Stocks in Focus
Acquirer Company
Tabreed UH Equity | DFM Listed | Last Price : AED 2.84 | 52 Week High : AED 3.29 | 52 Week Low : AED 2.49 | Market Cap : AED 8.08 Billion | YTD Returns : -5.33%
Target Company
Multiply Group is the 100 % owner of the target company, PAL Cooling Holding LLC
Multiply UH Equity | ADX Listed | Last Price : AED 2.41 | 52 Week High : AED 2.54 | 52 Week Low : AED 1.46 | Market Cap : AED 26.99 Billion | YTD Returns : +16.43%
May marked one of the hottest months on record for the UAE. With temperatures soaring past 50 degrees and reaching a high of 51.6 °C last month, this was a record (in the history of the UAE, the highest temperature recorded was 52.1 °C in 2002). Amidst the ongoing intense heatwave, some news from the local stock markets is sending some respite. Tabreed has acquired Abu Dhabi’s PAL Cooling in a deal valued at AED 3.8 billion. Tabreed has partnered with the Netherlands-based fund CVC DIF for the transaction.
Deal Details
Please refer to the attached table.
Strategic Importance for Tabreed – Al Reem Island’s Fast-Growing Status as an Urban Commercial Hub
For Tabreed, the acquisition aligns perfectly with its framework of growing in sync with Abu Dhabi’s ambitious and large-scale growth in the housing and real estate sector. Should the deal go through, Tabreed could well be in line to compete with Empower as the largest District Cooling Operator by capacity in the Middle East. Empower currently has a contracted capacity of 1.8 million RT, whereas Tabreed has an installed capacity of 1.3 million RT. With the acquisition, Tabreed is expected to reach nearly 2 million RT (once all the PAL Cooling plants are operational).
PAL Cooling currently has concession agreements and partnerships with key developers, including Aldar and Modon. The majority of their projects are currently ongoing in key commercial and residential hubs, including Al Reem Island. Looking at Al Reem Island, which is fast emerging as the nation’s key commercial and residential hub, the company has five concessions, including 182,000 square meters currently under construction (Najmat Plant). Strategically, for Tabreed, three more plants of PAL are in planning or licensing stages with Abu Dhabi DoE. Once complete, the total plant capacity for PAL Cooling is expected to stand at 600,000 RT.
Tabreed v/s Empower Valuations
The current valuations comparison between the two suggests Tabreed has an edge over its Dubai peer, Empower. Typically, the EV/EBITDA multiples for district cooling operators range from 10 to 13 times. Before the deal, this multiple for Tabreed still appears cheaper compared to Empower’s (13x vs. 18x). Post-deal, however, the EV multiples might align closely with Empower’s current one (Assuming that capacity expansion would see Tabreed’s total RT approach Empower’s current RT). From the perspective of discount to intrinsic value, Tabreed’s current market price stands at a 23% discount to its fair value, compared to Empowers’ 13% discount.
The Big Leap In India
For an emerging superpower like India, controlling the temperature of a building or entire complex using running water from a centralized entity is still a relatively new concept. For some established hubs, including in Mumbai’s BKC and Gurugram commercial complexes, the AC consumption costs are a big part of the developers’ and, in fact, the tenants’ cost outgo. Over time, different models have shown that district cooling consumes less energy than traditional air conditioning. Tabreed already has one operational plant in Gurguram. Recent developments in the southern Indian state of Andhra Pradesh suggest even greater business potential for Tabreed. The state capital, Amravati, has lined up significant infrastructure capital expenditure ( INR 49,000 Crore allocated during the Indian PM Mr Narendra Modi’s recent state visit) with allocations to the trunk infrastructure projects (the district’s central cooling and heating system projects are considered to be a key part of this type of infra setup). Tabreed has already been contacted regarding this new project. For India, the requirement to transition to net zero implies a significant target market for these operators in the existing business and commercial hubs of Mumbai, Delhi NCR, Chennai, and Hyderabad.
