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Independent advisors say price is fair
While the Independent Advisor, Capital Alliance Holdings Limited (CAL) to the mandatory offer for Aitken Spence made by Melstacorp Limited has expressed the view that the offer of Rs.115 per share "is a fair consideration," the directors of Aitken Spence have said that this view may not be applicable to long-term investors who could in the medium and long-term enjoy an increase in the share price.
However, the opinion that the offer price is fair may be applicable to shareholders who wish to sell their shares in the short-term, the directors have said.
CAL based its assessment on a range of going concern valuations for the Aitken Spence shares between Rs.111.60 to Rs.122.40.
The Advisors however noted that the offer price is at the lower end of the 52-week trading range of Rs.104.90 to Rs.196 for the share.
Messrs. Harry Jayawardena, Chairman of Aitken Spence and N.J. Deva Aditya, director, have not participated in the consideration of the Independent Advisors opinion and had refrained from making any comments, expressing any views or rendering any advice on the opinion expressed by the Independent Advisors, a circular to Aitken Spence shareholders signed by Mr. G.C. Wickremasinghe and R.N. Asirwatham, directors of the company, have said.
The Aitken Spence board excluding Messrs. Jayawardena and Deva Aditya have discussed and considered the offer document and the Independent Advisors report and advised shareholders to also consider the following additional matters in making their decision whether or not to accept the offer.
These are the brand value of Spence in all its activities, the goodwill acquired by the company over the years, the group’s large land bank last revalued and incorporated in its financial statements in March 2009 and the expertise and experience of the group’s management team.
The directors noted that Spence was the only Sri Lankan company to venture overseas and procure several hotel management contracts, port consultancies and power projects in countries such as India, the Maldives, Bangladesh, Oman and South Africa.
The CAL opinion has said that investors may note that the Melstacorp offer price is at a 9.6% premium to Spence’s average 52-week trading price low of Rs.104.90.
Spance is a conglomerate with interest in the tourism, cargo logistics, power and energy, plantations, printing and packaging, garment manufacturing and export services segments
Based on what it called the sum-of-the parts valuations method, CAL had assigned a Rs.122.40 fair market value for each Spence share and noted that the offer price of Rs.115 is a 6% discount on this figure.
However, on valuation based on PER to growth (PEG) ratio, a figure of Rs.113.60 was reached with the offer price at a 1.3% premium.
Noting that conglomerates traditionally trade at a premium in emerging markets mainly due to their attractiveness to foreign investors who are frequently prepared to pay better than PEG ratios, PERs and/or PER relatives over their smaller, less liquid listed peers.
Liquidity is a key determinant of the PER premium or discount a company trades at relative to its sector, the advisors said. Prior to the October 2010 15 for one share sub-division Spence had lacked liquidity and therefore traded at a discount to PER.
Post-scrip Spence became much more liquid and traded at a 25% to 110% PER premium to the market.
CAL’s relative values for Spence ranged from Rs.138.30 using JKH as the reference to Rs.111.60 using the diversified sector and Rs.100.90 for the market.
According to the company’s unaudited accounts as at December 31, 2011 the net asset value per share was Rs.56.94 with assets valued during the financial year ending March 31, 2009.
"CAL however does not recommend the use of liquidation value to ascertain the fair value of going concerns such as Spence," the opinion said.CAL also said that as a key player in the tourism sector, Aitken Spence Hotels will be a main beneficiary of the ongoing shortage of value-for-money higher end rooms, plus a shift in Sri Lanka’s tourist profile.
"A higher than expected growth for markets such as India and China would have a positive impact on the performance of Spence’s hotel segment," the opinion said.
It also said that with regard to power generation business that Spence was in, the group had plans to expand operations in this sector and is uniquely in a position to grow profitability in the immediate future.
"The company is also in the process to further exploring opportunities in other growth sectors of the economy, and has already made investments in the for-profit tertiary education sector," the opinion said.
Spence had recorded a one-off capital gain of Rs.630 million in fiscal 2012 following the decision to sell the company’s stake in the joint venture set up for the development of Colombo South Container Terminal Project.
