SMGR (current)
|
|
Mcap
|
58,870
|
Cash
|
4,090
|
Pref.
|
1,538
|
Debt
|
10,288
|
EV
|
66,606
|
EBITDA19 cons.
|
6,085
|
EV/EBITDA19
|
8.89
|
Currently, SMGR is trading at 10.94 EV/EBITDA19.
At present, SMGR plans to acquire 80% SMCB at a price of USD
1.36bio. With the IDR 15k/USD exchange rate, this transaction is equivalent to
IDR 20.4 T.
According to market consensus, SMGR will generate EBITDA of 6.09T and SMCB 1.26T in 2019.
Assumed, SMGR will borrow from a bank of IDR 20T to finance
this acquisition. Assuming a loan interest of 10% p.a, the financial burden of
SMGR will increase by IDR 2T/year. While the EBITDA19 SMCB portion that is
entitled to SMGR is IDR 1T. So, it seems that SMCB's income is not able to
finance SMGR's debt burden arising from this acquisition.
And not only that, what the market does not realize is that
EV SMGR has increased sharply due to this acquisition transaction:
SMGR post acquisition
|
|
Mcap
|
58,870
|
Cash
|
4,090
|
Pref
|
1,538
|
Debt
|
30,288
|
EV
|
86,606
|
EBITDA19
|
7,093
|
EV/EBITDA19
|
12.21
|
As a result of this acquisition, SMGR’ EV increased to IDR
86.6T.
And even though SMGR’ EBITDA19 also rose due to this
acquisition, but the EV/EBITDA19 rose significantly from 8.89x to 12.21x.
In the last 10 years, which covered the boom and bust cycle
of the cement industry, the average SMGR traded at 9x EV/EBITDA.
If the fair valuation of SMGR is indeed 9x EV/EBITDA, then the SMGR market cap must go down to IDR 36.10T. This means 39% downside from current price.
39% downside does look too excessive. It could be that the
market consensus figure is too low.
However,
even if we use the most optimistic numbers from market, namely EBITDA19 IDR 7.5T for SMGR
and IDR 1.9T for SMCB, there is still a 9.22% downside from the current level.
It does not mean that the price of SMGR will actually decrease by 9.22%, but the calculation above shows that it is difficult to rejoice in the acquisition that will be carried out by SMGR.
Apart
from the fairy tale regarding the cement moratorium, and also the fantasy of
the synergy that resulted from this acquisition, I see that the acquisition of
SMCB by SMGR is actually not needed. This will only make sense if done at a
lower valuation.
Disclaimer: This article is not a recommendation to conduct transactions on the intended securities. Any consequences arising from this writing are beyond the responsibility of the author.
