Sats shares fall 21% following news of Worldwide Flight Services deal

Shares of Sats plunged to a two-year low after the stock resumed trading on Thursday morning, following news of the company's deal to buy the world's largest air cargo handler for $1.64 billion.

The ground handling and catering provider announced on Wednesday that it will acquire Paris-based Worldwide Flight Services. The combined entity's network will cover trade routes responsible for more than 50 per cent of global air cargo volume.

Despite those benefits, the mainboard-listed company's shares sank as soon as trading began on Thursday, and closed the day at $3.07, down 20.7 per cent. The last time the counter went below this level was during the Covid-19 pandemic in September 2020.

Investors dumped the stock after Sats revealed that it would seek to raise up to $1.7 billion from its shareholders to fund the deal, with the balance coming from internal cash resources.

The company will make a rights issue of 609 million new shares at $2.79 per share to raise the bulk of the funds.

According to some analysts, this would depress Sats' theoretical ex-rights price to $3.49 per share.

"The market does not like rights issues," said the executive director of a local brokerage house.

"You saw this with Sembcorp Marine, Singapore Airlines and other stocks. That said, this deal is a good one for Sats in the longer term, as it makes the company a formidable global air cargo player. But the market can be short-sighted at times."

Several investment houses, such as UOB Kay Hian and DBS Bank, are said to be reviewing their valuation metrics for Sats.

OCBC Securities downgraded the stock's target price to $3.50 from $4.80 previously, citing a post-cyclical peak in cargo and near-term earnings headwinds.

But CGS-CIMB gave it a target price of $4.47, while Smartkarma gave it a pro forma price of $4.95.

Despite the negativity at the moment, many market insiders seem sanguine about the longer-term prospects for the company, and said investors will ultimately make a judgment on the merits of the deal and its contribution to the bottom line.