• Reiterate BUY, new SGD1.70 TP from SGD1.65, 17% upside and 6% FY25F yield. ComfortDelGro has acquired a 100% stake in Addison Lee – one of London’s largest private hire vehicles fleet operators – for GBP269.1m. We assess the acquisition as earnings accretive. Based on the cost of debt to fund the acquisition, it raises our 2025Fearnings by 6-7%. We have conservatively increased our 2025F earnings by 4% and maintain that CD will see a better 2H24 amidst seasonality, contributions from recently completed acquisitions, and improving margins for its UK public transport business.

• Addison Lee is London's biggest minicab firm with >5,000 vehicles as per its 2023 financial statements. This includes 1,021 full EVs, 625 zero-emissionscapable hybrids, and >1,000 Ultra-Low Emissions Zone or ULEZ-compliant internal combustion engine or ICE vehicles. The business was started by founder John Griffin in 1975, who sold it to US private equity firm Carlyle Group in 2013 for a reported GBP300m. Cheyne Capital and Liam Griffin, son of John Griffin, regained control of the business in 2020. Addison Lee acquired London black cab operator ComCab in Jul 2021 and London private hire rival Green Tomato Cars in Jun 2023. During 2021-2024, the company’s net profit swung from a loss of GBP23.2m in 2021 (FYE August) to a profit of GBP7.7m in 2024. The adjusted EBITDA has grown from GBP7.9m to GBP35m during the same period.

• Deal details. CD is acquiring the business for GBP269.1m. The deal, which will be on an ex-cash and ex-debt basis, is expected to be completed in Nov 2024. As of the end of 2023, Addison Lee has debt of GBP150.4m, which we assess carries a borrowing cost of 10.9%. This debt will be fully repaid as part of the acquisition. Assuming the cash balance remains unchanged YoY, excash the enterprise value of the acquisition stands at GBP236.7m. This implies a trailing EV/EBITDA of 6.8x. CD plans to fund the acquisition using SGD-denominated debt, which would accrue significantly lower borrowing costs. Based on the cost of debt to fund the acquisition, the acquisition would have increased our 2025F earnings by 6-7%.

• Remain positive on the outlook. We expect CD to deliver strong growth in 2024-2025, helped by contributions from the recently completed A2B, CMAC Group, and Addison Lee acquisitions. We anticipate improved margins for its UK public transport division, and expect the improvements seen in 2Q24 for its taxi business to be sustained.

• Our TP adds a 6% ESG premium to CD’s fair value, which is based on its 3.4 ESG score vs the 3.1 country median.

Source: RHB Securities Research - 29 Oct 2024