In this briefing:
- RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
- Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
- SAPPE: New Strategic Partner Drive 2019 Earning Growth
- GLOW’s Done Deal As SPA (Almost) Completes
- Company Visits: Berli Jucker, M Visions
1. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
- Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
- Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
- South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months. Focus on Healthcare and Retail Names)
- India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.
2. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.
Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016
3. SAPPE: New Strategic Partner Drive 2019 Earning Growth
We cut our target price by 22% to Bt24.7 to factor in disappointing 2018 result. However, we maintain our BUY rating on the back of positive outlook toward its new products and market expansion plan.
The story:
- Posted net profit of Bt50m in 4Q18, down 36%YoY and 25%QoQ
- Trimmed 2019-21E forecast by 23.8%-24.3% respectively
- Expanding strategic partnership
- Our new target price of Bt24.7 is based on a target PE’19E of 18.8x which is equivalent to the World’s consumer staples sector.
Risks: (1) Fluctuations in raw material prices
(2) Exchange rate fluctuations
(3) Highly competitive industry
4. GLOW’s Done Deal As SPA (Almost) Completes
The revised SPA between Engie SA (ENGI FP) and Global Power Synergy Company Ltd (GPSC TB) is expected to the close this week, triggering a mandatory Tender offer for Glow Energy Pcl (GLOW TB).
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
The divestment of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn (~2.5% of GLOW’s market cap at the time) was announced on the 22 February and was completed yesterday.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
5. Company Visits: Berli Jucker, M Visions
We visited one big-cap stock, Berli Jucker, and one pip-squeak recent IPO M Vision today. A couple of highlights:
- Slow revenue growth at BJC at under 5% largely driven by Big C (hypermarket), but earnings growth was strong at 28% mainly due to lower cost of palm oil in the snack business.
- Good progress in Vietnam with expansion of the bottle capacity this year and SABECO increasing purchases of bottles.
- Overall unimpressed. The company isn’t expecting to grow revenues more than 9% this year, and many of the cost cuts we saw in 2018 are clearly one-offs. Higher oil prices are likely to lead to rising palm oil prices this year too, since the two commodities are linked through substitution effect.
- MVP underwent a bad year on the profit level, but their various businesses, at least on the top line level, looks like it could recover quickly this year.
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