In this briefing:
- Medco’s Bump For Ophir Won’t Sway Petrus
- Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
- XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
- Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
- Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
1. Medco’s Bump For Ophir Won’t Sway Petrus
The boards of Medco Energi Internasional T (MEDC IJ) and Ophir Energy (OPHR LN) have agreed to increase the Offer price to £0.575 from £0.55, representing a 73.2% premium to the undisturbed price.
All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.
On Petrus
Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.
Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.
On Sand Grove/Coro
Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.
Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
Trading Tight – Upside Less Assured
Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.
The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.
2. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia. As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR).
3. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.
4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.
Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously.
The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL.
4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18.
The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.
The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.
After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates.
4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
5. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact. A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race. The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage. Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up.
Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations. He commanded detail without perpetrating major gaffes. Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2). Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list. To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3). Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4).
Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March. This generally corroborates recent findings from the Survey Network (LSI) (p. 5).
Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).
Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft. Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads. If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair. The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now. Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7). Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).
Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>. |
Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further. But capital goods imports have held up (p. 10).
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