the price discount was a reflection of the market’s uncertainty in the satisfaction of the preconditions.
Applying similar logic, we expect prices of Super to trail the offer of S$1.30 and range trade at a 3-5% discount between now till May 17.

Looking forward to 2017, we expect the operating outlook for Super Group to remain challenging, given the slowing economic outlook as well as an increasingly competitive coffee industry. As such, we deem the offer price of S$1.30 generous, which represents an implied 2017F PE of 30x, well above the peer average of 20.4x.
We recommend shareholders accept the offer of S$1.30 when it becomes unconditional.

Thai Wei Ying UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-11-04

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