Break-up could unlock €1bn cash for investors
New CEO may decide a sell-off over medium term is best value for shareholders
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DCC could unlock up to €1bn of hidden value for shareholders above its €1.23bn market value if the fuel-to-healthcare products distributor were to be split up and spun-off piecemeal, according to analysts.
Stepping in as chief executive, Tommy Breen takes on the role of driving through Jim Flavin's "reappraisal" of DCC's overall strategic direction, aimed at finding ways of "creating shareholder value" from each of its 14 business units.
Though followers of the conglomerate believe the well-regarded Breen is unlikely to upset the apple cart in the short term, privately they say it may ultimately end up being broken up and sold off in lots. Breen has been with the company since 1985 and was appointed managing director last July, having previously run three of the group's five divisions.
"The funny thing is that had Flavin actually stayed, there would have been more of a chance of radical action in the near term -- to prove he could realise value ahead of his planned departure [in 2010]," said one senior Dublin stockbroker.
A fund manager said: "Do I see DCC being broken up within the next year? No. But there is a very strong chance that it will be over the medium term if the market does move beyond focusing on issues that hung over Flavin's head for the best part of this decade and start valuing the company on its very strong cash flow and defensive qualities."
Goodbody Stockbrokers analyst Dan Cavanagh has outlined three valuation scenarios -- low, medium and high -- that look at each of the group's five divisions and property portfolio individually.
Cavanagh's conservative valuation for the group's Energy distribution stands at €835m, rising to over €1bn in a more optimistic case. His top-end valuation for the IT distribution unit SerCom stands at €328m, while Healthcare is put down at €359m; Environmental, €247m; Food & Beverage €152m; and surplus property €70m.
Subtracting €171m of average net debt leads to an overall sum-of-the-parts valuation of €2.04bn in his most bullish scenario, or a conservative €1.7bn.
Another analyst, who declined to be identified, has a sum-of-the-parts range -- minus debt -- starting off at €1.7bn, rising to €2.1bn.
Bloxham Stockbrokers's prudent break-up valuation -- also net of debt -- comes in at €1.8bn, while its bullish case is almost €2.3bn.
- Joe Brennan
