News

BToto reported that its subsidiary, Berjaya Philippines Inc (BPI) had announced that it had made a cash offer to acquire the entire issued and to be issued share capital of H.R Owen Plc for approximately ~£23.4m (RM113.7m).

H.R Owen operates as a franchised motor dealer in the UK. It sells and used motor vehicles and various brands. It also engages in the after sales operations, including servicing vehicles; sale of parts and accessories; and bodyshop repair services. H.R Owen also operates retail outlets, which includes 14 franchises and 13 aftersales franchises for its Aston Martin, Bentley, Bugatti, Ferrari, Lamborghini, Maserati, Pagani and Rolls Royce vehicles.

However, today’s StarBiz reported that H.R Owen has rejected the offer.

Comments

We are surprised by this announcement as we are puzzled with BPI’s intention in acquiring an automobile retailer, given that BPI specializes in lottery businesses. Currently, BPI has a total of 29.81% stake in H.R Owen.

The acquisition will be paid through BPI’s internal funds and partly from bank loan. However, we believe this would not be a problem to BPI as the company has sufficient cash for the purchase. As at 3QFY04/13, BPI’s cash level stands at 1,997.8m peso (RM143.21m).

Hence, we do not expect this acquisition to have any significant impact towards BToto’s potential dividends to be declared to shareholders going forward.

On a separate note, Bloomberg reported that H.R Owen finds BPI’s offer of £1.30/share as inadequate and at a level which materially undervalues the company. It recommends that shareholders’ take no action regarding the unsolicited unacceptable offer from BPI.

Looking into H.R Owen’s financials, the company recorded FY12 revenue and profit of £243.5m and £1.4m, showing a growth of 35.7% and 23.9% respectively. The impressive performance in FY12 was from across the board. Most notable were the increases in volumes for Lamborghini, Bentley and Ferrari. Like-for-like, new and used car sales increased by 11% and 5% respectively.

Risks

• Higher-than-expected prize payout ratio.
• Cannibalization from Magnum’s and PMP’s 4D Jackpot.
• Hike in pool betting duty/gaming tax.

Forecasts

Unchanged.

Rating

HOLD

Positives – (1) 4D Jackpot shows signs of stabilization vs. decline in sales previously (2) Monopoly of lotto games; (3) Highest-yielding stock in the gaming sector.

Negatives – (1) Highly regulated industry; (2) Prize payout dependable on luck factor; and (3) listing of business trust dilutive to earnings and attracts holding company discount.

Valuation

Maintain HOLD with unchanged TP of RM4.64 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 19 Jul 2013