Temasek's offer price for SMRT 'in line or above' valuations of comparable companies: ISS

SINGAPORE state investor Temasek Holdings' offer for mainboard-listed SMRT is "in line with or above" valuations for comparable companies and previous takeovers, says Institutional Shareholder Services Inc (ISS).

Thus, shareholders are urged to approve Temasek's bid to take the transport operator private, the advisory group to institutional investors said on Thursday.

In a research note, ISS wrote that Temasek's offer of S$1.68 per share is "at a premium of 8.7 per cent to the unaffected price of the company's shares".

The unaffected price refers to the price on the last trading day prior to the requested trading halt in SMRT's shares pending announcement of a new financing framework and Temasek's offer. It was at S$1.545.

The Land Transport Authority (LTA) announced after markets closed on July 15 that it has agreed with SMRT to transfer the latter's operating assets to the government for S$991 million before taxes. This is termed the new rail financing framework (NRFF).

Then, on July 20, Temasek, a 54 per cent shareholder of SMRT, announced a takeover bid for SMRT, offering S$1.68 for each of the remaining 702 million or so shares.

Shareholders will vote on these two proposals come Sept 29.

ISS's note said that Temasek's offer price for SMRT is not only at a premium of 8.7 per cent of the unaffected price, it is also "generally in line or above the valuation for comparable companies and precedent takeovers".

In addition, the offer price gives shareholders assurance in the face of new uncertainties from the NRFF and the "asymmetric" burden of earnings risk, "a vote for this resolution is warranted", said ISS.

ISS made this call after comparing the offer price to four different metrics: ratio of enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation (Ebitda), EV to earnings before interest and taxes (Ebit), price-to-earnings ratio (P/E) and price-to-net tangible assets (P/NTA).

Temasek's offer price was 9.3 times of SMRT's EV/Ebitda, 23.5 times of its EV/Ebit, 24.5 times of its P/E and 2.8 times of P/NTA.

When comparing these to the same metrics of comparable Singapore companies such as ComfortDelGro or SBS Transit, it was either in line with or higher.

ISS also compared the offer price to England-based Arriva plc, a comparable company to SMRT that was recently acquired by Deutsche Bahn. ISS deemed the offer price to be at a higher premium of Arriva's in three metrics, but was below in terms of P/NTA, which was at 5.6 times for Arriva.

As at 2.39pm on Friday, SMRT's counter was at S$1.655, unchanged from Thursday's close.