MAYBANK Securities has downgraded its call on ComfortDelGro to a contrarian “hold”, with a lower price target of S$1.60 versus S$1.65 previously.
This comes even after the land transport operator reported a positive set of third-quarter results, which the brokerage considered in line with expectations.
In a report on Friday (Nov 15), Maybank analyst Eric Ong said he had “some reservations” on the group’s recent acquisition of a 97 per cent interest in Addison Lee, a premium private hire, courier and black taxi provider in the UK.
While he acknowledged that the transaction “may be accretive” to the group, he also noted a challenging operating and regulatory landscape in the UK.
In his view, the acquisition also marks ComfortDelGro’s shift towards an asset-heavier business model coupled with Addison Lee’s “relatively low return-on-equity and growth prospects”.
This is given the competitive London taxi industry and Addison Lee’s “drivers’ worker status issue”, he said, referring to the company’s ongoing tribunal case over whether its drivers should be classified as workers as opposed to self-employed contractors.
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“Additionally, we think the group is likely to incur more capex on renewal/replacement of taxi vehicles with its larger fleet now, which could adversely impact its free cash flow,” said the analyst.
To recap, more than 700 Addison Lee drivers are seeking to be legally recognised as workers. The hearing began on Oct 28, and the drivers’ successful claim would entitle them to back-dated compensation including for holiday pay and minimum wage.
Citing the case’s leading law firm Leigh Day, the Financial Times on Sep 14 reported that Addison Lee was potentially facing more than £10 million (S$17 million) in damages.
RHB and CGS-CIMB are nonetheless positive regarding ComfortDelGro’s acquisition of the UK company, even as it could move the group’s balance sheet from a net cash to net debt position.
Reiterating its “buy” call on the stock with an unchanged S$1.70 price target on Friday, RHB believes the group’s earnings growth momentum can be sustained amid continued improvement in UK public transport margins, and contributions from the group’s Australian bus tender wins.
Analyst Shekhar Jaiswal said he was “fairly confident” of the company being able to sustain an estimated dividend payout ratio of about 75 per cent for the current financial year up until FY2026.
He also expects acquisitions including that of Addison Lee, in addition to an improving China taxi business, to contribute to ComfortDelGro’s taxi and private-hire vehicle business segment in 2025.
Separately, CGS-CIMB analyst Ong Khang Chuen said he estimated the Addison Lee acquisition to be accretive to ComfortDelGro’s FY2025 earnings per share by about 6 per cent.
Based on its Oct 23 report, the research house has an “add” call on the stock with a price target of S$1.70.
Shares of ComfortDelGro were trading S$0.02 or 1.3 per cent lower at S$1.47 as at 10.39 am on Friday.
