UGL has received mixed reviews on a potential split of its property and engineering businesses.
Shares in the diversified services company fell 2.3 per cent to $10.34 yesterday after an initial surge on Tuesday when a potential shake-up of the company’s corporate structure was announced.
Goldman Sachs has been appointed to undertake a review of the operation that will consider options including a potential demerger or structural separation of its burgeoning property business and its engineering arms.
Valuation estimates on a stand-alone basis for the property business, which includes global real estate acquisition DTZ, sit at $1.3 billion while engineering could fetch as much as $1.1bn.
But one analyst said yesterday’s share price fall reflected UGL’s underlying problems in the business such as completing the integration of DTZ, which it bought in 2011, and rebuilding its market position in engineering, operations and maintenance.
UBS said while it saw the theoretical rationale for splitting the assets — such as an improved focus on the individual businesses and potentially inviting interest from some of the largest property services players such as Jones Lang LaSalle — there was a trade-off of higher expenses and reduced diversification.
“We do not believe the market had been significantly undervaluing UGL’s property business relative to Jones Lang LaSalle and CB Richard Ellis as we believe that a discount is justified at present on the basis of UGL’s lower size and global scale relative to these peers,” UBS analyst Sam Theodore said in a client note.
“As such we do not foresee a significant valuation arbitrage from the current share price levels from corporate activity; however, we estimate (about) 15 per cent upside potential on current pricing.”
Deutsche Bank has a buy on UGL, saying the review was a possible means for unlocking embedded value. Bank of America Merrill Lynch analyst Duncan Simmonds said although the separation of the businesses made strategic sense, the timing was not ideal.
(Source: Lisa MacNamara, The Australian, 28 March 2013)