Private Equity Sees Value In Australian Market

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This story features COMPUTERSHARE LIMITED, and other companies.
For more info SHARE ANALYSIS: CPU
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Chris Shaw

International private equity player Blackstone Group is bullish on opportunities in Australian equities, group president Tony James viewing the market as the perfect way to benefit from Asian growth without incorporating any emerging markets risk.

James suggests the Australian market offers good value when viewed from both an overall earnings multiple and a market to book value measure, especially given better growth prospects than for the US market.

The other attractions of Australia for James includes the value of the country's national resources and the level of national savings. As well, James notes superannuation funds in Australia are a very strong creator of cash capital.

This offers opportunities for private equity groups such as Blackstone – opportunities James sees as extending to the values placed on privately owned companies. James points out Blackstone is likely to have three of its four business divisions active in the Australian market – private equity, property and credit markets.

Blackstone is currently working on three or four private equity transactions in Australia, which would use some of its US$15 billion in available equity capital. This could be leveraged up to as much as US$50 billion in funds for investment both in Australia and other global markets.

Companies of interest from a private equity perspective in James's view include those with attractive growth prospects but that need extra capital or growth capital. The depth of bank debt markets in Australia is an issue in this regard, James noting availability of debt is a key in big deals as foreign bank participation is necessary.

Noting the comments of James, Moelis and Company has identified a list of Australian companies it considers to be of interest from the perspective of possible leveraged buyouts. This list includes Computershare ((CPU)), IOOF Holdings ((IFL)) and Fairfax Media ((FXJ)) among the larger capitalisation companies.

Others likely to be of interest according to Moelis include STW Communications ((SGN)), Boart Longyear ((BLY)), Emeco Holdings ((EHL)), Campbell Brothers ((CPB)), Adelaide Brighton ((ABC)), Fleetwood Corporation ((FWC)), Dexus Property ((DXS)), Charter Hall Office ((CQO)), ING Office ((IOF)), Cash Converters ((CCV)), iiNet ((IIN)) and CSG Ltd ((CSV)).

Moelis notes in most cases these stocks are currently trading on below market average earnings multiples, while offering solid free cash flow yields and interest cover ratios.

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