Li Ka-shing buybacks would rebuild value

[HONG KONG] The proceeds are rolling in from CK Hutchison's US$11.8 billion November sale of its European mobile masts business to Cellnex. The ports-to-pharmacies group is finding dealmaking options limited by geopolitical tensions, and its shares have underperformed local benchmarks for five years. Showing long-suffering shareholders some love via buybacks could go a long way.

Investing US$100 into CK Hutchison's shares five years ago would have left a trader with US$63 as at Dec 31, including dividends. An identical stake in rival conglomerate New World Development would be worth US$150; CK Hutchison's one-time nemesis Jardine Matheson would be US$132.

CK Hutchison's enterprise value is seven times its last 12 months Ebitda (earnings before interest, taxes, and amortisation), below its three-year average of 10, and also beneath the mid-teen ratings of New World and Jardine. While the Hang Seng index finished the year down 3.4 per cent, CK Hutchison shares ended down 27 per cent.

CK Hutchison may suffer from founder Li Ka-shing's long association with Hong Kong; local press call Mr Li "Superman", and his company's stock ticker is literally No 1.

Beijing's tightening grip on its special administrative region isn't helping. In May, CK Hutchison lost a two-horse race to build a desalination plant in Israel after Secretary of State Mike Pompeo warned officials there against Chinese influence over infrastructure.

In 2018, Australia blocked it from a US$9 billion bid for gas pipeline operator APA on national security grounds, even though it already owns a local mobile network and several ports.

The company has not been sitting still, however. In addition to November's masts deal, in October it sold Canadian oil producer Husky to larger rival Cenovus in an US$8.8 billion all-share deal. In December it confirmed it is in talks with Qatar-based Ooredoo to combine their Indonesian telecoms businesses.

The money could be redistributed to shareholders via a special dividend, but CK Hutchison's planned buyback programme could help rerate shares, producing a longer lasting momentum effect in Hong Kong's retail-heavy market. Both the Cellnex and Husky transactions involved restructuring existing bets rather than striking out afresh. Managers could gain a lot of goodwill from re-engineering some shareholder value too.

CK Hutchison on Nov 12 agreed to sell its European mobile mast business to Spain's Cellnex for US$11.8 billion. The deal involves sales in Austria, Denmark, Ireland, Italy, Sweden and the UK. Some of the transactions were due to close by the end of 2020 while others would complete in 2021.

REUTERS