UGL - UGL Limited

Ves · 3 April 2014

McLovin said:
I've been rolling this around in my head for a couple of days. What do you think the engineering business is worth? I'm actually not seeing much upside if a deal is done $1.3b. If you assign a value to the engineering business of ~$650m (which is based on a more normal EBIT) then the valuation right now looks pretty full.

This is of course based on the presumption that DTZ is sold. I guess what I'm saying is that Street Talk seems to be getting fed info that indicates the sale price will be at the low end. If, as craft suggested above, shareholders need to vote then I doubt they'd agree. Which may explain the sp strength

You could probably make a reasonable argument for anything in the following range:

Low-end

UGL Eng $600m
DTZ $1B
Net Debt ($662m)

Equity $938m

Around $5.60 per share

High-end

UGL Eng $1B
DTZ $1.5B
Net Debt ($662m)

Equity $1.838m

Around $11 per share

Market is probably pricing it towards the low-end because there is talk / rumour of DTZ being sold on the cheap to private equity without much say from shareholders (ie. no benefit of compounding long-term), and the mean earnings of the Engineering business going forward are being priced at or below this year's estimates.

McLovin · 3 April 2014

Ves said:
You could probably make a reasonable argument for anything in the following range:

Low-end

UGL Eng $600m
DTZ $1B
Net Debt ($662m)

Equity $938m

Around $5.60 per share

High-end

UGL Eng $1B
DTZ $1.5B
Net Debt ($662m)

Equity $1.838m

Around $11 per share

Market is probably pricing it towards the low-end because there is talk / rumour of DTZ being sold on the cheap to private equity without much say from shareholders (ie. no benefit of compounding long-term), and the mean earnings of the Engineering business going forward are being priced at or below this year's estimates.

Cheers, Ves

I really lost interest in this when it looked like a trade sale was what was going to happen with DTZ. But all these fundies getting on board leads me to believe that the trade sale might not end up happening and a distribution to shareholders might be the end result.

skc · 3 April 2014

McLovin said:
I've been rolling this around in my head for a couple of days. What do you think the engineering business is worth? I'm actually not seeing much upside if a deal is done $1.3b. If you assign a value to the engineering business of ~$650m (which is based on a more normal EBIT) then the valuation right now looks pretty full.

That's the same conclusion I reached.

McLovin said:
This is of course based on the presumption that DTZ is sold. I guess what I'm saying is that Street Talk seems to be getting fed info that indicates the sale price will be at the low end. If, as craft suggested above, shareholders need to vote then I doubt they'd agree.

This process has been dragging on for some time. I wonder if they've been to the major insto holders and get a sense of whether such a deal will be supported.

McLovin said:
Which may explain the sp strength

There's always the question of what they plan to do with the proceed. Chances are there'd be a combination of capital return and special dividend (if they have franking credits). The market seems to like that on most occassions... perhaps forgeting sometimes that "Sheep's wool comes off the sheep's back".

http://www.sacu.org/proverb16.html

Ves · 3 April 2014

McLovin said:
Cheers, Ves

I really lost interest in this when it looked like a trade sale was what was going to happen with DTZ. But all these fundies getting on board leads me to believe that the trade sale might not end up happening and a distribution to shareholders might be the end result.

It's a bit of a rock and a hard place situation for those (like me) who continue to hold. I don't see it going much lower than $6-$6.50, but there's a big risk that the upside would be limited in the case that you become a forced seller. The demerger and the continued exposure to DTZ (in its own separate listed ASX entity) is the ideal scenario.

McLovin · 3 April 2014

skc said:
The market seems to like that on most occassions... perhaps forgeting sometimes that "Sheep's wool comes off the sheep's back".

http://www.sacu.org/proverb16.html

I like that. I might use the Chinese version to really sound intelligent.

Ves said:
It's a bit of a rock and a hard place situation for those (like me) who continue to hold. I don't see it going much lower than $6-$6.50, but there's a big risk that the upside would be limited in the case that you become a forced seller. The demerger and the continued exposure to DTZ (in its own separate listed ASX entity) is the ideal scenario.

Yeah there doesn't seem to be much downside but equally there isn't much to the upside if the numbers $1.3-$1.4b prove to be where a deal is done. That's what has kind of made it unattractive to me. Short-term there won't be a pop in the SP if the deal is done and long term the compounding of DTZ will be gone.

