According to analysts at Banc Sabadell, Thales has shortlisted CAF and Hitachi for the purchase of the French company’s signalling business. Stadler is said to have dropped out of the process, with bids having been submitted at the end of last week. French press reports flag that Thales would have valued the subsidiary at 1.8 billion euros vs 1.6 billion euros and the offers received would have been lower. So it could decide not to sell. We recall that Thales’ signalling business has a turnover of ~1.7 Bn euros and EBITDA of 125 Mn (48% of CAF’s EBITDA’21e). Therefore, assuming that the 1.6 billion euros published as a possible sale value (today’s rumour indicate, as we have said, that Thales could expect up to 1.8 billion) were EV, the implied multiple would be dec.13x (vs ~7x of CAF for 2021).
Valuation: Although the news has not been confirmed, it seems the options are increasing for CAF. The transaction we consider a good strategic fit, given that the Spanish firm wants to grow in the signalling business, which complements its offerings and currently represents less than 5% of sales. In terms of EBITDA margins, although the implicit level of the published figures is lower than CAF’s (7.4% vs 8.9% for CAF in 2021e), the purchase should help it win more integrated solutions contracts (with margins higher than the pure manufacture of rolling stock). However, the key will be the price paid for the company and how the operation is structured from a financial point of view. Even if we assume the incorporation of a financial partner with a 49% stake, the amount of the transaction for CAF (assuming the aforementioned price of 1.6 billion euros) would represent 43% of its EV (60% of capitalisation). And assuming that the business is consolidated, its level of DFN/EBITDA’21 would be close to 3.5x from the current 2.3x, a high level. So until the final details are known, CAF’s underperformance (-15% vs Ibex in 2021) could continue.
In terms of ratios, although the implied multiple for the purchase is considerably higher than that of CAF, it is also true the company is already trading at a significant discount to the sector (-25%). And the uncertainty surrounding this transaction is putting pressure on the stock, which has fallen -8% in the last three months (-10% vs Ibex).