Friday, October 16, 2015

Singapore Post Ltd - Going global

TradeGlobal acquisition at a glance 
At US$168.6m (S$236m), the acquisition of TradeGlobal is the biggest SPOST has made to date. TradeGlobal is one of the top five end-to-end ecommerce players in the US based in Cincinnati, OH that services 50 leading brands in fashion, beauty and lifestyle (Tory Burch, Hugo Boss). While no financials were released, guidance is that it is loss-making but generating positive EBITDA and free cashflows, and the purchase price implies a cash flow multiple on par with peers’. 

Acquiring Jagged Peak at 18.8x TTM P/E and 7.1x EV/EBITDA
Jagged Peak is headquartered in Tampa, FL and provides cloud-based enterprise e-commerce software to support end-to-end ecommerce operations. It focuses on high-velocity consumer goods with clients such as NestlĂ©, Kimberly-Clark and LVMH. At US$15.8m for a 71.1% stake, we estimate that SPOST will pay 18.8x trailing 12-months (TTM) P/E and 7.1x EV/EBITDA which we view as reasonable. 

Synergy #1: Going global
With the two acquisitions, SPOST’s portfolio will expand from 15 monobrand clients to more than 100, of which >60 are international fashion brands. It will also handle a total gross merchandise value (GMV) of >US$3bn. There are vast opportunities to help clients expand internationally –  SPOST’s Asian clients are becoming increasingly global and want to expand to the US, while most of TradeGlobal’s clients lack online presence and the supporting fulfillment centres in ASEAN, Australia and New Zealand. 

Synergy #2: Technology
Both acquisition targets offer omni-channel SaaS technology which provides a one-stop order management solution across multiple retail channels. TradeGlobal’s expertise is in handling a large number of SKUs in a consolidated fulfillment centre, while Jagged Peak focuses on handling a few SKUs that have a high order rate (e.g. mobile phones). Access to both would equip SPOST with the capability to handle orders across multiple industries, especially apparel which is the fastest-growing segment globally. 

Reiterate Add, potential 8-15% upside to EBITDA
We keep our estimates intact pending the completion of both acquisitions. Jagged Peak generated c.S$5.3m in TTM EBTIDA. Based on peers’ EV/EBITDA multiples of 7-15x, we estimate that TradeGlobal could contribute S$16m-35m to EBITDA. Together, this represents potential 8-15% upside to our FY17 EBITDA forecast. Even after the two acquisitions, we estimate that SPOST would still have net cash of S$71m. We reiterate our Add call and DCF-based target price, with M&A to spur expansion and growth. 

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