There is of course the third possibility that if PE if rebuffed by shareholders, they might lob a bid in for the entire company.

craft · 16 June 2014

UGL sells DTZ for net proceeds of about 1 Billion. From my perspective that’s a poor outcome for shareholders.

Are major shareholders on board? Given who they are I find it a little surprising unless they have been privy to a little ‘special’ insight.

If all the debt was now cleared that would leave around 250M of proceeds free so market seems pretty steady post sale in valuing contracting at ~ 900M ??

skc · 16 June 2014

craft said:
UGL sells DTZ for net proceeds of about 1 Billion. From my perspective that’s a poor outcome for shareholders.

Are major shareholders on board? Given who they are I find it a little surprising unless they have been privy to a little ‘special’ insight.

If all the debt was now cleared that would leave around 250M of proceeds free so market seems pretty steady post sale in valuing contracting at ~ 900M ??

Engineering EBIT was $36m in H1. Allowing for say $6-8m of corporate overhead, the engineering division should have EBIT ~$60m a year. Assuming interest = $0 as all debt is repaid, NPAT ~$42m. With the sector the way it is, the valuation seems a bit high imo.

craft · 16 June 2014

skc said:
Engineering EBIT was $36m in H1. Allowing for say $6-8m of corporate overhead, the engineering division should have EBIT ~$60m a year. Assuming interest = $0 as all debt is repaid, NPAT ~$42m. With the sector the way it is, the valuation seems a bit high imo.

Yer I thought it was a being offered a bit more generosity then extended to other pure contractors at the moment.

Although it will have one of the more robust earning streams and a clean balance sheet. But then potential for hand grenades has too exist until the industry adjusts to new growth rates.

skc · 16 June 2014

craft said:
Yer I thought it was a being offered a bit more generosity then extended to other pure contractors at the moment.

Although it will have one of the more robust earning streams and a clean balance sheet. But then potential for hand grenades has too exist until the industry adjusts to new growth rates.

At 31 Dec 2013, UGL had $123m of cash and $780 in debt. You would think something like $200-250m in debt could/should stay on the balance sheet. So with $1B net proceed they can potentially do a $500m capital management with a combination of buyback (not that their share is undervalued) or capital return. That's almost $3 per share and it's the only reason I can think of that's supporting the current valuation.

They've been mulling the sale of DTZ for over a year, and they couldn't even announce today what they plan to do with the proceed? It's almost like the management wanted to see what the market reaction was like before deciding what is the final capital structure of the firm. It wouldn't surprise me to see a big "sell the fact" day when the capital management decision is announced.

McLovin · 17 June 2014

This really looks like a dud deal for UGL shareholders. DTZ is growing quickly and over time will probably also get a multiple re-rating to some of its larger peers. TPG just need to hang on to it for a few years let it grow and then IPO it in the US. It should have been spun off IMO.

Ves · 17 June 2014

McLovin said:
This really looks like a dud deal for UGL shareholders. DTZ is growing quickly and over time will probably also get a multiple re-rating to some of its larger peers. TPG just need to hang on to it for a few years let it grow and then IPO it in the US. It should have been spun off IMO.

If the media rumours are correct, and they actually do plan to use the proceeds to purchase another engineering business, for instance parts of John Holland or Tenix, then they have effectively swapped a business like DTZ with fairly stable and growing earnings to which they can deploy excess FCF, to another highly cyclical, unpredictable business with little earnings visibility and higher capital requirements. That would be the height of stupidity.

McLovin · 8 October 2014

McLovin said:
That makes two. He has an excellent record in business, and given his departure and now today's news you can't help but think there's something in the allegations.

Oh hello! This could be worse than cooking the books.

Corporate services group UGL paid Hong Kong’s embattled chief executive CY Leung, millions in secret fees in return for his support for its Asian business ambitions.

The arrangement is outlined in a secret contract dated December 2, 2011, before Mr Leung was elected chief executive. In the contract UGL agreed to pay the Beijing-backed politician £4 million pounds (about $7 million).

Even worse...

Mr Leung was a director and shareholder of DTZ and was chief executive of its Hong Kong and Chinese operations. The payments were made in two instalments, in 2012 and 2013, during his term as after he became Hong Kong’s top official.

This could get very serious.

http://www.afr.com/p/national/ugl_paid_hk_chief_millions_in_secret_PIa0RgKyQY6dtvBKTEeSVP

skc · 8 October 2014

McLovin said:
Oh hello! This could be worse than cooking the books.

