ComfortDelGro shells out S$109m for London bus assets aquisition

Its British bus fleet expands to 1,700.

According to OCBC Investment Research, ComfortDelGro announced yesterday that its wholly-owned subsidiary, Metroline Limited, will acquire a portion of FirstGroup plc’s London bus business and assets for approximately S$109m, which equates to a valuation of 5.2x EBITDA. 

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Pending the necessary regulatory approval, this deal is expected to be completed by mid-FY13. 

Significant boost for London bus operations
We view this deal positively as it will increase ComfortDelgro’s London bus fleet significantly by 494 to 1,700 and bring its market position to joint-second alongside Arriva London with a market share of around 19% (previously 12%).

In addition, with an annual turnover of ₤111m (~S$211m) and an operating margin of ~8%, ComfortDelgro’s UK bus revenue and operating profit should increase by ~37% to ~S$775m and ~S$61m respectively on a full-year basis (assuming FY12 figures).

Another point to note is that the acquired routes have about four years remaining on their service contract (typical contract life is seven years). 

Awaiting domestic developments
Coupled with a full year contribution from Deane’s Bus Lines – acquired in Aug 2012 for S$69.2m (valuation of 6.8x EBITDA) – the outlook for ComfortDelgro’s overseas ventures in FY13 remains positive, and we adjust our projections upwards to account for a halfyear contribution from this deal (~S$105m top-line increase).

In addition, we expect the SG fare adjustment to materialise by the middle of 2Q13, which should help alleviate pressure on operating margins for the SG bus operations.