SINGAPORE - Keppel Corp&rsquo s purchase of a 50 per cent stake in leading European asset manager Aermont Capital is a strategically savvy move which will catapault the Singapore company to the higher ranks within the league of global asset managers.

 

That seems to be the emerging view of some analysts following the mainboard-listed company&rsquo s announcement that it had sealed the lead to buy 50 per cent of Aermont Capital for up to &euro 356.855 billion (S$520 million), and would pick up the remaining 50 per cent by 2028.

 

&ldquo We are positive on the acquisition, which leapfrogs Keppel&rsquo s asset management capabilities and geographical reach,&rdquo wrote Mr Foo Zhiwei of Macquarie Equity Research. &ldquo The deal is highly strategic. Accretion appears small at the onset, but can be as much as $94 million by 2030 as FUM (funds under management) is fully deployed and scales.&rdquo

 

Mr Foo has an &ldquo outperform&rdquo call on Keppel, with a 12-month price target at $7.88.

 

The stock closed at $6.85 on Dec 1.

 

UOB Kay Hian was even more upbeat.

 

&ldquo Keppel&rsquo s acquisition of top-ranked Aermont Capital, which has a major European real estate presence, arguably puts the company into the league of global asset managers,&rdquo wrote analyst Adrian Loh. &ldquo This acquisition will deliver growth as well as investor and geographic diversification. How the combined entity takes advantage of the macro and real estate issues in Europe over the next five years will be worth watching.&rdquo

 

The investment house has a &ldquo buy&rdquo call on the stock with a target price of $9.09 - an almost 33 per cent upside to its closing price on Dec 1.

 

Announcing the deal - which will be funded by cash and treasury shares - on Nov 29, Keppel said Aermont would bolster the Singapore company&rsquo s recurring income and funds under management (FUM), which is projected to grow by $24 billion to over $77 billion from the current $53 billion.

 

On a pro forma basis, had the acquisition been effective on Jan 1, 2022, earnings per share for Keppel would have been 52.4 cents versus 52.1 cents actually achieved. Recurring income would have risen to $512 million versus $503 million, while net tangible assets per share of Keppel would have increased to $5.50 from $5.49. Keppel added that the acquisition would have minimal gearing impact on a pro forma basis.

 

Aermont, which has a 16-year track record and enjoyed a gross internal rate of return of 25 per cent, is one of the largest owners of real estate on the European continent, operating in 10 cities across Europe.

 

Its investments include assets and businesses in the office, student accommodation, workforce housing, luxury hospitality and production studio infrastructure sectors. 

 

Aermont is ranked the highest among Europe-based real estate firms in terms of funds raised in the last five years.

 

&ldquo We view the deal as highly strategic,&rdquo the Macquarie report added. &ldquo Price tag aside, it is an acqusition of 1) talent, 2) capabilities, 3) geographic presence, 4) clientele access, and 5) a top mid-sized asset manager in Europe. The acquisition leapfrogs Keppel&rsquo s asset manager capabilities by years. We think this justifies the implied valuation of 13x EV/EBITDA, which is already attractive vs peers.&rdquo

 

EV/EBITDA is a measure of enterprise value, or the company&rsquo s total value, against earnings before interest taxes, depreciation and amoritsation.

 

Meanwhile, UOB Kay Hian noted that apart from launching Keppel into the European real estate space, the deal also expands the company&rsquo s network of blue chip institutional investors or limited partners (LPs) with eight of Aermont&rsquo s 15 largest LPs being new to Keppel.

 

&ldquo Clearly, given the longevity of Aermont&rsquo s track record, this deal also adds a number of senior fund managers to the company,&rdquo the research house added.

 

Macquaries sees Keppel re-rating as it transforms into a global alternative asset manager.

 

&ldquo As recurring fee income grows alongside assets under management growth, we expect ROE (return on assets) to improve, driving the P/B (price-to-book) multiple re-rating. Capital recycling remains key which underpins the dividend yield of about 5 per cent.&rdquo

 

Announcing the deal on Nov 29, Keppel CEO Loh Chin Hua described the acquisition as a transaction of growth which will be immediately earnings accretive and significantly expand Keppel&rsquo s footprint beyond the Asia-Pacific.

 

&ldquo The acquisition of an initial 50 per cent stake in Aermont, with a pathway to an eventual 100 per cent ownership and full integration, marks a major strategic step forward in Keppel&rsquo s ambition to be a global asset manager and operator, availing us of a highly attractive European platform with strong recurring fees and a premium network of partners.&rdquo