ComfortDelGro - DBS Research 2025-03-17: Double-digit Earnings Growth Momentum To Sustain Into 2025

• While concerns exist, we believe ComfortDelGro (SGX:C52) can sustain double-digit earnings growth of 14% y-o-y in FY25F following a robust growth of 17% in FY24.

Expanding horizons to Big Ben, Market scepticism on sustained double-digit growth unwarranted.

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• Notably, international EBIT contribution for FY25 could for the first time return to FY16’s level.

Was Addison Lee a good purchase?

• ComfortDelGro completed the Addison Lee (AL) for a sizable S$460mil on 7 Nov 24, raising questions whether this was a prudent investment. To address this, we examined the
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  2. strategic fit, and
  3. transacted valuation.

Industry Dynamics

• UK point-to-point industry showed robust recovery and improved profitability in 2023, trends that are expected to continue through 2025. Post-pandemic recovery saw the industry shift from losses to profitability, with most players returning to positive earnings in 2023. We anticipate this momentum will persist, driven by accelerating GDP growth and easing inflation in 2024 and 2025.
• B2B P2P business has higher margins, indicative of less intense competition. While the P2P market remains highly competitive, the B2B segment offers significantly better profitability. For example, Gett, whose B2B contribution rose from 61% in FY22 to 76% in FY23, reported a superior operating margin of 3.6% in FY23, improving substantially from -24% in FY22. Similarly, AL, with over 70% of its revenue from B2B, is positioned favourably for margin expansion.
• Current margin in B2B likely sustainable on potential high entry barrier. Uber has entered the B2B market through Uber for Business, however, competition remains relatively mild. AL’s established relationships with corporate clients (built over 50 years) and effective strategic execution. It has rolled out more than 1k electric vehicles and acquired ComCab, ComfortDelGro’s black cab business, in 2021, which likely improved its value proposition to businesses and contributed to its superior margins compared to peers. Given these factors, we believe AL’s current margins (11.3% in FY24) could be sustainable.
• Legal risk appears manageable despite recent tribunal ruling. The UK courts have typically sided with drivers on matters relating to minimum wages and employment benefits, with AL recently losing its case (Afshar and others v Addison Lee Limited). We estimate claims to be around GBP7mil based on the quoted GBP10k per driver compensation for the approximately 700 drivers involved, comfortably within AL’s GBP12mil provision. While there could be a cash outflow to settle the claims, we believe investors are unlikely to see a sudden significant exceptional expense to resolve these claims with potential for write-back. In addition, AL’s option to appeal the ruling remains open.
• Overall, we view the AL acquisition as sensible, considering the favourable industry dynamics and AL’s market-leading position in the B2B segment.

Strategic fit

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Zheng Feng CHEE DBS Group Research | Andy SIM CFA DBS Group Research | https://www.dbs.com/insightsdirect/ 2025-03-17 SGinvestors.io

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