Morningstar Equities Research 14 Jan 2013

Morningstar Equities Research - SEK, TCL, SKT, SKT-NZ, BXB, CTX

SEEK Limited SEK | Increases ownership in Zhaopin
Morningstar Recommendation: Under Review
Tim Montague-Jones, Senior Equities Analyst -

Event
SEK announced it will increase its ownership stake in Chinese online employment company Zhaopin from 55.5% to between 72.3% and around 79%. SEK will pay Macquarie Capital Group and other individual shareholders US$105m to increase ownership to 72.3%.

Funding for the transaction will be US$55m from Zhaopin’s cash balance and US$50m from SEK’s cash and debt facilities.

SEK will launch an offer to acquire additional shares to potentially increase ownership in Zhaopin from 72.3% to 79%, this latter transaction also to be funded from SEK’s cash & debt facilities.

Impact
SEK expects the transactions to be earnings per share positive on a cash basis and excluding one-off costs associated with the transaction.
The total consideration of US$105m payable to exiting shareholders and Zhaopin’s estimated post-transaction net cash balance of US$67m implies a 100% Enterprise Value of US$558m. This equates to a CY12 EV/EBITDA of around 16x and PE of near 21x.
SEK will have typical majority shareholders’ rights including the right to appoint the majority of directors to the Zhaopin Board and the right to declare dividends. In future SEK will consolidate Zhaopin into its financial statements.
Recommendation Impact
Our fair value estimate and recommendation trigger prices are under review, but we do not expect to make material adjustments.

Transurban Group TCL | Misses the mark in the US, again
Morningstar Recommendation: Reduce
Adrian Atkins, Senior Equities Analyst
Event
TCL released traffic and revenue data for the December quarter. Proportional toll revenue in the December quarter was $249.7m, up 5.1% from the same quarter last year. CityLink, the Eastern Distributor and the M5 performed well.

Average daily revenue on the newly opened 495 Express Lanes near Washington DC was just US$24.3k in late December 2012. In 2007, TCL forecast average daily revenue would be around US$184k in 2013, a startling difference. Immense growth is needed to get near this forecast.

Impact

Revenue at Australian roads is tracking broadly in line with our expectations.

Initial traffic volumes and revenue on the 495 Express Lanes are dismal. While it is still very early in the road’s ramp-up phase, this could be another disappointing US investment, following Pocahontas which was a complete write-off.

US investments are small in comparison to the Australian portfolio, but another failure would have negative read-through for other greenfield projects and, potentially, the broader growth strategy.
TCL invested around US$140m of equity in Pocahontas, a little over US$200m in the 495 and will invest around US$250m in the 95 express lanes project.
Our forecasts and valuation may change slightly on a full review.
Recommendation Impact
No change to our Reduce recommendation.

Sky Network Television Limited SKT-NZ, SKT | Special Christmas bonus for Sky shareholders (Corrected)
Morningstar Recommendation: Hold
Nachi Moghe, Senior Equities Analyst – NZ
The board of directors of Sky Television have announced a NZD 0.32 per share special dividend to be paid on 19 December 2012 with a record date of 13 December. This represents almost 6.1% of the firm's current share price of NZD 5.15 per share. The special dividend is in addition to the company's regular half-yearly dividend of NZD 0.11 per share. It will impact cash flow by approximately NZD 123 million in fiscal 2013.
We are not surprised by the special dividend announcement as Sky Television generates very strong cash flows with free cash generally in line with, or exceeding, net profit after tax on some occasions. This coupled with the company's low gearing (and getting lower) makes higher distributions a good capital management strategy. It is the second such dividend in less than two years, with Sky Television distributing NZD 0.25 per share in June 2011. The company also raised its dividend payout from between 55% and 60% to nearly 70% last year. We think there is scope for a further lift in dividend payout going forward. We don't anticipate a change in our fair value of NZD 5.50 per share as the valuation impact from the special dividend is offset by the roll forward of our earnings model

Caltex - Downgrade due to price change.

Brambles - Downgrade due to price change.

Click here to read: Morningstar_Equities_Research_140113.pdf

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