Pelikan to buy European rival

Pelikan (RM1.63; Fully Valued; Price Target: RM1.35; PELI
MK)


The Edge Weekly reported that according to a source
Pelikan is close to acquiring a European-listed firm involved
in the stationery business as it steps up the group’s presence
in the region. The target firm is one of Pelikan’s strong
competitors in Europe and there were talks that Pelikan is
only interested in taking over the stationery business of that
firm.
We understand that the acquisition could potentially double
Pelikan’s FY10F revenue, and the completion of the
acquisition is expected to materialize by the end of this year.

The acquisition would be potentially financed via a
combination of external borrowings and some form of fund
raising. At end of Mar09, the Group’s net debt stood at
RM315.6m and net gearing was at 0.6x. In the event that
Pelikan has a cash call for the acquisition, there could be
dilutive impact to its EPS in the short term, but likely to be
positive over the longer term. In terms of earnings
contribution to the Group, we think that the acquisition
would not have significant contribution in the immediate
term as it is currently operating at breakeven level. However,
we expect to see positive synergic impact to the group in
the longer term.
We still maintain our Fully Valued call on Pelikan as its share
price has ran up recently (+37% ytd). We raised our target
price to RM1.35 (previously RM0.80), based on PE multiple
of 8x (from 5x), after rolling forward to FY10EPS. Our PE
multiple of 8x implies 32% discount to its peers based on
historical averages. Key re-rating catalyst on the stock would
be earnings improvement from faster than expected
recovery of the European economy.