Berjaya Sports Toto Berhad (BToto), through its 88.26%- owned subsidiary Berjaya Philippines Inc. (BPI) has proposed to acquire 6,589,934 shares (26.31% of the total outstanding shares) of H.R. Owen Plc (HR Owen) from Bentley Motors Limited (Bentley) for a total purchase price of �14.83m (~RM 83.82m) or �2.25 (~RM12.72) per share.
Completion of the share purchase is to take place within six months, or no later than 8 June 2017. Following the completion of the acquisition of the shares, BPI will own 98.34% of the total outstanding shares of HR Owen.
Recall that back in 2013, in H.R. Owen was acquired by BPI with a total stake of 72.03% after a mandatory takeover offer. Bentley remained as the second largest shareholders with 26.31% stake and the remaining 1.66% shares were with minority shareholders. H.R. Owen was then de-listed on the London Stock Exchange on 15 April 2014.
Comments
We are neutral on this acquisition given that the EBIT contribution is only 4.24% of FY16 total EBIT, due to the low margin of less than 1% from HR Owen's operation.
The quoted price is at 32.4% higher at 225 pence compared to 170 pence during the unconditional offer by BPI to acquire the remaining stake of HR Owen back in 2013.
It would not be an issue for Btoto to fund such acquisition given the comfortable level of cash of RM506m and net gearing of ~34% as disclosed in the last available quarter financial results.
Potential impact to income statement is rather insignificant only at the level of MI (circa 3% of our FY17 forecasted PAT), given that the results of BPI is consolidated into Btoto.
Risks
Higher-than-expected prize payout ratio.
Cannibalization from Magnum and PMP.
Hike in pool betting duty/gaming tax.
Forecasts
No change to our forecast at current juncture given that the impact is rather minimal.
Rating
HOLD ↔
In view of the saturated NFO business in a challenging operating environment and rampant illegal gaming activities as well as uncertainty in H.R. Owen.
Valuation
Unchanged target price at RM3.16 based on DCF valuations with WACC of 9.18%.
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