INTERNATIONAL. The proposed merger between Dufry AG and Dufry South America (DSA), announced on Monday, has met with widespread approval from the investment community. And Dufry CEO Julián Díaz has told analysts that the deal will pave the way for an exciting new growth chapter for the travel retail group.
As reported, parent company Dufry Group said on Monday that the rationale for the merger is to establish a simplified corporate structure with a unified shareholder base, allowing it the flexibility to seize growth opportunities.
Dufry CEO Julián Díaz said at the time: “We want to exploit further growth opportunities and continue to play an active role in the growing consolidation of the fragmented travel retail market.”
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“We have realised that the trend has changed… it’s time to continue with a growth path and a growth strategy“ |
Julián Diaz Chief Executive Officer Dufry Group |
Investment group Vontobel described the merger as “a positive step”. It said: “With the merger, Dufry is creating a simplified structure and increases the strategic flexibility… the special dividend to DSA shareholders will lead to a higher net debt, but due to the capital increase, shareholders’ equity will increase CHF450 million (net). There is still a risk that the independent board members will not approve this transaction, but we consider the merger a positive move for Dufry Group.”
Kepler Research raised its target price for Dufry shares from CHF80 to CHF90 [it closed last night at CHF72.10, not far off its 52-week high of CHF75 – Ed] “following an average 19% rise in basic EPS (underlying 10%) assumptions through 2009-11, given the company’s plan to merge with its 51% owned Dufry South America business, which will reduce by up to three-quarters the amount of group net profit currently given over to minorities, and as we factor in some recent shop openings (adding 1.5pp and 4.5pp to sales in 2010 and 2011 respectively).”
It added: “We believe the move will simplify accounting and increase liquidity (free float of new enlarged business 62% vs. 47% now). In addition, we suspect organic growth could surprise in 2010, given an ongoing improvement in airport passengers.”
Exane BNP Paribas was also impressed by the enlarging of the free float. It commented: “The transaction is appealing as it would enable Dufry to address some key investor concerns. It would: 1) simplify/improve the group’s ‘debatable’ corporate structure (and remove the issue of high minority interests); 2) enhance Dufry Group’s strategic/financial flexibility for future growth; 3) enlarge the free float of the combined entity to some 62% (from 47% for Dufry AG), thus increasing the limited liquidity.”
It commented: “The group said that November and December saw sharp trading gains in its emerging markets and the US; only Europe and the Caribbean region remained weak. This makes us very confident that our forecasts are within reach.”
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Later it noted: “This long- awaited deal is very positive as it removes two major uncertainties (corporate governance and liquidity) and gives investors access to a vehicle far more exposed to emerging markets. At 10x EV/EBIT 10e, Dufry remains an attractive vehicle to play the traffic recovery while showing strong structural growth prospects (in both duty free and duty paid).”
It concluded: ” We see this transaction as a strong catalyst for the share, after its 5% underperformance of the sector in the past month. On top of improving corporate governance and the free float, we think it will spur increasing investor interest in Dufry as it is now a good vehicle to play the dynamics in South America (c.50% of group EBIT) and is still poised to benefit from the upcoming recovery of air traffic.”
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Source: Dufry | |
Guillaume Rascoussier of Oddo Securities was more sceptical though still broadly welcoming of the deal: “The valuation of DSA is relatively high, but in the end the terms of the exchange are favourable to Dufry’s shareholders and make the deal significantly accretive,” he said.
“The merger should simplify Dufry’s corporate governance, provide greater clarity in its financial communication, and result in a more unified shareholder base. It should also help Dufry focus on emerging markets again following the acquisition of Hudson in the US (which was untimely in our view).
“Why DSA was floated in 2006 remains a pertinent question in hindsight, and the deal increases the group’s debt while reducing its financial room to manoeuvre. However, the timing and execution are opportune and are good news for the share. We will probably upgrade our valuations once DSA’s board has confirmed the proposal.”
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“What you’re going to see in 2010 is a significant increase in organic growth and an incredible increase in new concessions“ |
Julián Diaz Chief Executive Officer Dufry Group |
Speaking to analysts after Monday’s announcement, Diaz reiterated his core message: “I can say very clearly that this structure will significantly simplify the structure of the company and will enhance the profitable growth strategy that we have been following from the beginning at Dufry AG.
“The transaction makes a lot of sense from a business and strategic point of view.”
He said the company’s profitable growth strategy continues to be based on “three pillars” – organic growth, new concessions and acquisitions.
Diaz argued that the travel retail channel offers rich potential for growth, which would be rendered much easier following the merger.
“For example, today we have a global buying pool – we negotiate globally with the most important suppliers but we decentralise totally the buying power. The next step would be to create a global buying platform – we want to buy all the products for the different companies worldwide in a single place.
“The second important step we have in mind is to create a unique logistics platform worldwide. Today we have four logistics platforms – one in Miami, one in Switzerland, one in South America and one in Fort Lauderdale. In future there will only be one.”
Diaz was in upbeat mood when he spoke of likely 2010 trading conditions. While noting the difficulty of projecting in an uncertain climate , he said the trend of trading over November, December and January [to date] “is very positive”.
He continued: “We have realised that the trend has changed… it’s time to continue with a growth path and a growth strategy.
“I think what you’re going to see in 2010 is a significant increase in organic growth and an incredible increase in new concessions.”
He said the company was well placed to make acquisitions, and was already in negotiations with unnamed parties. Latin America offered particular opportunities he noted.
“I want to communicate that the strategy remains unchanged – acquisitions will be part of this company in the near future depending on the circumstances and the size of the transaction.”
MORE STORIES ON DUFRY
Dufry AG proposes merger with Dufry South America to pursue global and regional growth – 11/01/10
Dufry grows its global footprint with new deals in Egypt, Honduras, France and the US – 17/12/09
