Is Keppel worth ‘buying’ now?
Analysts still see a massive 40% share price upside on Keppel, despite the stock having fallen over 20% since early August.
- Keppel shares are down 21% since Temasek withdrew offer
- Analysts rate the stock a 'buy' with 40% return potential
Singapore marine and property conglomerate Keppel Corporation (SGX: BN4) continues to see its market cap decrease, a month after Temasek Holdings took its partial purchase offer of Keppel off the table.
As at 12:00 SGT on Wednesday 09 September 2020, the Keppel stock is trading at S$4.24 a share. This is the stock’s lowest price since March 2009.
Why did the Keppel share price fall to a 12-year low?
On 11 August 2020, Keppel’s share price sunk 12%, after sovereign wealth fund Temasek Holdings announced that it would invoke a material adverse change clause and not proceed with its plans to acquire an additional 30.55% of shares in Keppel.
Temasek’s decision to walk away from the deal came shortly after Keppel reported second quarter losses amounting to S$698 million, which breached an offer pre-condition.
Temasek’s offer withdrawal also coincided with the approval of the demerger between Sembcorp Industries (SCI) and Sembcorp Marine (SMM) a day later – an exercise in which the state fund would play a key role.
The pre-conditional cash partial offer (set a S$7.35 a share), which would have given Temasek a controlling majority if successful, was first announced last October.
Notwithstanding, Temasek remains Keppel’s largest shareholder with a 20.45% stake.
Since then, Keppel shares continue to trend downwards, on the back of increased global market volatility and economic uncertainty. They are now trading roughly 21% below pre-announcement prices.
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Where do brokers stand on the Keppel stock?
Keppel has an average 12-month share price target of S$5.96 from 12 analysts polled by Bloomberg, as of 09 September 2020.
This represents an estimated upside of 40%, based on the most recent price of S$4.24.
The stock has also received a consensus rating of ‘buy’ in the same analyst survey.
Morningstar senior equity analyst Chokwai Lee had earlier maintained a fair value share price estimate of S$7 on Keppel, citing that the company’s long-term strategy (via its Vision 2030 plan) ‘remains intact’.
Furthermore, he believes that the stock ‘remains undervalued at the current share price, underpinned by its diversified businesses, which continue to do reasonably well during the Covid-19 outbreak’.
UOB analyst Adrian Loh also reiterated a ‘buy’ call on the stock, but lowered target price by 6.3% to S$6.70 from S$7.10.
While the offer withdrawal was a ‘negative surprise’ to Loh, he posited that ‘not all is lost since we note that neither the original partial-offer announcement nor the offer withdrawal contained any moratorium clause’.
Thus, UOB believes that there is still a chance for Temasek to return to the table with a revised offer in the next six to 12 months, ‘assuming that SCI and SMM successfully demerge and that there is no secondary wave of Covid-19 infections’.
Meanwhile, DBS’ Ho Pei Hwa is less optimistic, downgrading the stock to a ‘hold’ rating with a much lower target price of S5.50 (down from S$6.40).
While Ho remains ‘sanguine’ on the group’s longer-term prospects, near-term stock upside could be capped by operational headwinds as well as weak property and offshore and marine outlook.
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