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ComfortDelGro makes Small Acquisition of Australia Non-emergency Patient Transport Company

ComfortDelGro makes an acquisition of an Australia transport business.

This will be a business targeting a different segment of needs.

With 144 vehicles. It offers a range of healthcare transport services to major metropolitan hospital networks including walker, hoist and stretcher transport services, and specialist services for high acuity and complex patients. NPT also operates a registered training organisation that is qualified to deliver and assess a range of non-emergency healthcare transport, first aid and resuscitation courses in Australia.

The purchase price is SG$30 mil, which likely will be internally finance. NPT was purchased at 5.6 times EBITDA.

This looks like a splendid acquisition to most people versus the deal that they struck with Uber for the Lion City Car Rental (LCR).

That looks more like a forced deal since in the past 2 years LCR have not been very profitable.

The narrative seems to be that LCR would translate majority of CDG’s 300 mil cash holding to asset. This deal seem to indicate that CDG can still make smaller acquisitions.

Personally, I think the company should make more of these accretive additive purchases, including the purchase of the other 50% of CabCharge they did not own earlier.

Each of these deals may be 7-10% in return on investment. Depending on the cost of equity you use, this may or may not be attractive.

My benchmark is to use a 10% cost of equity and if the company purchase a business that earns them greater than 10% cost of equity, over a long period of time, with little problems, this is a good business.

Looking at it another way, such small purchase converts their low yielding cash to higher yielding investments. It makes the company look better optimized.

While purchasing the business at 5.6 times EBITDA looks cheap by my usual standards of 6-8 times EV/EBITDA, do note that CDG have always traded below 6 times EV/EBITDA.

Their latest EV/EBITDA is roughly 5.25 times.

While CDG earns about S$400 mil in profit, their depreciation is S$400 mil.

It depends how much of the assets in NPT are the vehicles, how much are the license to operate and management.  NPT have to continue to purchase vehicles, to replenished the current ones who have been depreciating.

Thus while EV/EBITDA measures how cheap or expensive a business is, we should also look at the deal from the ROIC aspect, and earnings yield aspect (both of which are unavailable now)

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