Time for acquisitions
The end of the recession heralds a scramble for acquisitive growth

In terms of mergers and acquisitions the UK was the most active country in the EU last month. The respected M&A database Zephyr, revealed that 324 deals were announced in the UK in February following more than 330 in January. Certainly there seems to be growing M&A news from small to medium sized quoted companies across a wide variety of sectors. Pension consultant Mattioli Woods, has made no secret of the fact that the board is looking for acquisitions and also specialist social care provider CareTech Holdings, has just raised £15m to fund acquisitions. Last week saw the AIM flotation of Digital Barriers, which climbed to an early 28% premium having raised £20m at 100p to fund its strategy of setting up and buying businesses in the homeland security field. Added to these moves, Phil Edmonds backed Sable Mining Africa, recently paid $17.6m for a 29% stake in South African coal play Delta Mining; and Beacon Hill Resources is proposing to acquire a Mozambique coal operation. In the last few days PLUS-quoted Technis International announced that it is in discussions concerning the acquisition of Case Communications. Andrew Monk CEO AIM-listed Formjet, a computer software business that is in the throes of being rebranded as an acquisition vehicle called Third Quad Capital, seems to have hit the nail on the head when he said: “…We believe that over the next few years, due to the problems in the UK economy and the financial crisis, that there will be plenty of ideal companies that can be acquired at attractive prices.”  

A move to highlight value

Demergers have been shown to allow a fuller valuation to be gained for companies with two diverse business interests. International provider of facilities solutions to the oil & gas production and processing industries Petrofac, is on the verge of demerging its North Sea oil and gas exploration and development interests. A new company called EnQuest will be created, into which the North Sea oil interests of Petrofac and Lundin will be injected. EnQuest will be 45% owned by Petrofac shareholders and 55% of Lundin shareholders and floated in London. EnQuest will have proven and probable reserves of 80 million barrels of oil equivalent and sees current annual production of 13,260 barrels a day rising 10% per annum for the next three or four years. The build and harvest strategy in the Group's energy development division continues and the creation of EnQuest should be seen as Petrofac taking the opportunity to crystallise some value. This demerger of these oil assets is widely seen as offering a chance of revealing the compelling underlying value of the Group. Final results for 2009 showed that revenue grew by an impressive 10% to $3,655 million and net profits climbed by 33% to $353.6m, helped by a strong performance by the engineering and construction divisions. At the time these results were announced Ayman Asfari comment that: “...Through our differentiated and competitive offering, we remain well-positioned to benefit from the ongoing investment in oil & gas projects by our key customers in our core markets, which we believe will underpin strong growth in our business in 2010 and over the medium-term.”

Drilling this summer

There's nothing like a bit of drilling to attract the attention of investors. Xcite Energy, a developer of heavy oil assets in the UK North Sea, plans to begin drilling its first development well in the Bentley field this summer. After all the activity there has been over the past thirty years in the North Sea, the Bentley field is seen to be one of the largest as yet undeveloped heavy oil fields. Xcite is currently putting the pieces in place ahead of drilling the 9/3b-R well in the Bentley Field. In late-January, the board did a deal with BP Oil International Limited, whereby the BP subsidiary will provide offtake services and sell the Bentley crude oil for an incentive-based fee per barrel. With this agreement came £20m of financing to help fund the full field development from another arm of BP. Then in February, a letter of intent was received from the well management arm of Transocean Drilling UK Limited, to provide a heavy duty, deep water jack-up drilling unit to drill and test the 9/3b-R well. International project managers AMEC have been brought into help the Company demonstrate the reserve potential at the Bentley field and assist in bringing the field into production. Also Challenger Minerals (North Sea) Limited, a subsidiary of Transocean Drilling UK Limited, has agreed to provide $4m as its share of the costs of the 9/3b-R well, in return for a 4% working interest in the Bentley field through an earn-in deal. Dual-listed Xcite is now in the midst of raising C$38.4m (£25.0m) at C$0.62 (40p) and these proceeds, together with the $4m from Challenger, will be used primarily to fund the drilling and flow testing of the 9/3b-R pre-development; with the balance of net proceeds used for general working capital purposes. Xcite was one of the stocks mentioned in Bridgehall Stockbrokers' "Tips for 2010" report, although since the publication of that research the share price has slipped a touch, despite an improvement in the oil price.

