How much is unprofitable Neptune Orient Lines worth?

It could be sold for up to US$1.8b.

How much will a potential buyer pay for shipping giant Neptune Orient Lines? According to UOB Kay Hian, NOL’s equity value currently comes up to US$1.8 billion.

The value was derived using a possible equity offer of $0.89 per share at a transaction multiple of 11.9x EV/EBITDA.

Using KPMG’s Transport Tracker for April 2015, UOB Kay Hian noted that the average transaction multiple for the transport sector was 11.9x for 2014.

“We use core EBITDA as NOL will transact as a stand-alone liner business. Our unadjusted EBITDA is US$450m, which is comparable with consensus FY15F EBITDA estimate of US$447m. The equity value is highly sensitive to the EBITDA estimate, changing 3% for every 1% change in EBITDA. While our estimated offer falls short of our target price of S$1.08, 11.9x represents a 10% premium over NOL’s estimated 10.8x 2015F EV/EBITDA, a fair deal considering it is hardly profitable at this juncture,” UOB Kay Hian said.

“ Using the divestment of APL Logistics as a guide, Temasek is likely to seek a valuation multiple above 11.9x. The logistics business was transacted at an implied 15x EV/EBITDA, significantly over the mean transaction/IPO multiple of 9.6x/9.8x and trading multiple of 11.4x. As seen from the sensitivity table on the right, a 10% increase in the EV/EBITDA multiple would increase the equity valuation by 28%,” the report added.

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