One of the great events in an investor’s life is when an entity makes an offer for a company in which the investor has a shareholding. This almost inevitably means that the company’s shares move significantly higher and, more often than not, ends in a tidy profit for the investor.
Clearly, with interest rates being ultra-low and having the potential to move substantially higher in the months ahead, bid approaches are likely to become more frequent. In addition, generous cash balances at a number of major corporations across the globe and a relatively upbeat long term outlook for the world economy means that companies may be more confident about engaging in M&A activity than they have been for a number of years.
One sector which is a hotbed of takeover activity is the beverages industry. AB InBev recently made a bid for SABMiller and, while they are both brewing companies, sector peer and spirit specialist Diageo (LSE: DGE) could also be a takeover target in future. That’s because it has a stable of superb brands which command a relatively high degree of customer loyalty. Furthermore, it is a truly global player, with exposure to all main markets across the world and, thanks to deals inked in the last few years, it now has major exposure to China and India, which are set to remain two high-growth regions for spirits in the medium to long term.
In addition, Diageo has also posted a fall in its share price of 8% in the last six months and, while it still trades on a price to earnings (P/E) ratio of 19.5, this appears to offer good value for money for such a high quality business.
Similarly, ITV (LSE: ITV) is also a potential bid target. In recent years it has significantly improved the quality of its content and has diversified its channel range. This, combined with an improving UK economy, has caused ITV’s advertising revenues to increase at a rapid rate, leading to a rise in net profit of 23% in each of the last two years.
Looking ahead, ITV is forecast to post a rise in earnings of 16% this year, followed by further growth of 10% in the following year. And, with its shares trading on a P/E ratio of 15.6, they appear to offer excellent value for money given the company’s outlook.
Meanwhile, media company Talktalk (LSE: TALK) is also a very appealing company. That’s largely because it is an established quad play (broadband, mobile, pay-tv and landline) provider and, with a number of larger companies seeking to enter all four markets, it could be a straightforward means of doing so.
In addition, Talktalk also offers excellent value for money given its near-term outlook. For example, it is due to post an increase in its bottom line of 70% this year, followed by 53% next year. This puts in on a price to earnings growth (PEG) ratio of just 0.3, which indicates that its shares are a bargain despite rising by 6% in the last month.
Another company ripe for takeover is online takeaway ordering business, Just Eat (LSE: JE). It offers global exposure and is benefitting from a substantial tailwind as people begin to favour online ordering over calling or going out for fast food. Clearly, a number of established fast food companies do not have an online ordering facility and, alongside its appealing regional exposure, this makes Just Eat a neat acquisition for such businesses. Certainly, it may trade on a P/E ratio of 67 but, with staggering growth being pencilled in for the next two years, its PEG ratio of 0.7 indicates that it could be a good value purchase for a competitor.
