Swiber's disposal of Kreuz‏

Written By Stock Fanatic on Thursday, November 7, 2013

We have not been able to contact Swiber?s management yet, but here is summary of Swiber?s disposal of Kreuz and our preliminary thoughts on it:

Disposing entire stake in Kreuz for S$256.2m

Swiber Holdings announced last evening that SEA9 Pte Ltd, an investment-holding company wholly-owned by The Headland Private Equity Fund 6 L.P, has proposed to acquire Swiber?s entire 57.5% stake in Kreuz Holdings for S$0.80/share, translating to a consideration of S$256.2m for Swiber. Due to a netting agreement in which all trade and other receivables as well as payables between Kreuz and Swiber are set-off and settled, Swiber will receive S$129.2m in cash out of its S$256.2m consideration. This translates to ~S$0.21/share in cash.

Values Kreuz at ~1.8x P/B and ~6.4x FY13F P/E

The offer of S$0.80/share represents a premium of about 78.4% over Kreuz?s NAV/share as at 30 Sep, and is 4.6% higher than Kreuz?s last traded price of S$0.765 before the announcement of the offer. This values Kreuz at ~1.8x P/B and ~6.4x FY13F P/E (based on annualised 9M13 EPS), which seems unattractive on a P/E basis. However, do note that Kreuz?s share price has increased significantly this year- it is up 95% YTD, and Swiber?s management may either 1) deem it an opportune time to dispose of its investment, 2) Kreuz?s earnings growth may not be as optimistic as market expects, 3) Swiber is in need of cash.

Proceeds to be used as working capital and fund future investments

Swiber is expected to record a net gain of about US$90.6m from this proposed disposal, and the cash consideration of S$129.2m will be used as working capital to fund the group?s core business as well as to undertake future business expansions and acquisitions as they arise. Do note that as at Jun 2013, Swiber was in a net debt position of US$643m.

Technical Analysis

Daily Chart

Loss of future earnings from Kreuz

The proposed disposal is subject to the approval of the shareholders of Swiber at an EGM (to be convened), and should it take place, Swiber will deconsolidate Kreuz from its financials. This will have a significant impact on Swiber?s earnings, as Kreuz is estimated to contribute about half of our FY13F EPS forecast of 11.5 S cents.

Kreuz started its operations in Jul 2008 with the establishment of Kreuz Subsea Pte. Ltd., as the offshore subsea services division of the Swiber Group. It was listed on the Catalist Board in Jul 2010 (IPO price S$0.27/share), and was transferred to the Main Board in Oct 2012. 

According to Kreuz?s IPO prospectus, Swiber?s effective cash cost per share in Kreuz was S$0.529.