Australia | Sep 21 2015
-Appeal in Oz move to comprehensive reporting
-Takeover provides access vs building share
-Shareholders likely to want more
By Eva Brocklehurst
Veda Group ((VED)) has been pounced on by Equifax, a US-listed credit bureau and related information services provider. A conditional, non-binding offer has been made at $2.70 a share, cash. This is subject to due diligence and will require Australian Foreign Investment Review Board approval, among others.
The offer implies a FY16 price/earnings ratio of 26.6x and represents a 35% premium to the last close for Veda. Deutsche Bank notes an 8.0% premium to its valuation. Equifax does not compete in Veda's markets – at present – but has a similar business, with a focus on credit information and fraud as well as debt recovery analysis and employment verification.
Growth initiatives are in the same areas, leveraging increased demand for authentication in the online environment. The strong strategic and financial appeal of Veda, with the move to comprehensive credit reporting in Australasia and the company's leading market share, is clearly apparent, Deutsche Bank maintains.
The offer price represents a slight premium to the broker's valuation but ignores upside potential. For shareholders to forgo the upside a substantially stronger premium would be required. Deutsche Bank maintains a Buy rating and raises its target to $2.70.
The approach represents a way of buying into Australia's consumer credit bureau market, in Citi's opinion, as opposed to the move by Experian to actively build its own position directly. The consideration in the two approaches, Citi observes, comes down to the fact that Veda has a 85% market share and, while displacing a dominant incumbent is difficult, a genuine challenger can eke out a share.
Also, Australia's move to a comprehensive credit environment changes the way in which industry participants compete. There is a lack of visibility as to when such credit reporting will gain critical mass and whether the status quo, vis-a-vis Veda's dominance, remains intact. On this subject, Citi also flags the fact that Dun & Bradstreet's Australasian business was recently sold to private equity, which may result in more competition in due course.
Challenger brands may win volume over time but Citi believes the transition will be slow. The broker cannot rule out a counter bid, with currency movements and synergies the primary drivers, and retains a Buy rating and $2.46 target.
Veda intends to evaluate the proposal and update the market in due course. FNArena's database has three Buy ratings and one Hold. The consensus target is $2.49, signalling 5.2% downside to the last share price.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
