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Analyst sees earnings dilution from SATS funding of WFS acquisition

It could be offset by strong cash flow.

Airline catering service provider, SATS Limited, recently disclosed how it will fund the recent acquisition of Worldwide Flight Services (WFS) but this could affect its earnings.

According to CGS-CIMB, the funding plan could lead to earnings dilution of c.5% in the CY 2024F. 

“With more details on the funding plan available, our model illustrates a potential earnings dilution of c.5% to CY24F on the assumption that the net interest savings from potential refinancing of WFS’s outstanding debt and the increase in financing cost from the term loan will be negligible, as well as an unchanged net profit contribution of S$36m,” it said.

But it expects there could be “potential synergies” that would be received from the group that would improve profitability in the future. 

Some possible cost savings from debt repayment given the group’s strong cash generation may also help mitigate the dilution.

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