I'm not sure there is anything left with the underwriters, as I applied for the placement and got 6% of what I asked for from one broker, and nothing from another. I bought some on market today expecting that the market has deep pockets, and might bid this back towards where the SP was beforehand, and above TERP.
I admit I would be shitty if I was invested and this deal went down. Apparently a lot of managers from SG exiting their positions as part of this - a red flag. There will be some ORA holders who can take a CGT loss on selling their existing stock, and take up the entitlement, as long as they watch out for the wash sale rules and reasons for doing so. (I'm not advising on those rules - contact an accountant.) Anyway there will be some churn for a while I expect. That churn will be at its worst now and will gradually lessen IMO.
They appear to have bought at an EV/EBIT multiple that is higher than ORA's at present, 12.9x (for SG) v 11.8x. EBITDA multiples are the other way around with 7.7x for SG v 10x for ORA. So lots of depreciation relatively speaking. The pres says that about $750m AUD capital investment has taken place over the last five years, half of that very recently in Mexico. Assuming the necessary cap-ex has been carried out, cashflow might be good for a time.
Saying all that, I suspect they have bought a high quality business and it should have a higher multiple than ORA's existing businesses in any SOTP evaluation. It does seem to have been acquired at a not definitely unreasonable price. I've had the impression that there are advantages to being at the premium end of the market - maybe that is just TWE.ASX propaganda that has taken mental real estate in my mind. SG even keep some creative ownership of designs. I hope they are right about the strong moat re technical capabilities. Also the cost of building new plants is high ATM - so there is higher embedded value in existing plants than usual which also keeps competition from organic expansion weaker.
I think after the US has been managed well the market will give the benefit of the doubt until/unless there is evidence of poor performance. I'd imagine management will come up with some good news stories to justify this acquisition over time.
Good luck.
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Price($) | Vol. | No. |
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