Acquisition of “Park’N Fly” business in Canada for c.C$200m by CKI
CKI and Cheung Kong (Holdings) (“CKH”) have agreed to jointly acquire thebusiness of operating off-airport parking facilities in Canada for C$397m (50:50split between CKI and CKH) on May 28. Though the “Park’N Fly” service is anew business for CKI and is not a regulated return business, CKI is looking foran investment return of 9% project IRR and c.11% equity IRR, which is largelysimilar to the investment return of its previous acquisitions. The acquisitionwould have less than 1% impact on earnings and valuation on our estimates.
High single-digit revenue growth, implied multiple does not look cheap though
The acquisition has limited impact on our earnings and SoTP valuation (<1%on our estimates) but is a new business venture for CKI. The implied multiple is28-29x 2013 P/E and close to 4x 2013 P/BV based on the financial disclosurefrom the announcement, which should represent a low-to-mid teensEV/EBITDA multiple after considering also the relevant shareholder loan on ourestimates. Such multiples do not look cheap when compared to the regulatedutilities assets (we are not sure if CKI can squeeze more profit out by raisingthe charges or improving the business’ operating efficiency at this stage).
Cash is running down…external financing may be required
This acquisition would have a relatively small impact on CKI’s balance sheet,pushing up its net debt to equity ratio by c.1% to c.11% on our estimates andfurther drain down its cash balance by another c.HK$1.4bn (note: CKI hadc.HK$6bn cash at end-2013 and repaid its perpetual debt securities ofc.HK$2.3bn in Feb 2014). However, together with the funding requirement forthe potential acquisition of Envestra in Australia (though still contingent onwhether APA Group will raise its bid), CKI’s net debt to equity ratio would befurther push up to 15-16% (look-through gearing of >70% if including theshare of debt held under its other overseas associates). CKI may need toconsider seeking for external financing (e.g. issuance of additional perpetualdebt securities, or selling some assets to Power Assets to tap its cash).
A little bit more about the “Park’N Fly” business
The “Park’N Fly” business CKI is acquiring is an operation of off-airport parkingfacilities servicing customers travelling from/to airports in Toronto, Ottawa,Montreal, Edmonton, and Vancouver, which holds the licensing trademark“Park’N Fly” to the Halifax International Airport Authority. The business hasc.80% market share and is not a monopoly business. The acquisition of theVancouver business is still subject to certain conditions and the considerationwould be at c.C$348m, if the Vancouver business is not included.