Superloop: Getting back to business

About the author:

Nick Harris
Author name:
By Nick Harris
Job title:
Senior Analyst
Date posted:
17 May 2019, 1:49 PM
Sectors Covered:
Telecommunications, Technology and Financial Services

Earlier this year QIC made a highly conditional proposal to acquire Superloop (SLC) at A$1.95 per share and was in an exclusive due diligence process. This week SLC advised that the SLC Board and QIC were unable to agree to a transaction and have discontinued the period of exclusivity. The exclusivity period has not resulted in an acceptable offer emerging, but another bid emerging is still not entirely out of the question.

M&A probably off the table but we weren't there for it anyway

Our view was, and still is, that Superloop is worth buying at current levels with or without a takeover bid. While no acceptable offer has emerged, a bid from any number of parties is still a possibility. We'd prefer to see business as usual from SLC as we still see significant upside should they be able to monetise the substantial asset base.

What's the appeal of Superloop?

SLC shareholders have faithfully invested their capital and four years of time (since the mid 2015 IPO) supporting the SLC build phase. The final piece of this build phase (which completes the ability to sell to SLC's competitive advantage) is SLC's stake in the submarine cable connecting Singapore to Perth to Sydney. These submarine cables are due to go live by June 2019. From this point SLC has a competitive advantage as the only on-net provider of communications services between and within Hong Kong, Singapore and Australia. We assume somewhat successful execution which clearly isn't guaranteed. However, we think the SLC organic investment case looks compelling. The assets are built and paid for and the cost base is set. At this point a large portion of incremental revenue falls directly to the Profit/Free Cash Flow lines.

Investment view

We continue to see significant long-term upside upon successful execution, which has the potential to create substantial free cash generation and shareholder value. This is why we are long-term supports of the SLC business.

On news of a possible bid, we set our share price target at A$2.64 which applied a 25% control premium to our valuation. We now remove this 25% control premium and revise our share price target back in-line with our valuation.

We retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and upgraded share price target for Superloop (SLC). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer(s): Morgans Corporate Limited was the Lead Manager to the placement and accelerated non-renounceable entitlement offer of shares for Superloop Limited and received fees in this regard.

Analyst owns shares.

Analyst has a threshold interest in the financial products referred to in the detailed report. For these purposes, a threshold interest is defined as being a holder of more than $50,000 in value or 1% of the financial products on issue, whichever is the lesser.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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