Small-cap stocks to gain ground over privatisation surge

Privatisations rose from 14 in 2018 to 34 in 2019.

On 6 November, Citic Envirotech received an offer to voluntarily delist from SGX at an exit offer price of 55 cents, which represented a premium of 68.5% over 3M VWAP and 48.6% over the last closing price. This exit offer is only one of many privatisation practices gaining investor interest for the year.

According to UOB Kay Hian, an increase in the number of privatisation practices in Singapore could spark interest in deep-value small-cap stocks.

“We believe deep-value names with high margin of safety have room for further re-rating, especially in the current uncertain macroeconomic environment which faces risks of a trade war and slower growth. Companies with high cash reserves and dividend yields can weather any downturn better than peers,” wrote analyst John Cheong.

The number of privatisations rose to 34 in 2019, from 14 in the previous year, attributed to lacklustre valuation, lack of funding requirements, and backing from new partners. The highest premium offered this year was at 195%.