SingTel's CEO of Group Digital Life division and CEO of wholly owned Amobee, hosted a call last week to discuss the acquisitions of Kontera (US$150m) and Adconion (US$209m). Macquarie Equities Research (MER) released a research note last Wednesday with an ‘Outperform’ rating and a 12-month price target of $4.15.
 

‌Impact
While MER sees these acquisitions as likely contributors to the longer term shareholder value and earnings of the group , they will remain drags on earnings in the near term - which is part of management's guidance for flat YoY earnings before interest, tax, depreciation and amortization (EBITDA) growth in FY15 (Macquarie estimates +2%).
 
They saw the acquisitions as building on to Amobee's digital advertising business, and following these acquisitions, management felt that Amobee had the key components required to build scale. Future investments (if any) are more likely to be in the video and data analytics parts of their digital life strategy which focuses on three areas ie digital advertising, video and big data/analytics.
 
Kontera's natural language process algorithms allow it to analyse online content, to provide insights to advertisers and their agencies to make better decisions with regards to their advertising campaigns.
 
Adconion meanwhile adds cross channel digital advertising capabilities to Amobee, and brings with it a physical sales force of over 100 and new advertising relationships.
 
Management confirmed that the working capital injections into these businesses which had a combined net tangible liabilities of US$94m were not included in the S$2bn allocation for Group Digital Life related acquisitions.
 
Key personnel of both companies will stay on at Amobee and appropriate retention programmes have been put in place, according to management.
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MER’s action and recommendation
Outperform maintained. SingTel remains MER’s top pick in the Singapore telecoms space. Strong performance in its Singapore business will in MER’s view support core earnings and cashflows as its Australian business restructures for growth. In the meantime, MER believes that improving prospects in India and Indonesia will fuel share price catalysts on its shares which trade at an undemanding 7.3x FY15 enterprise value/EBITDA while offering a 4% dividend yield.

Source: Macquarie Research - 23 Jun 2014