Thai Union Frozen Product
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Acquiring big and small companies
Thai Union Frozen Product Plc (TUF)
- Acquiring King Oscar
TUF has approved to acquire 100% shareholding in King Oscar AS in
Norway, the largest premium sardine supplier in Norway, the US, and
Australia and one of the world’s top ten seafood brand with over 140 years
of experience. The acquisition would be completed around September -
November 2014. TUF has been focusing on M&A plans, aiming to increase
sales to US$5bn in 2015 and US$8bn in 2020.customers. The acquisition
deal is expected to be complete within 4Q14.
- Small but strong brand, benefiting TUF
King Oscar is considerably smaller than TUF, making up only 3% of TUF's
total sales. However, as King Oscar has a strong market position in
Scandinavia long-term business synergy would helps expand TUF's market
in the US, Europe, and Asia, where people are more accustomed with
sardine than tuna products. In addition, as King Oscar's production facilities
are located in Norway and Poland (totaling 135 million cans/year), it is
advantageous for accessibility to premium sardine from the North Sea and
Baltic Sea. The value of the deal is not disclosed. Under the assumption that
EV/EBITDA is 8.2x (same level as the MW Brands deal in 2010), we initially
project that TUF spends B2.75bn (US$83m) on the acquisition of King
Oscar. Capital invested on the acquisition probably comes solely from TUF’s
cash in hand (B8.4bn at end-2Q14). TUF's FY2015-2016 net profit is
projected to increase by B150m or 2.9% from the forecast, under the
projection that income grows by 6%p.a and average net profit margins is
5%p.a. (higher than TUF's average because King Oscar mainly focuses on
its premium products under its own brand).
- Small upside. Wait for large M&A deals
We derive FY2014 fair value (DCF, 7.34% WACC) at B76, implying 22%
upside. We will switch to use FY2015 fair value of B86 (implying 22%
upside) after 3Q14 earnings report. Dividend yield is expected at 3.2%p.a.
(paid semiannually). We reiterate BUY.
