RHB Bank Singapore analyst Shekhar Jaiswal has maintained his “buy” call on ComfortDelGro C52 with a higher target price of $1.70 from $1.65 following the acquisition of Addison Lee, one of London’s largest private hire vehicles fleet operators.
CDG announced, on Oct 23, that it acquired the iconic premium private hire, courier and black taxi provider for GBP269.1 million ($461.2 million). “Addison Lee is London's biggest minicab firm with [over] 5,000 vehicles as per its FY2023 financial statements. This includes 1,021 full electric vehicles (EVs), 625 zero-emissions-capable hybrids, and [over] 1,000 ultra-low emissions zone or ULEZ-compliant internal combustion engine or internal combustion engine (ICE) vehicles,” notes Jaiswal.
Based on the analyst’s calculations, the acquisition is accretive to CDG’s FY2025 earnings by 6% to 7% based on the cost of debt to fund the move. However, the analyst has only increased his FY2025 estimates by a more “conservative” 4% instead.
“As of the end of 2023, Addison Lee has debt of GBP150.4 million, which we assess carries a borrowing cost of 10.9%. This debt will be fully repaid as part of the acquisition,” he writes. “Assuming the cash balance remains unchanged y-o-y, ex-cash the enterprise value of the acquisition stands at GBP236.7 million. This implies a trailing EV/ebitda of 6.8 times.”
According to Jaiswal, CDG plans to fund the acquisition with Singapore dollar (SGD)-denominated debt, which would accrue “significantly lower borrowing costs”.
In FY2024 to FY2025, the analyst expects CDG to deliver “strong growth” with contributions from its recently-made acquisitions including Australia-based A2B, UK-based CMAC and Addison Lee.
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“We anticipate improved margins for its UK public transport division, and expect the improvements seen in 2QFY2024 for its taxi business to be sustained,” he says.
Jaiswal’s new target price adds a 6% environmental social and governance (ESG) premium to CDG’s fair value, based on the group’s 3.4 ESG score versus the country median of 3.1.
As at 3.52pm, shares in CDG are trading 1 cent higher or 0.69% up at $1.47.
