This article first appeared in The Edge Financial Daily on December 13, 2017

KUALA LUMPUR: Shares in OldTown Bhd rose as much as 10% in early trade yesterday after global coffee maker Jacobs Douwe Egberts BV (JDE) offered to buy the OldTown White Coffee cafe chain.

OldTown shares hit an intraday high of RM3.17 before paring gains to end the day up 20 sen or 6.94% at RM3.08. The stock was among the most actively traded on Bursa Malaysia with 3.73 million shares changing hands. Its market capitalisation stood at RM1.43 billion.

On Monday, OldTown received a takeover offer from JDE in a deal that values OldTown at RM1.47 billion or RM3.18 a share. Major shareholders that collectively hold a 51.5% stake in OldTown have given their blessings by providing the irrevocable undertakings to JDE.

The deal valued the company at a forward price-earnings ratio (PER) multiple of 18.5 times its earnings for the financial year ending March 31, 2019, but analysts said the offer price is fair.

“This is after comparing it with its historical mean, a recent similar transaction, and closest local peer. The offer price is 11.6% higher than our previous DCF (discounted cash flow)-derived target price of RM2.85, which we think would offer good opportunity for shareholders to realise their investments,” said RHB Research Institute analyst Soong Wei Siang in a note to clients yesterday.

He is recommending that investors accept the offer, in view of the decent offer price versus the challenging business outlook going forward.

AllianceDBS Research analyst Cheah King Yoong deems the offer to be reasonable and fair.

“The offer price of RM3.18 is in line with our RM3.15 target price (TP) for the group, which is pegged at 19 times calendar year 2018 (CY18) PER (21 times CY18 PER based on consensus estimates),” he said.

MIDF Research, in its note, said OldTown is currently facing a tougher outlook going forward due to the challenging outlook for its cafe outlet operation with the reduction in the number of local outlets, and tapering growth of the beverage manufacturing segment in light of the stronger ringgit as this will have a stronger downside impact on export sales than the benefit gain from a lower raw material costs.

“JDE’s valuation of RM3.18 per share represents an attractive premium of 22.31% over our last target price. Hence, we recommend that shareholders accept the offer,” said its analyst Nabil Zainoodin.