Doubts Emerging Over PBL De-Merger

This story features PARABELLUM RESOURCES LIMITED. For more info SHARE ANALYSIS: PBL

By Chris Shaw

Following an announcement by the Federal Government late last week of proposed tax changes Publishing & Broadcasting ((PBL)) has had to delay a court hearing into its de-merger proposal, which may also result in a delay to the shareholder vote on the proposal that was due to occur on November 23rd.

The market reacted to the news by pushing down the share price of the stock yesterday, UBS suggesting increased volatility in the stock is likely in the short-term as there is now an increased risk the de-merger may not actually go ahead.

While both UBS and Credit Suisse still expect the deal will proceed ABN Amro is more cautious, pointing out management has announced they are reviewing the entire de-merger process.

This leads the broker to suggest the de-merger is now in the balance as if it was simply a tax issue the announcement would be more likely to have been along the lines of a delay until further details have been worked out with the tax office.

ABN expects the announcement will lead to some further short-term share price weakness and it has downgraded its rating to Hold from Buy, though this is in response to recent share price strength rather than due to the uncertainty over the proposed de-merger.

Other brokers have made no change to their respective ratings, UBS pointing out its $22.20 per share valuation is unchanged whether or not the de-merger actually proceeds.

This looks conservative next to Credit Suisse’s $25.00, the broker not changing its assessment as on its reading there would only be an impact if post the de-merger the company were to sell some assets, such as a stake in the Crown or Burswood casinos.

As a result, it takes the view the proposed changes would not make the deal less attractive than if the company were to remain a single entity. Citi is not so sure, suggesting the tax changes mean there is now some doubt as to whether or not the de-merger is in the best interests of shareholders. The broker also expects if the current structure is retained the market may react unfavourably as there would be a lack of transparency within the company.

Overall the FNArena database shows the stock is rated Buy four times and Hold five times, with an average price target of around $21.90. Both ABN Amro and Deutsche Bank have lifted their price targets, the former as greater disclosure regarding future investments by the gaming division justify the removal of a 10% discount it previously had applied.

Having traded at more than $21.00 per share in recent sessions the stock today is slightly stronger and at 10.50am was up 16c at $20.01.

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