A short write up on Silverlake-axis

(Vested interest)

Silverlake is interesting, in my opinion. There are plenty of blog posts regarding the numbers, its FCF etc, so I will not dwell into it. When razor99 wrote a short seller report, it cause the stock to lose some 80% of the value, by suggesting mainly that the numbers are not real and prop up by complicated IPTs. The Deloitte Singapore report while suggesting some better clarity and transparency could be handed with regards it its IPTs, nonethelss give it a clear bill of heath and suggest that the numbers are good. You can read the report here.

What then ills this company, that it cannot even reover to half of its glory. As I read through the ARs and look that the various issues, I found the followings:

1) Results is not longer growing, since its acquisition of Sungard Ambit.
2) It could be over-valued when it is hot, and people are just coming to reality with it.
3) It report its earnings in Ringits and ringits is facing headwinds.
4) GIT, an company in which it has an 20% stake and has intention to sell 8 million shares, has been suspended since March.

I found 4) to be most intriguing and there is plenty of updates from this webpage 

GIT is suspended pending restructring, while it is still suspended, the details of the transaction is already out. It is buying another company for 300 mio, of which 21.8% is paid in cash, and 78.2%  in shares placement. There will also be another tranch of placemnet  to 5 investors for 280 mio cash. Part of the cash will be used to fund the acquisition but the bulk of it will be for expansion plans.

So what is the price paid?

序 号 转让方 持有标的公司 股权比例 股份对价金额 （万元） 股份发行数量 （股） 现金支付 （万元） 1 北京睿韬科技有限 责任公司 60% 14,076 2,765,422 3,924 2 宁波镇海翔易融联 投资管理合伙企业 （有限合伙） 40% 9,384 1,843,614 2,616 合计 100% 23,460 4,609,036 6,540

10% discount to its 20days average price prior to its suspension, and that valued the GIT shares at 50.9 CNY. The new investors pledge not to dispose the shares within the next 36 months.

In terms of PE, the deal is crab, but A-shares seem to have crabby over-valuation, including that of GIT itself. But there is profits guaranteed clause:

"宁波镇海翔易融联投资管理合伙企业（有限合伙）及北京睿韬科 技有限责任公司（“补偿义务人”）承诺，上海睿民在 2016 年度、2017 年度及 2018 年度合并报表口径下归属于母公司所有者的扣除非经常 性损益后的净利润分别不低于 2,000 万元、2,600 万元和 3,380 万元。"

20 Mio, 26 mio and 33.8 mio for year 2016-2018. Not too bad a deal, if you ask me. Because GIT annual NP is CNY 32,948,983.24. GIT will grow more than the dilution of 15%. And the discount of 15% versus 10% dilution do not seem excessive too.  

The website posted an research report calling for a "buy" after the acquistion with a target price of 87CNY, what caught my attention is not the price target but the PE. 150 X (what the F+*&)

"若考虑并购业绩增厚及增发股本摊薄影响,我们预计2016-2018年备考EPS0.68/0.92/1.22元。暂不考虑收购和增发影响,我们预计公司2016-2018年的EPS为0.58/0.80/1.06元,参考同行业可比公司,同时考虑到:(1)公司在金融云平台领域的领先的布局和资源优势,(2)金融信息化领域拓展带来的业绩高增长,我们认为公司应享有一定溢价,给予公司2016年动态PE150倍,6个月目标价为87.00元/股,维持“买入”评级。"

2016 Q1result of the target company is 4,132,354.09. But that is because the big expense research fees which amount to 16 mio for the whole of 2015 is missing. I wonder why they are confident of profit guarantee (With an compensation clause, not say say only) of 20 mio? It is because there is snergy in research expenses? Or that the 16 mio in 2015 is one-off? I did not dig further.

So, if there is no monkey business at GIT and assume 8 million shares sold at  50CNY sold, we are looking at 80 mio SIngdollars. 

GIT issue does not seem to be an issue to me.

How about point 1)? That it is no longer a growing company. Only time will tell if Ambit is a good deal, by reading the annual reports of the customers of silverlake, OCBC, RHB, and CIMB, all three mentioned investing in technology to enhance customers' experince, increase productivity, etc, there is no mention of cost cutting in this area. I think the sales team headcount would be under the chopping board first, OCBC mention the integration of Wing Hang system into OCBC, so I believe the process is still on going and the recurring income should be stable or growing. 

I could be well wrong about all this. I am an armchair investor, as for currency weakness, that is one I am willing to bear as I do not think Ringgit is going to be much lower than 3:1 currently. 

So, what do you think?