SGH divesting Brazil likely viewed as ‘addition-by-subtraction,’ says Stifel

Stifel analyst Brian Chin notes that SGH has announced plans to divest an 81% stake in its Brazil memory business for total cash consideration of $166M, including $28M payable 18-months post deal close. Back-of-the-envelope, the firm believes the transaction could be gross margin accretive by over 100 basis points, though adds that it is likely to decrease through-cycle earnings by 40c per share. Given SGH’s shifting strategic focus toward higher-value enterprise and industrial solutions, Stifel is more surprised by the timing than the outcome, but ultimately the firm thinks investors will view divesting Brazil as “addition-by-subtraction,” with management resources further freed to focus on the faster-growth HPC/AI IPS business. Stifel maintains a Buy rating on the shares with a price target of $27.