Even worse...

This could get very serious.

http://www.afr.com/p/national/ugl_paid_hk_chief_millions_in_secret_PIa0RgKyQY6dtvBKTEeSVP

Hmm... very interesting.

The protesters in HK are demanding the resignation of CY Leung. This is quite a convenient excuse for Beijing to use if they want to get rid of him. Eventhough Beijing has been very supportive of Leung and unwilling to listen to the protestor's demand, one can't help but wonder about the perfect timing.

skc · 31 October 2014

skc said:
At 31 Dec 2013, UGL had $123m of cash and $780 in debt. You would think something like $200-250m in debt could/should stay on the balance sheet. So with $1B net proceed they can potentially do a $500m capital management with a combination of buyback (not that their share is undervalued) or capital return. That's almost $3 per share and it's the only reason I can think of that's supporting the current valuation.

UGL announces a $3 per share capital return...

skc · 6 November 2014

Another day, another dodgy thing done by UGL. Shares fell 15% today on the back of a cost blowout on the Ichthys LNG project. The crazy thing is, UGL's joint venture partner, CH2M Hill, already warned their own shareholders about possible provisions 3 months ago. Whereas UGL decided that it's not worth disclosing. It only held its AGM last week.

To rub salt into shareholders' wound, UGL also decided that the writedown is not important enough for its own announcement. So it was buried at the back of a capital return announcement. Very poor form.

http://www.smh.com.au/business/mini...n-power-plant-at-ichthys-20141106-11i4ar.html

ROE · 6 November 2014

skc said:
Another day, another dodgy thing done by UGL. Shares fell 15% today on the back of a cost blowout on the Ichthys LNG project. The crazy thing is, UGL's joint venture partner, CH2M Hill, already warned their own shareholders about possible provisions 3 months ago. Whereas UGL decided that it's not worth disclosing. It only held its AGM last week.

To rub salt into shareholders' wound, UGL also decided that the writedown is not important enough for its own announcement. So it was buried at the back of a capital return announcement. Very poor form.

http://www.smh.com.au/business/mini...n-power-plant-at-ichthys-20141106-11i4ar.html

you lucky getting $3 capital return it could have been worse they could wasted it on some silly acquisition
dont have any or hold any

McLovin · 7 November 2014

skc said:
Another day, another dodgy thing done by UGL. Shares fell 15% today on the back of a cost blowout on the Ichthys LNG project. The crazy thing is, UGL's joint venture partner, CH2M Hill, already warned their own shareholders about possible provisions 3 months ago. Whereas UGL decided that it's not worth disclosing. It only held its AGM last week.

To rub salt into shareholders' wound, UGL also decided that the writedown is not important enough for its own announcement. So it was buried at the back of a capital return announcement. Very poor form.

http://www.smh.com.au/business/mini...n-power-plant-at-ichthys-20141106-11i4ar.html

UGL has some terrible corporate governance issues. Way back in this thread somewhere someone posted about their reputation in the industry as being a bunch of cowboys. With DTZ gone, I can't see any reason why you'd want to own this business. It's just too hard.

Down another 8% today.

Miner · 17 November 2014

UGL gave away about $3 per share and tomorrow it will be quoted X CC. So would the share be dumped tomorrow ? Common sense says yes but how much.
I had great respect for UGL but there are years since I knew the company technically not as a share holder.
All symptoms of UGL are reminding me FGE I lost a fortune there.
Will wait to see market reaction tomorrow when it opens for trade

skc · 18 November 2014

Miner said:
UGL gave away about $3 per share and tomorrow it will be quoted X CC. So would the share be dumped tomorrow ? Common sense says yes but how much.

All else being equal, it will open $3 lower than it closed today. The vast majority of holders are prepared to hold for the capital return, so there's little reason, in the absence of new news, to dump on Ex-date.

Miner · 18 November 2014

skc said:
All else being equal, it will open $3 lower than it closed today. The vast majority of holders are prepared to hold for the capital return, so there's little reason, in the absence of new news, to dump on Ex-date.

Ditto.
What is a sheer coincidence that FGE burnt because of power project and looks like UGL is getting hammered for a power project too. The common theme between these two (one gone) is lack of competency and business acumen to manage power project. It does need more brain than running a simple fabrication and cranage project.

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