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This is shaping up to be the year of the UK takeover. Direct Line, Spirent, Mattioli Woods, Wincanton and others have either been sold or are “in play” in 2024, with big jumps in their share prices.
Who would have thought that transport group Wincanton would achieve a 100 per cent premium on pre-bid levels? Of course, all this activity was predictable given the low valuations of UK stocks. All that predators were waiting for was a degree of economic stability and a positive view on falling interest rates.
Over the years I have been on the receiving end of 60 takeovers or take privates — approximately one a year for my investing life. Many of these names are long gone: Delcam, Fenner, Pifco, Refuge Assurance, Trafford Park Estates, Wintrust — and Air Partner being the most recent a couple of years ago. All delivered appreciated premiums and cash for reinvestment, but I would rather have seen many remain independent, continuing to grow.
The government’s response to low valuations of UK stocks has been somewhat unconvincing — telling pension funds to be more transparent as to where they are invested and introducing a £5,000 additional allowance British Isa. This damp squib has been slated by many commentators, looks administratively complex, will only benefit the really well-off, and unsurprisingly has hardly delivered a flicker of reaction in markets. Indeed, it now seems as if it will not be operational until next year if at all.
What we surely need is real cultural change — greater financial education in schools, a rowing back of financial regulation which in my view excessively protects the consumer, inhibiting, say, television broadcasters from covering the stock market or investment opportunities.
The failure of television in this whole area has been a tragedy — a huge missed opportunity to project great UK companies into the home. My efforts to alert ministers have been to no avail: the consensus is that the regulations are not over-restrictive and that it is up to TV programmers to decide content. But we should all be worried and ashamed that more young people speculate in cryptocurrencies than invest in a stocks and shares Isa.
Trying to identify takeover candidates and the timing of a possible bid is as pointless as guessing when a salmon might take my fly during my annual week on the Tweed.
When I look at my own portfolio, and the depressed level of so many stocks, virtually all appear vulnerable to a bid. The only exceptions are probably Legal & General, which I have never seen mentioned in takeover gossip, and Goodwin, a fine family growth business where the next generation is committed and entrenched. Looking at my larger holdings, speculation surfaces from time to time in both Aviva and M&G. Amanda Blanc, who is doing a great job at Aviva, made a recent comment that takeover speculation was “mainly market chatter”. I would be sorry to lose both, as they are marvellous tax-free income generators within my Isa.
Turning to my many small-cap holdings — held both inside and outside an Isa wrapper — they are best put into different groups in the takeover stakes. First, we have the standout undervalued opportunities. Here I include both family-controlled Christie Group and PZ Cussons — the former, where I have a declarable interest, trails at a ludicrous 70p — half the price at its flotation in 1987 when the business was a fraction of the current size.
Christie Group is the leading broker and valuer for hotel and restaurant businesses, pharmacies, care homes and children’s nurseries, with more than 30 offices in the UK and Europe. Bottom-line profits have been continuously dragged down by losses in its retail stocktaking division. Hopefully we should soon begin to see overall profitability improve with its shares recovering towards their real value. By my estimation, this should be at least £3 per share or four times the current price.
Consumer products maker PZ Cussons, where I was a non-exec years ago, has sadly been an abysmal performer in recent years, compounded by currency devaluations in Nigeria. Capitalisation has fallen from a peak of £1.8bn to a derisory £400mn today.
A “sum of parts” valuation of its brands and markets surely produces materially higher worth — Carex itself must be worth close to the present overall valuation, to say nothing of Imperial Leather, St Tropez, Morning Fresh, Cussons, Sanctuary and so on. Its major manufacturing position in populous Nigeria, with multiple market leading brands, has to be of considerable value, particularly to a Nigerian owner. There are additional operations in Australia and Indonesia. Indeed, one has to ask whether there is indeed an independent future for this middle-ranking consumer PLC in a market place so dominated by huge global players?
Next, we have a grouping of three companies primarily built up by an individual with a large personal shareholding: Louis Hall in business services to the telecoms sector with Cerillion, my star performer; Andrew Jacobs at self-storage business Lok’nStore; and James Dickson at Vianet, an IT provider and monitor of vending machines. Their destinies will clearly be decided by the aforementioned key players.
Finally, any one of my host of attractive, valuable small-cap holdings could attract a predator — Anpario in natural stimulants for animal growth; soft-drink maker Nichols; flavours and fragrances maker Treatt; STV, the leading Scottish independent TV company; Hollywood Bowl; VP in plant hire; banker Secure Trust; and business property owner Workspace.
My hunch is that 2024 will be an interesting, eventful year — we shall see.
Lord Lee of Trafford is an active private investor and a shareholder in all the companies indicated
