Satyam Working to Keep Up Growth
Satyam Computer Services Ltd. (SAY) reported a solid fiscal fourth quarter of 2008 with revenues ahead of our estimates and earnings slightly below our estimates, both on dollar and rupee terms in the face of a weaker dollar. Additionally, improvement in blended billing rates, and attrition and utilization rates helped partly offset the currency impact on margins.
The company continues to make selective strategic acquisitions like that of Belgium-based S&V Management Consultants, a management consulting firm, to strengthen its supply chain strategy capabilities. It has also agreed to acquire Caterpillar Inc.'s (CAT) Market Research and Customer Analytics (MR&CA) operations. Satyam has employed a long-term strategy of increasing the proportion of offshore services to increase profitability of contracts.
Satyam has been facing strong wage pressures, and the company has been compelled to introduce overall development initiatives such as experiential learning and mentoring in order to contain its attrition rate. Moreover, strengthening of the Indian rupee may also hurt the company's future results in coming quarters, as over 85% of the company's revenues are derived outside of India.
Satyam, the fourth largest Indian software services provider, is currently trading at a discount to its closest peers, but in line with the industry median, at approximately 15.5x our fiscal year 2009 EPADS estimate of $1.46. Based on these strong results of the fourth quarter and the company's improved guidance, we have increased our revenue and earnings estimates for FY09.
Although we are maintaining our Hold rating on the shares of SAY, we are positively surprised by the higher than anticipated guidance for FY09. Thus, we feel that a P/E multiple between 16.1x and 16.4x our 2008 estimate may be justifiable and we have fixed our six-month target price at $23.75, based on our 2009 EPADS estimate of $1.46.
AMB Property Still Performs OK
We maintain our Hold rating on the shares of AMB Property Corporation (AMB). The company again had a good quarter, reporting funds from operations (FFO) of $1.06 per share, well above our $0.96 per share estimates. The outperformance was due to a $0.32 per share incentive fee.
The company's core portfolio continues to perform well, and AMB is one of the two best industrial REITs in terms of asset quality and geographic diversification. AMB's private capital business continues to grow as assets under management increases, which are now over $10 billion. The company expects private capital revenue to more than double in 2008. Demand from institutional clients is strong and growing.
Rental rates are still rising in most markets and occupancy is stable. The company has reaffirmed full year 2008 guidance, which at the midpoint would represent 12.5% growth over 2007. We believe that operations will hold steady in 2008, although industrial fundamentals are noticeably declining in the US. Occupancies are falling in most US gateway markets. We expect global trade to slow in the coming quarters, which will put pressure on the lease up and sale of development properties.
On a P/FFO basis, AMB is trading at an approximate 20% premium to industrial REITs and a 20% discount to office REITs that we cover. Shares have dropped approximately 15% over the past three months due to a general sector sell off. With the sell off, the company is now valued at an approximate 11% discount to NAV. We are projecting 14% FFO growth in 2008, which would put the company above its peer group. We are setting our six-month price target at 12x 2008 FFO estimates or $48.00 per share.
