UOB Kay Hian is keeping Nera Telecommunications at “buy” with a target price of 83.5 cents ahead of an expected special dividend payout following the disposal of its point-of-sale (POS) business.
NeraTel sold its POS business to Ingenico Group for $88 million cash, including $10 million held in escrow for nine months in case of any contingent liabilities.
“The price came in at a 453% premium to book value, 1.9x sales and 31.3x PE, and resulting in estimated one-off gains of $71.5 million,” says UOB analyst Edison Chen in a Tuesday report.
“We expect the company to pay out a hefty special dividend soon as sales proceeds come in,” Chen adds. The special dividend, which is expected in 3Q16, will bring 2016 dividend yield to an attractive 25.9%.
Chen believes the market has yet to price in the expected special dividend, and that the announcement should drive the share price closer to UOB’s target price.
Meanwhile, UOB expects NeraTel’s business to remain strong even after the sale of its POS business, given the strong orders. And it is likely to improve further with the birth of Singapore’s fourth telco.
“The interested parties have talked about Initial capex plans for 4.5G/Pre5G networks which range from $300 million to $800 million,” says Chen. “NeraTel will likely benefit from this anticipated spending in telecommunications and network infrastructure equipment.”
NeraTel closed 2 cents higher at 75 cents.
This article first appeared in The Edge Singapore Market Report.