EUR 850.00 For Business Accounts Only

Morningstar | Indicative Offer for Trade Me Looks Attractive but It’s Still Early Days. FVE Increased to NZD 5.70. See Updated Analyst Note from 20 Nov 2018

Apax Partners' nonbinding and indicative NZD 6.40 per share cash offer to acquire 100% of narrow-moat-rated Trade Me looks attractive on the surface. It represents a 28% premium to our NZD 5.00 fair value and is 25% above the prior close. It’s also 14% above Trade Me’s highest ever share price of AUD 5.61 achieved in 2016. We’re not entirely surprised by the offer considering similar recent private equity offers for Navitas, MYOB, Healthscope, and Greencross. Like the other targets, Trade Me is a reasonably defensive and highly cash generative business which should support a significant increase in net debt, under private equity ownership, from the current negligible NZD 64 million. Considering the early stage of negotiations, we don’t consider an acquisition a foregone conclusion. However, Apax has been granted due-diligence access which is a major hurdle overcome. Due-diligence was a stumbling block for the Navitas offer. At this stage, we think there’s a 50% probability of the transaction proceeding and we’ve increased our fair value by 50% of the offer premium, or by NZD 0.70 per share to AUD 5.70 per share. At the current market price of AUD 5.60, we consider the shares to be fairly valued. However, investors should be mindful that if a formal offer doesn’t eventuate, the share price will likely lose its current bid premium of AUD 0.81 cents. Also, if no further offers eventuate and the Apax bid is not increased, shareholders only have 7% upside to the current share price and may have their capital tied up for months should they decide to hold on for the offer price.