Daily Brief Financials: Pendal Group, Link REIT, Edelweiss Financial Services, Road King Infrastructure, Guangzhou R&F Properties and more

• Pendal Group and Perpetual Ltd have entered into a SID where Pendal shareholders will receive 1 share of Perpetual for every 7.5 shares in Pendal, plus cash of A$1.976/share.
• While this is a premium to the last close and undisturbed prices, it is a discount to longer term prices. The Pendal Board has unanimously recommended the offer though.
• In the short-term expect short covering on Pendal Group (PDL AU) and increased shorts on Perpetual Ltd (PPT AU) as arbs step in to close the gap.

• On the 4 April, asset manager Pendal (PDL AU)‘s board unanimously determined the indicative cash/scrip Offer proposal from Perpetual (PPT AU) undervalued the current and future value of the company.
• Pendal And Perpetual have now entered into a SID such that Pendal shareholders will receive 1 Perpetual share for every 7.5 Pendal shares plus $1.976 cash for each Pendal share.
• The negotiation clincher was the increase in the cash component by A$0.306/share. Should the deal complete, Pendal will hold 47% in the enlarged entity.

• Pendal Group (PDL AU) entered a scheme implementation deed with Perpetual Ltd (PPT AU). The revised offer – scrip (1 Perpetual share for every 7.5 Pendal share) and cash (A$1.976).
• The revised offer throws in an 18.3% higher cash component as a sweetener. The offer implies a healthy acquisition multiple compared to peers.
• The offer is subject to shareholder and regulatory approvals. At the last close price, the gross spread to the current offer value of A$5.635 per share is 13.7%.

• At the beginning of the week, I was determined to have this post with a more bullish tone. Maybe it is a contrarian indicator.
• But as of yesterday’s market, I see that my efforts were rather over-optimistic.
• The note is what is in front of me rather than speculating we are at the change in trend.

• Edelweiss’ credit business is now normalizing with GNPA at 2.5% and NNPA at 1.8%. Credit costs came in negative as asset quality is improving and excess provisioning is being normalized. 
• Rest of the businesses continue to scale up well. Edelweiss is among the fastest grower in the mutual fund and insurance businesses. Wealth Management business continues to do well.
• At current valuation, Edelweiss is available cheap and as per our estimates, an investment in it has potential to more than quadruple by the end of FY25.

Road King’s H1/22 results were acceptable in our view. The company reported robust EBITDA growth and strong margin expansion, likely supported by deliveries of the higher-margin Hong Kong projects sold in FY 2021. Net debt improved marginally, in line with the stronger earnings.

That said, Cash/ST Debt was inadequate at 0.8x. Road King may face a funding gap for repayment of its USD 358 mn bonds in February 2023, though it should be able to bridge the gap through better cash collections in H2/22 or potential external financing (asset sales or equity issuances). Positively, the company has a well-spread debt maturity profile, with only one offshore bond coming due in 2023 and the next (USD 480 mn) due in September 2024.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Guangzhou R&F Properties