One of the best performers on the All Ordinaries this month has been the SeaLink Travel Group Ltd (ASX: SLK) share price.
Since the start of the month the travel company’s shares have gained a remarkable 43%.
Why is the SeaLink share price on fire in October?
Investors have been scrambling to buy the company’s shares this month after it revealed plans to acquire Transit Systems for an enterprise value of $635 million.
Transit Systems is Australia’s largest private operator of metropolitan public bus services. It is also an established international bus operator in both London and Singapore. It currently operates approximately ~3,129 buses across 40 contracts in Australia, London and Singapore on behalf of governments, transport authorities and private bodies.
In FY 2019 it generated revenue of $895 million and pro forma normalised EBIT of $61 million.
Is this a good deal?
Judging by the share price reaction, I think it is fair to say the market is very happy with this deal. And it isn’t hard to see why.
Management believes the acquisition of Transit Systems will create Australia’s leading integrated land and marine passenger transport business. Furthermore, it expects its enhanced scale and capabilities to compete for large government contracts and ability to provide multi-modal solutions.
The acquisition is also expected to diversify its end-market exposure, provide a pipeline of opportunities both domestically and internationally, realise synergies of up to $4.6 million, and be a whopping 20% earnings per share accretive.
Is it too late to invest?
Following the strong share price gain, SeaLink’s shares are now changing hands at 22x trailing earnings.
I feel this is still reasonable value for its shares given its positive outlook following this acquisition. As a result, I feel it could still be a decent option in the travel sector along with Qantas Airways Limited (ASX: QAN) and Webjet Limited (ASX: WEB).
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.