On 5th November, Convenience Retail Asia Limited disposes Convenience Stores for a cash consideration of HK$2,790 million. Such valuation translates to approximately HK$3.63 per share, based on the 768,154,974 Shares in issue.
I did my personal analysis of Convenience Retail Asia Limited (HKEX:831) in July this year. If you do not know what business Convenience Retail Asia is in, here is a quick summary.
Convenience Retail Asia Limited is a listed retailing member of the Fung Group. The company operates around a total of 600 Circle K convenience stores and Saint Honore bakeries in Hong Kong, Macau and the Pearl River Delta. The company also operates 9 Zoff eyewear shops in Hong Kong.
With the disposal of its 600 Circle K convenience stores which is bulk of its businesses, the company is left with Saint Honore bakeries and Zoff eyewear shops.
The purchaser is Couche-Tard HK Limited, a wholly-owned subsidiary of ACT, a company listed on the Toronto Stock Exchange (stock code: ATD.A and ATD.B).
Reasons for the disposal of Convenience Stores
Convenience Store Business principally serves the Hong Kong market with an operationally intensive model involving a heavy logistical set up and supply chain infrastructure, given the wide range of products it carries.
Recent social and economic development (including the COVID-19 pandemic) in Hong Kong has spurred the management team of the Company to examine the long-term strategic options of the Convenience Store Business in Hong Kong taking into account its target customer-base (e.g. tourists, students and office workers), and future investment required of the Convenience Store Business in and beyond Hong Kong.
The management team of the Company considers that the brands of the Remaining Group (Saint Honore, Mon cher and Zoff) are perceived to be more suited to leveraging on the use of internet and online platform, to be more appealing to middle-income customer base (as opposed to tourists, students and office workers) and to be relying less on logistical set up and supply chain infrastructure.
Is the disposal beneficial to shareholders?
Shareholders will receive a special cash dividend of HK$3.85 per share. In a way, this means unlocking shareholder value and allowing Shareholders to immediately benefit from the
Special Cash Dividend.
What will happen to its business?
The remaining group has a network of 130 stores as at 31 October 2020, under its portfolio brands of Saint Honore, Mon cher and Zoff. In the announcement, it was mentioned that the disposal will allow the remaining group to improve operational efficiency.
The remaining group envisages a strategic transformation into a leading high quality specialty retailer with continued focus in Hong Kong and the Greater Bay Area.
My Opinion
The share price has ran up since the announcement of the disposal has been made. If you have bought below the price of HK$3.85, basically, you are getting the remaining businesses for free since the special dividend pay out is HK$3.85.
The share price is also expected to fall after the special dividend payout. Thus, for those who bought higher than HK$3.85, you might want to consider taking opportunity of the price run up and lock in profits.
The Extraordinary General Meeting will be held next Monday, 7 December 2020 to pass the resolution.