CSE Global’s shareholders have approved the 100% divestment of its wholly owned UK-based subsidiary Servelec Group plc (SG).
It will be done via an initial public offering on the London Stock Exchange and the issue is fully underwritten by Investec Bank plc.
The listing is expected to be completed on 2 Dec’13 and is expected to raise gross proceeds of S$244.1mln, representing 47% of CSE’s current market cap of $519mln.
SG accounts for about 30% of CSE’s group profits and the divestment is positive in that it is done at 12.6x PE against CSE’s own PE of 8x and CSE is expected to record a one-time divestment gain of $88.9mln.
Of the net proceeds of
$219.9mln expected to be received, S$144.5mln (28 cents per share) is expected to be distributed to minority shareholders’ of CSE via an interim special dividend (book closure date is 2 Jan’14 and payment date is 13 Jan’14).
The remaining $75.1mln will be used to repay bank borrowings which will bring it down from 3Q’13’s $99mln to $24mln. With cash holdings of $81mln, CSE will be in a net cash position of $57mln.
Ex-SG, CSE’s remaining businesses in the US and Asia will trade at 6-7x PE and management expects to replace the lost profit from SG within 3-4 years via organic growth as well as acquisitions.
Consensus target price for CSE is about $1.10 currently, which represents only 10% upside from here.
While this suggests only moderate upside potential, down side risks will also be mitigated in the near term by its upcoming bonanza one-time special dividend of 28 cents a share (going ex-div at end Dec’13).
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