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Brokers take: Super Group shareholders should accept JDE offer

Friday, November 4, 2016 - 09:36

5-26880332.16 (40419560) - 03_11_2016 - pixsuper.jpg

THE current challenging operating environment together with the rich valuation offered may have been the driving factors for current shareholders of Super Group to exit, said DBS Group Research in a note on Thursday as it advised shareholders to accept the offer by Jacobs Douwe Egberts (JDE).

The Dutch tea and coffee group on Thursday launched an offer of S$1.30 per Super share in cash to take the company private, representing a 34 per cent premium to the stock's 97 Singapore cent close before the announcement was made. The offer values Super at S$1.45 billion, which would make it the largest takeover offer for a Singapore-listed stock announced so far this year.

DBS analysts Alfie Yeo and Andy Sim said that they had been expecting the group to have flat earnings for FY16 and FY17, and only 7 per cent growth for FY18. "The earnings outlook for Super Group is challenging and recent results were lacklustre," they wrote. "Outlook is weak led by muted regional consumer sentiment, competition, weak demand and pricing."

Super Group is one of the few coffee companies apart from Maxwell House and Nescafe in the region to have a meaningful upstream ingredient manufacturing business, which could be attractive for JDE, they noted.

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But they do not expect the offer price to be raised, given the already rich 30-times price-earnings valuation in the offer (compared to the regional average of 22 times on next year's earnings) and the irrevocable undertaking by key shareholders.

"Shareholders should use this opportunity to exit or risk holding shares in an unlisted private company," said the DBS analysts, who are also raising their target price to S$1.30.

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