While the Independent Advisor, Capital Alliance Holdings Limited (CAL) to the mandatory offer for Aitken Spence made by Melstacorp Limited has expressed the view that the offer of Rs.115 per share "is a fair consideration," the directors of Aitken Spence have said that this view may not be applicable to long-term investors who could in the medium and long-term enjoy an increase in the share price.
However, the opinion that the offer price is fair may be applicable to shareholders who wish to sell their shares in the short-term, the directors have said.
CAL based its assessment on a range of going concern valuations for the Aitken Spence shares between Rs.111.60 to Rs.122.40.
The Advisors however noted that the offer price is at the lower end of the 52-week trading range of Rs.104.90 to Rs.196 for the share.
Messrs. Harry Jayawardena, Chairman of Aitken Spence and N.J. Deva Aditya, director, have not participated in the consideration of the Independent Advisors opinion and had refrained from making any comments, expressing any views or rendering any advice on the opinion expressed by the Independent Advisors, a circular to Aitken Spence shareholders signed by Mr. G.C. Wickremasinghe and R.N. Asirwatham, directors of the company, have said.
The Aitken Spence board excluding Messrs. Jayawardena and Deva Aditya have discussed and considered the offer document and the Independent Advisors report and advised shareholders to also consider the following additional matters in making their decision whether or not to accept the offer.
These are the brand value of Spence in all its activities, the goodwill acquired by the company over the years, the group’s large land bank last revalued and incorporated in its financial statements in March 2009 and the expertise and experience of the group’s management team.
The directors noted that Spence was the only Sri Lankan company to venture overseas and procure several hotel management contracts, port consultancies and power projects in countries such as India, the Maldives, Bangladesh, Oman and South Africa.
The CAL opinion has said that investors may note that the Melstacorp offer price is at a 9.6% premium to Spence’s average 52-week trading price low of Rs.104.90.
Spance is a conglomerate with interest in the tourism, cargo logistics, power and energy, plantations, printing and packaging, garment manufacturing and export services segments
Based on what it called the sum-of-the parts valuations method, CAL had assigned a Rs.122.40 fair market value for each Spence share and noted that the offer price of Rs.115 is a 6% discount on this figure.
However, on valuation based on PER to growth (PEG) ratio, a figure of Rs.113.60 was reached with the offer price at a 1.3% premium.
Noting that conglomerates traditionally trade at a premium in emerging markets mainly due to their attractiveness to foreign investors who are frequently prepared to pay better than PEG ratios, PERs and/or PER relatives over their smaller, less liquid listed peers.
Liquidity is a key determinant of the PER premium or discount a company trades at relative to its sector, the advisors said. Prior to the October 2010 15 for one share sub-division Spence had lacked liquidity and therefore traded at a discount to PER.
Post-scrip Spence became much more liquid and traded at a 25% to 110% PER premium to the market.
CAL’s relative values for Spence ranged from Rs.138.30 using JKH as the reference to Rs.111.60 using the diversified sector and Rs.100.90 for the market.
According to the company’s unaudited accounts as at December 31, 2011 the net asset value per share was Rs.56.94 with assets valued during the financial year ending March 31, 2009.
"CAL however does not recommend the use of liquidation value to ascertain the fair value of going concerns such as Spence," the opinion said.CAL also said that as a key player in the tourism sector, Aitken Spence Hotels will be a main beneficiary of the ongoing shortage of value-for-money higher end rooms, plus a shift in Sri Lanka’s tourist profile.
"A higher than expected growth for markets such as India and China would have a positive impact on the performance of Spence’s hotel segment," the opinion said.
It also said that with regard to power generation business that Spence was in, the group had plans to expand operations in this sector and is uniquely in a position to grow profitability in the immediate future.
"The company is also in the process to further exploring opportunities in other growth sectors of the economy, and has already made investments in the for-profit tertiary education sector," the opinion said.
Spence had recorded a one-off capital gain of Rs.630 million in fiscal 2012 following the decision to sell the company’s stake in the joint venture set up for the development of Colombo South Container Terminal Project.
