Saturday, October 26, 2013

Weekend Comment Oct 25: Boustead's hidden value

Written by Chan Chao Peh  
Saturday, 26 October 2013 10:09
IT IS DIFFICULTto find a Singapore-based company with a history as long as Boustead Singapore, which can trace its roots back to the year 1828. But despite its pedigree, the company is not exactly on the radar of most investors.

Analysts from AmFraser Securities agree the company has often been overlooked. That's because Boustead’s four major businesses seem to be unrelated. But it is also the reason why the company has been able to ride out different business cycles and grow.

“We believe the complexity of Boustead’s business model is likely to have been underappreciated by investors. With growth coming from four different divisions investors may have found it difficult to identify the specific growth drivers or draw synergistic relationships between the divisions,” write AmFraser analysts Eileen Goh and Royston Tan. “Yet, in our opinion, what makes Boustead unique is the diversity that it offers, and this quality is perhaps best appreciated during times of uncertainty.”

In an Oct 22 note, Goh and Tan initiated coverage of the stock with a “buy” call and a target price of $1.95. They join Philip Securities’ Joshua Tan, who on Sept 20 made a call of $1.94. On Friday, Oct 25, Boustead shares closed 0.5 cents higher at $1.435, up more than 43% over the past year.

Boustead’s four major businesses are in real-estate solutions, energy-related engineering, water and wastewater engineering and geospatial technology. In FY13, they contributed 49%; 24%; 5% and 22% respectively to revenue.

The way AmFraser sees it, each of the business is in good shape and has its own investment merits. In the real-estate solutions segment, Boustead’s industrial leasehold properties are carried in its books at a cost of $105.6 million, less than half of the revalued net asset value of $238.2 million pegged by AmFraser. The analysts believe that if Boustead spins the properties off in a REIT, the “hidden value” will be unlocked, giving the stock a much-needed lift.

Boustead also has a cash-generating business in its geospatial division, which is an exclusive distributor of geospatial systems made by Esri Inc in certain markets in Australia and Southeast Asia. The California-based company claims 60% market share in certain segments of this market. Esri’s key product is the ArcGIS technology, which is used to manage workforce deployment in the field.

“How often do you see a company that has businesses in today’s high growth sectors like subsea, LNG and floating production storage and offloading? With a mixture of products that serve these attractive markets, we believe Boustead’s engineering division prospects are extremely bright,” write Goh and Tan.

“This will continue to leave it well‐positioned to ride out economic uncertainties or downturns,” the analysts add. They figure that Boustead, with its various parts valued individually, adds up to $2.39. Their target price of $1.91 is derived after adding a 20% discount that is typically applied to conglomerates.

Another key draw is that Boustead has a consistent track record of paying out dividends, thanks to its ability to generate strong cashflow. Boustead is likely to generate operating cashflows before working capital changes of $65.3 million in FY14 which will further increase to $91.3 million in FY15.

Since FY2003, Boustead has paid out an average of 46% of its earnings. AM Fraser expects the company to maintain its ordinary dividend of 5 cents per share for both FY14 and FY15, which translates into a yield of 3.6%. In a sign that Boustead shareholders are in for the long haul, the company’s scrip dividend scheme has a current take-up rate of 63%.

There are however some risks investors should keep in mind, warn the analysts.

For one, new players offering design and build services might emerge. Also, a slowdown in the oil and gas industry will affect Boustead. “Factors including a decline in oil prices or slowdown in spending by oil majors will not only affect the order books of the company but also the margins of projects clinched which will result in lower profitability,” the analysts state.

Also remember it wasn’t all smooth-sailing for Boustead. Back in 2011, the company had to suspend its projects in Libya because of political unrest, and a contingent liability of $23.3 million, which has yet to be provided for, is an hangs over the stock.

Nevertheless, the company’s management feels there are no “compelling” reasons to provide one. “We note that the construction agreement for the Al Marj township project in Libya includes a provision for force majeure termination, and Boustead can seek protection to mitigate its contingent liability in this regard. However, should Boustead fail to resolve the lawsuit in its favour (an outcome is expected in early Jan/Feb 2014), this would certainly have a negative impact on its cash position as well as its profitability,” notes AM Fraser.

Publish date: 26/10/26

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别人贪婪时我恐惧, 别人恐惧时我贪婪
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