“In our view, there is a higher probability of the deal going through because of the better offer as well as undertaking from key minority shareholders,” says analyst Krishna Guha in a flash note on Tuesday.
“[The offer price] implies a 20% discount to FY18 book of 853 pence and 13.8x FY18 EV/EBITDA,” he adds.
The way Guha sees it, the deal is expected to be positive in the long run as the group repositions the assets.
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However, he notes that CDL will incur significant and targeted near-term capex.
“Management believes that M&C faces a number of challenges and a highly competitive landscape, which include pressure on profit margins,” Guha says. “As such, significant expenditure is required across many of the properties as part of a long-term strategy focused on unlocking value.”
To meet the challenges and capex, the analyst believes it would be best for M&C to be a private entity.
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“In such a set-up, M&C would benefit from direct access to [CDL’s] broader network, financial resources and execution capabilities,” he says. “We are hopeful that the repositioning and unlocking of value will be positive for [CDL’s] minority shareholders in the long term despite the significant capex in the medium term.”
As at 3.51pm, shares in CityDev are trading 4 cents up at $9.01.
