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Trade Me result overshadowed by Apax acquisition

Emma Rapaport with AAP  |  28 Feb 2019Text size  Decrease  Increase  |  
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First-half profit for Kiwi classified website Trade Me has fallen 5 per cent because of a costly writedown linked to a multi-billion dollar buyout offer from a British private equity firm.

The dual-listed company, and New Zealand’s largest online auction site, said first-half profit slipped $NZ44.4 million ($42.6 million). This was due to one-off costs associated with a $NZ5 billion buyout agreement from Apax Partners in November last year.

Apax has offered to pay $NZ6.45 per share to buy the company.

Morningstar equity analyst Gareth James said Trade Me (ASX: TME) reported a solid first-half result in line with expectations.

In light of the Apax Partners offer, James has maintained his $5.86 fair value estimate. At 1pm, Trade Me's ASX-listed shares were flat at $6.12.

James continues to believe the offer is highly likely to succeed and that an alternative offer is unlikely.

"Trade Me’s agreement with Apax Partners restricts the company from soliciting and providing due diligence access to other potential offers which further reduces the likelihood of alternative bids," he said.

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Another key factor is the long-planned resignation of Trade Me chief executive Macdonald, who has been in the top job for a decade, which James says also increases the chances of the transaction proceeding.

Trade Me was acquired by Fairfax in 2006. Fairfax sold its 51 per cent stake in 2012, shortly before Trade Me listed in 2013.

James said growth came from the classifieds division, which comprises about 60 per cent of the group and which grew 12.9 per cent in the period. 

Within Classifieds, Trade Me Property increased revenue by 26.3 per cent, driven by the success of the new “Premium listing” product. Premium listings offer real estate sellers more ad space to show off their client's property and lure more online buyers.

Macdonald said the new Premium listing product had been "extremely well received" by real estate agent.

James expects Classifieds to be a driver of future growth due to the group's opportunity to increase sales of depth, or Premium, real estate listing products and the maturity of the General Items division.

Shareholders urged to accept takeover

The Apax offer was quickly backed by the Trade Me board - with the two companies entering into a scheme implementation agreement on 12 December.

Trade Me has advised shareholders to accept the deal, provided no superior proposal for the company is made. Shareholders will vote on the offer in early April.

Trade Me will not pay an interim dividend to shareholders because of the pending takeover.
The scheme's approval still hinges not only on a positive shareholder vote, but also on overseas investment office approvals and High Court orders.

"We carefully considered what is best for our shareholders, and while payment of an interim dividend would benefit some, it would also negatively impact others due to individual tax circumstances," chairman David Kirk said in a statement on Wednesday.

"If the scheme does not proceed, the board will consider a special dividend payment at the earliest opportunity."

Management remains confident in the trajectory of the business and aims to deliver between 5 to 8 per cent revenue and operating profit growth for the full-year.

"We expect to be in the top half of this range for both measures," management said.

"The performance of Trade Me Property is exceptional and should continue into the second half of fiscal-2019.

"However, motor vehicle market activity was weak between November and January, and this may impact listing volumes for Trade Me Motors."

. Emma Rapaport is a reporter for Morningstar Australia.

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