Liberty does the splits

Final results from Liberty International were overshadowed by demerger plans that will see the Group split into Capital Shopping Centres Group and Capital & Counties, in order to deliver strong returns to shareholders. The central London focused property investment and development division will be spun off into a new company called Capital & Counties, leaving the UK shopping centres business within Liberty, which will then be renamed Capital Shopping Centres Group. The UK shopping centre business includes top shopping destinations such as Lakeside in Thurrock and the MetroCentre in Gateshead; which together with the US assets and Indian investments will become Capital Shopping Centres. This will be the far larger of the two companies, as Capital Shopping Centres will hold investment and development properties worth £5.0bn, with net external debt of £2.7bn, a diluted net asset per share value of 339p and pro forma rental annual income of £292m in 2009. The property portfolio going into Capital & Counties, includes interests in Covent Garden, Earls Court & Olympia and a 50% interest in the Empress State Building (office block adjacent to Earls Court) together with the 50% interest in the Great Capital Partnership (a joint venture with Great Portland Estates) and its Chinese fund investments which have been valued at £1.24bn, with net debt of £463m and a diluted net asset value per share of 127p. Final results were weaker than expected and broker JP Morgan believes that the gains to be had from the merger are already largely in the share price.

Directors buying

Over the years directors dealings have been proved to be a pretty good guide to what is really going on in a company. Well, in the past fortnight two directors have bought a total of 39,756 shares at either 4.8p or 5p in the financial services business The Clarkson Hill Group and so the stock begs attention. Across the UK, the Company has a team of advisers in eleven branches located in London, Rugby, Edinburgh, Newport, Plymouth, Maidstone, Cheshire and Leeds; which are backed up by its HQ in Wisbech, Cambridgeshire. The last comment on trading came with the interim results, which were announced in late-September, showing that in the six months to 30 June 2009, turnover dropped 28% to £8.5m as troublesome financial markets hit the Company's investments and mortgages activities. Gross profit fell by 8% to £1.65m and the pre-tax loss came out at £178,479, compared with a profit of £145,999 for the first half of the previous year. This interim loss came after £129,320 of exceptional reorganisation costs, which stemmed from the restructuring programme that began in the first quarter of 2009 that was planned to cut £1m from annual costs with the benefit expected to be seen in the second half. At the interim stage, the directors were able to report that there had been some recovery coming through in the second quarter and since June the Company had continued to trade in line with the board’s expectations.  

In merger talks

Another stock given a goodly mention in the "Tips for 2010" report was Serabi Mining. At that time, it was highlighted that the Company possessed a regional land holding of 158,000 hectares in areas that are highly prospective for gold, resources and reserves at the Palito Gold Mine in Northern Brazil, a small gold oxide opencast mine, a failed gold sulphide of 475 tonnes per day (tpd) underground mine and a mill with 600tpd capacity plus cash. In late-January, the exploration program at a number of targets at the Palito gold project was reported to be underway, which could lead to an increase in the geological resource base. Well, it would seem that we aren’t alone in liking the look of Serabi, as latest news is that the board is in preliminary discussions regarding a possible merger.

TradeCompanion to delist

The board of TradeCompanion Holdings has decided that a withdrawal from PLUS would be in the best interests of the Company going forward. Over recent months, the directors have been unable to find external sources that would have allowed TradeCompanion to remain a PLUS-quoted stock and so are delisting to save on market and associated costs which are currently the business' largest expenses. The Company is reliant on the financial sector for revenue and the economic climate last year made for a difficult year. Apparently sales figures for this year have been encouraging, as market conditions improve and the board believes that following the de-listing the lower cost base will benefit the Company in the long-term; as those resources can be used to finance running cost and securing new contracts. As Director Franco Dimuccio holds most of the shares in issue, PLUS markets has allowed TradeCompanion to delist without the normal 10 day consulting period. The shares are to withdraw from trading on PLUS on Friday 26 March 2010 and from then on there will be no trading facility in the shares. The board intend to issue trading updates twice a year and are happy to receive enquiries from shareholders.

