Ezra Holdings sets aside intention to raise fresh capital

Talk of dual listing is premature at this stage. According to press reports, Ezra’s Managing Director Lionel Lee was quoted as saying that London is an attractive place to do a dual listing but no decision has been made given current market conditions. We do not rule out a possible dual listing but believe such a move is premature at this stage given that its subsea earnings have yet to show the desired results.

A move to do a second primary listing on depressed earnings may not be viewed positively. On a more positive event, the recent takeover of Global Industries by Technip has set a pricing benchmark for the sector: the deal is valued at 20x FY12F P/E and 1.33x FY11F P/B on consensus estimates. At similar valuations, we estimate that Ezra will be valued at S$1.70-2.50/share. Maintain BUY with an unchanged TP of S$1.44 on 12x FD FY12F EPS.

Still looking for raise new funds? Earlier this month, Ezra announced its intention to raise fresh capital via perpetual capital securities but we think the exercise has been set aside given choppy market conditions. We believe the company is looking for 6-7% yield on the perpetual capital securities, which is slightly above the yield on its three-year unsecured guarantee debt of 4.78% (due in 2013).

Volatile market conditions may also impact the sale of the non-core units as potential bidders may take a wait-and-see approach before making new acquisitions. Assuming no disposals in the next 6-9 months, we estimate net gearing to hit a peak of 1.3x in mid FY12F. We expect management to scale back on huge capex plans (aside from Constellation) until net gearing falls below 1.0x.

Takeover of Global Industries sets a pricing benchmark for the sector. The recent takeover of Global Industries, a US-based offshore construction and subsea specialist, by Technip for US$1.1b was valued at 20x FY12F P/E and 1.33x FY11 P/B on consensus estimates. We note that Global Industries reported US$61m losses in 1H11 with US$201m backlog orders as at end Jun 2011 vs. Ezra’s 9M11 net profit of US$28m and >US$600m backlog for its subsea unit. At similar valuations, Ezra’s share price is valued at S$1.70-2.50.