Major  shareholder  committed  to  sell  its  stake.  Finzsoft  Solutions' (Finzsoft) majority shareholder,  a party also associated with Mr  Holliday, has committed to accept the offer of NZD3.00/share for its entire 65.92% stake.  Silverlake  Axis's  (Silverlake)  management  has  noted  the  strong synergies between Silverlake's  and Finzsoft's products and solutions, on top of a natural alignment of target customers in the Asia Pacific.

Attractive  takeover  price.  At  NZD3.00/share,  the  offer  values  the Finzsoft stock at c.8x FY15  (Mar)  P/E,  assuming Finzsoft  earns  NZD3m in FY15. It has already booked NZD2m in earnings for 1H15. At 8x FY15 P/E, it would certainly be an attractive takeover price for Silverlake.                                                                                                                                                                                                      

Opens  doors  to  new  markets.  We  believe  this  acquisition  would  be positive for Silverlake, especially in the longer run, as  this may enable it to enter into the Australian  and New Zealand markets  -  with the help of Finzsoft's experienced management team and the latter's connections in these two countries.

Maintain  SELL  with  a  SGD1.03TP.  Even  though  the  takeover  is positive, we still believe  that current valuations for Silverlake remain tad too rich, unless the company  accelerates its earnings growth in the next few years.  We believe  that the positives of clinching its  biggest deals in the Wing Hang-OCBC and RHB-CIMB-MBSB mergers may have already been  priced  in.  Moreover,  these  deals  are  likely  to  impact  Silverlake's earnings  from  FY16  onwards  only. We  maintain  our  SELL  call  on  the stock with a SGD1.03  TP, pegged to a 21x 2014 P/E peer average, as there  are  potential  execution  risks  regarding  this  deal,  and  its  larger regional peers are currently trading at a much lower P/Es.

 

Source: OSK-DMG