Thursday, 30 June 2011

CWT - Earnings accretive acquisition (DMG)

The news: CWT announced the acquisition of a 73.81% stake in MRI Trading AG (MRI), a Switzerland-based commodities marketer, for US$94m. MRI engages in marketing copper, zinc, and lead non-ferrous concentrates and metals, as well as gold, molybdenum concentrates, and cobalt concentrates/metals to smelting and processing customers globally and also facilitates logistics and provides operations support services.

Our thoughts: We are positive on the acquisition as MRI’s business activities are complementary to CWT’s. While there will be minimal earnings dilution with the issue of up to 10m new shares (1.69% of existing number of shares) to MRI’s shareholders, we note that MRI’s FY10 earnings would make up 11.8% of CWT’s FY10 earnings. MRI’s acquisition proceeds would be partly funded via debt and cash. We maintain our BUY recommendation, while putting our TP of S$1.40 under review.

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