In's and Out's from the Bridge Hall CFD Desk

The FTSE 100 has broken the 5500 level with some conviction and sits strongly past the 5600 level for now. Within this week it’s been a year to the day since the FTSE 100 was at the lows of the 3460 level, this seems a long time ago when you look at the turbulent year that has passed us by.
The market has been a very difficult beast to read this week, with a lack of economic data and various brokers calling each other trying to see if there is any news flow around the market, it has been quite a static week. Brokers will be asking themselves a lot of questions this week but two will be at the forefront of their mind, is this market about to break through to new levels or are we about to see a selloff back to lower 5250 levels. These two questions cause even more uncertainty in the market, with no conviction in the market place volumes then begin to drop.
With the market being very range bound on an Intra Day basis we carefully reviewed some technical levels on some of the miners to exploit some of the daily movement. Rio Tinto (RIO.L) stood out for us and 3780 being a key level it gave us a shorting opportunity if it approached or bounced off this level. Of late Vodafone (VOD.L) has been testing some quite high levels, we took a view to take a stance for the week on this to see if the market can bring it in our direction.
Last week the advertising and media group WPP (WPP.L) announced their full year results. These showed that there may be a bit life coming back into the advertising arena and on the back of these figures 6 brokers upgraded their target price for the company. At this point we entered the market as WPP began to test year high's and our theory is that it may just break through should it gather some good momentum. We also built a position into Tullow Oil (TLW.L) in anticipation of the full year results they announced on Wednesday. On a pure technical basis after several bullish sessions, after going Ex-Dividend, we placed cover into BP (BP.L). Both of these trades could also view on their own individual merits.
Thomas Cook Group (TCG.L) hosted an investor day for analysts and investors during the week, they gave no trading statement during this but they showed how current margins were and how they intend to take the company forward over the forthcoming year. This was well received by some analysts but there was an air of caution incorporated around specific areas of the presentation. Morrison's (MRW.L) announced their full year results on Thursday and as expected they were stellar figures, a lot of this was probably incorporated into the price so there was a weakening in their value at the open. We built position into both Thomas Cook and Morrison's to play out over the remainder of the week. 
The FTSE 100 has its reshuffle this forthcoming week and Resolution (RSL.L) looks like being relegated from the main pack with Investec (INVP.L) gaining promotion back to the main market. Investec also gives a trading statement next Thursday which may prove to be of interest to us. Economic data next week is at a premium for the UK, we have; UK Consumer Price Index and UK Retail Price Index, UK Housing Starts, UK Claimant Count Change and UK MPC Meeting minutes to name but a few.
We are looking forward to the coming week as any clear direction will bring a lot of extra money into the market. The Bull's and the Bear’s are currently wrestling to see which one will win the day and gain any momentum for the flood of money to run behind it.
Happy trading for the coming week and we’ll be in touch next week for another update.

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Featured stocks

The Clarkson Hill Group (CLKH)
AIM
Share price:  3.25p
12 months high-low: 9.25p – 1.5p
Market value: £0.96m
www.theclarksonhillgroup.co.uk 

Liberty International (LII)
FTSE 100
Share price:  481.9p
12 months high-low: 580p – 278p
Market value: £3.0bn
www.liberty-internatioanl.co.uk 

Petrofac (PFC)
FTSE 100
Share price:  1,166p
12 months high-low: 1,169p – 448p
Market value: £4.0bn
www.petrofac.com

Serabi Mining (SRB)
AIM
Share price:  1.88p
12 months high-low: 4.88p – 0.43p
Market value: £6.16m
www.serabimining.com

TradeCompanion Holdings (TCHP)
PLUS
Share price:  3.5p
12 months high-low: 78.5p – 4.5p
Market value: £0.40m
www.tradecompanion.co.uk   

Xcite Energy (XEL)
AIM
Share price:  40.5p
12 months high-low: 61.75p – 4p
Market value: £29.98m
www.xcite-energy.com

Directors dealings

Directors dealings can provide a useful insight
       
Director buys
ANS Group (ANS) 11,213 @ 133p
Balfour Beatty (BBY) 10,000 @ 288p
Booker Group (BOK) 50,000 @ 44p
Bovis Homes Group (BVS) 30,000 at 379.66p
Brewin Dolphin (BRW) 20,000 @ 131.4p
The Clarkson Hill Group (CLKH) 10,000 @ 5p
Hydro Hotel, Eastbourne (HYDP) 2 directors 1,500 @ 825p
Lloyds Banking Group (LLOY) 2 directors 125,000 @ 53.09p & 53.86p
MS International (MSI) 10,000 @ 131p
Prudential (PRU) 89,497 @ 515.95p
Royal Dutch Shell B (RDSB) 563 @ 1,788p
Scancell Holdings (SCLP) 10,000 @ 46p
Standard Chartered (STAN) 7 directors 352,711 @ 1,719p
Strontium (STTM) 3 directors @ 11p & 11.5p

Director sells
Animalcare Group (ANCR) 155,000 @ 117.5p
ARM Holdings (ARM) 500,000 @ 229.63p
Invista Real Estate (INRE) 150,000 @ 49p
WH Ireland (WHI) 200.000 @ 30p
Restaurant Group (RTN) 5 directors 643,538 @ 215p & 215.32p
Shire (SHP) 99,906 @ 1,470p
DS Smith (SMDS) 15,820 @ 125.4p
Spirax-Sarco Engineering (SPX) 3 directors 39,050 @ 1,362p & 1,371p
St James's Place (STJ) 4 directors 74,915 @ 255p & 256.28p
Telecity Group (TCY) 349,995 @ 405p

The above list of transactions represents a selection of the directors' buys and sells reported last week

Written by Dr Michael Green - Independent analyst – DOC Investments Limited – doc@docinvest.co.uk




 

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