THE BUZZ
UK media reports said Malaysia Airports (MAHB) has joined the bid to buy Stansted airport for an estimated GBP1bn (RM4.9bn). The other bidders are Manchester Airport Group (MAG), which is backed by Australia’s Industry Funds Management, and financial investors TPG, Macquarie and HRL Morrison. MAHB could not be reached for comment to confirm the reports. Stansted Airport is being forced sold by BAAafter losing a three-year battle with UK competition regulators barring ownership of two airports, as BAA also owns Heathrow airport.
OUR TAKE
A higher bid? MAHB is understood to be the latest suitor to join the bidding war in the airport owner’s attempts to boost the acquisition price. We understand that MAG is the favoured bidder, but Heathrow wants to secure a strong rival bid to bolster the eventual acquisition price. This raises the possibility of MAHB ending up having to pay a higher price for the airport to secure its bid.
UK media reports said Malaysia Airports (MAHB) has joined the bid to buy Stansted airport for an estimated GBP1bn (RM4.9bn). The other bidders are Manchester Airport Group (MAG), which is backed by Australia’s Industry Funds Management, and financial investors TPG, Macquarie and HRL Morrison. MAHB could not be reached for comment to confirm the reports. Stansted Airport is being forced sold by BAAafter losing a three-year battle with UK competition regulators barring ownership of two airports, as BAA also owns Heathrow airport.
OUR TAKE
A higher bid? MAHB is understood to be the latest suitor to join the bidding war in the airport owner’s attempts to boost the acquisition price. We understand that MAG is the favoured bidder, but Heathrow wants to secure a strong rival bid to bolster the eventual acquisition price. This raises the possibility of MAHB ending up having to pay a higher price for the airport to secure its bid.
Stansted airport not efficiently managed. We gather that Stansted airport is inefficiently operated with Ryanair dominating 70% of passenger traffic. Due to its high airport chargers, passenger traffic growth has been declining, from the peak of 23.8m passengers in 2007 to an expected 17.1m passengers this year. Based on information made available to its bidders, traffic is projected to bounce to 24.6m passengers by 2019. Stansted’s EBITDA is expected to hit GBP87.3m and go up to GBP201m in the next few years. In 2008, it registered EBITDA amounting to GBP117m. It is understood that the expenses incurred by Stansted airport have been somewhat artificially inflated by the inclusion of expenses from the other BAA-owned airports - Heathrow, Southampton, Glasgow and Aberdeen - in an attempt to justify higher landing charges.
Valuations somewhat high. Assuming a conservative 10% increase in EBITDA on the back of tighter cost control, the bidders are expected to fork out 10-11x EBITDA for Stansted, which is on the high side, since MAHB and AOT command valuations of just 7x. Hence, there may be very little room for a higher price resulting from the bidding war. While its valuation is on the high side, MAHB’s success in managing airports may just boost its chances of winning the bid.
Debt funding. Should MAHB wins the bid, the group may have to raise debt since its current cash pile is not sufficient to finance the GBP1bn acquisition. However, given its current net gearing of 54%, there is some room for additional leverage should its funding needs grow. Other possible sources of funding that the group can tap on are its dividendreinvestment scheme, which could raise some RM190-RM200m, assuming a 90% take up.
Negative on acquisition. We are slightly negative on the acquisition as any attempts by Stansted to cut costs will likely give rise to airline operators pressing for lower landing charges. With Ryanair being its key client, this does not give Stansted much bargaining power to maintain or lift airport charges. We maintain our FV of RM8.00 on MAHB, with our BUY call maintained, as we continue to like KLIA2’s prospects.
Valuations somewhat high. Assuming a conservative 10% increase in EBITDA on the back of tighter cost control, the bidders are expected to fork out 10-11x EBITDA for Stansted, which is on the high side, since MAHB and AOT command valuations of just 7x. Hence, there may be very little room for a higher price resulting from the bidding war. While its valuation is on the high side, MAHB’s success in managing airports may just boost its chances of winning the bid.
Debt funding. Should MAHB wins the bid, the group may have to raise debt since its current cash pile is not sufficient to finance the GBP1bn acquisition. However, given its current net gearing of 54%, there is some room for additional leverage should its funding needs grow. Other possible sources of funding that the group can tap on are its dividendreinvestment scheme, which could raise some RM190-RM200m, assuming a 90% take up.
Negative on acquisition. We are slightly negative on the acquisition as any attempts by Stansted to cut costs will likely give rise to airline operators pressing for lower landing charges. With Ryanair being its key client, this does not give Stansted much bargaining power to maintain or lift airport charges. We maintain our FV of RM8.00 on MAHB, with our BUY call maintained, as we continue to like KLIA2’s prospects.
Source: OSK
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