Analysts Breakdown – STX OSV’s New Majority Shareholder

A deal has finally been tabled, a year after the STX Group had decided to put up its majority 50.75 percent shareholding in STX OSV for sale. The “low-ball” deal was penned with Italian cruise shipbuilder, Fincantieri for $1.22 per share or $730.6 million on the 21 December 2012. After the trading halt was lifted, the counter fell from the previous day’s close of $1.40 to a low of $1.295. It has since recovered to around $1.325 apiece and is seen hovering around that mark for some time. A market darling of sorts, many analysts have come in with various reports in an attempt to dissect the deal.

Here are some snippets of what the various analysts had to say:

Jason Saw of OSK DMG posits that,

“… the change in major shareholder could remove the overhang on the stock and lead to re-rating of the stock.”

Jason’s Call: BUY , with target price of $2.05

However, for this to happen, Saw assumes that Fincantieri will not be able to get a full acceptance of a mandatory general offer. A mandatory general offer has to be made by Fincantieri for the remaining shares of STX OSV after it acquires more than 50 percent of the listed counter. The reason for Fincantieri not attaining full acceptance of its general offer is shared by Jeremy Thia of DBS Vickers, he wrote,

“At $1.22/share, we believe the offer price is not compelling. (The price) translates to around 6.5x Price/Earnings ratio. As such, we believe this is unlikely to result in the GO being successful.”

Also thrown into the whole mix is US hedge fund, Och-Ziff Capital Management, which owns a 12 percent stake in STX OSV. Och-Ziff Capital previously bought the stake for $1.33/share. It thus seems highly unlikely that Och-Ziff Capital will be contented with letting its stake go for anything less than its cost price.

With that in mind, Thia continues,

“We like STX OSV for its market leading position as a builder/designer of large, complex and highly customised OSVs (offshore vessels), its strong execution track record, and as a key proxy (representation) of the buoyant subsea market.”

Jeremy’s Call: BUY , with target price of $2

Despite these glowing recommendations, Chia Jiunyang and Low Pei Han of OCBC feel that investors should take into consideration other risks that can be associated with this deal. They write,

“Other associated risks include; i) Fincantieri’s unproven track record in managing offshore business (they are primarily in the cruise shipbuilding business); ii) possible changes to STX OSV’s business model (Fincantieri has said it has no current intentions of making any major changes to STX OSV); and iii)vulnerability to political interference (Fincantieri is ultimately owned by the Italy government).”

Chia and Low’s call: BUY , with target price of $1.5 2

Not everyone is coming out with a call yet though, Kenneth Ng at CIMB is sticking to his guns for the time being and hoping for more details to be out before he “revisits” the stock. He maintains that,

“… (STX OSV)’s fundamentals could eventually provide some support at $1.30-$1.40.”

Which by the way, Kenneth mentions, is comparable to the average price-earnings ratios of smaller SGX-listed offshore vessel builders.

Kenneth’s call: NEUTRAL , with target price of $1.47

The market has been quite hot in terms of privatization deals, with the F&N saga still going on and other deals going through (read: Sakari Resources). This deal, in its current form, however, could well buck that trend of successful privatisation deals. The main hurdle to this deal will be US hedge fund Och Ziff Capital. If it sticks to its guns, the offer will fall through. However, if the hedge fund folds, then well, it would be best that you are not left holding the baby.

Author’s note:
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