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KALKINE DAILY 06/06/2014 + SAI Global

Jun 07, 2014

In today’s daily we have covered stock research on SAI Global (Sell). To view Top 20 Dividend Stocks click here

S&P 500 was up 12.58 points or 0.65% on Thursday and closed at 1940.46. The Dow and the S&P 500 both ended at new highs on Thursday after the European Central Bank (ECB) cut rates to record lows. The number of Americans filing new claims for unemployment benefits rose last week, but the underlying trend continued to point to a firming labor market. Markets are currently focused on Friday’s U.S payroll report for May. It is expected to show job growth slowed and unemployment rate ticked up. Twitter Inc. and Amazon.com Inc. soared more than 3 percent as Internet shares jumped.

The prospect of lower Eurozone rates and increased liquidity helped the gold price rally $10 to $1253 an ounce after trading at a near four month low. ECB’s measures would reassure investors that it was committed to supporting the region’s recovery and should be thus positive for European stocks in the short run. The Xetra Dax in Frankfurt smashed through the 10,000 level for the first time before sinking back to close just 0.2% higher at 9,947.
 

S&P 500 Daily Chart (Source – Thomson Reuters)
 
 
S&P ASX 200 was down by 7.9 points or 0.15% on Thursday and closed at 5436.9 points. Singapore listedFrasers Centrepoint $2.6 billion bid for Australand might result in an $85 million profit for Stockland due to its holding. Approaches have been made by private equity buyers for the Vintage Cellars liquor chain of Coles. ANZ Banking Group is looking to expand in India after getting permission from Reserve Bank of India to open two more branches. NAB has announced its substantial shareholding in Bradken Limited with a voting power of 5.15%.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 


Stock of the Day – SAI Global (SAI)
 
Sai Global Limited provides organizations worldwide with information services and solutions for managing risk, achieving compliance and driving business improvement. Its segment includes Information Services, Compliance Services, Assurance Services and Corporate Services. Information Services Division provides the information required to comply with Standards, regulations, directives and legislation wherever its clients operate worldwide. Compliance Division provides technology enabled business solutions and enterprise staff and third party training. Assurance Division helps organizations manage risk, achieve process or product certification and drive improvement by providing training, registration audits and supplier management programs. Corporate Services provides company secretarial, legal, financial, information technology, human resource management, investor and public relations and internal audit services to the Company, and central management services to the business units.


SAI Sales Revenue (Source – Company Reports)

SAI announced that it received an unsolicited indicative conditional and non-binding acquisition proposal from Pacific Equity Partners to acquire 100% of SAI shares via a scheme of arrangement. The indicative price range is A$5.10-A$5.25 per share. In the very same announcement, SAI announced that that the contract of CEO, Stephen Porges, had been terminated less than six months after joining SAI. His appointment was long awaited and came after significant time and cost had gone into the process. Chairman Andrew Dutton becomes Executive Chairman. We believe that the board was looking for a more rapid programme of change. SAI also highlighted A$9m significant items associated with headcount reduction, office consolidation and CEO transition costs.


SAI Revenue Analysis (Source – Company Reports)

Historically we have observed SAI mostly trading between a range of 10-20% premium to market. There have been outliers when SAI has traded either in line with market and/or a 30% premium to market but these have been only for short periods. The $5.25 bid price essentially represents more than 40% premium to the market and hence is considerably higher than historical ranges. 


SAI daily chart (Source – Thomson Reuters)

Based on the improvement opportunities available across the business we believe private equity is the logical buyer of SAI. The upside for SAI is competitive bidding resulting in a higher price for shareholders. The downside is that PEP walks and the stock de rates as the takeover premium is removed and the market digests the termination of the CEO. In our view the stock would have been sold off, if the CEO termination and the significant charges were announced in isolation from the offer. We see the current share price as a fair reflection of the underlying value of the business, risk adjusted for the required execution to deliver on earnings upside. We gave a BUY recommendation on the stock at the price of $3.85 on 24/02/2014. We are putting a SELL recommendation at the current stock price of $5.10.


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