Shares in construction services company ISG (LSE: ISG) have surged by over 15% today due to a takeover approach by investment company Cathexis. It has offered 143p in cash for each ISG share, which represents a premium of 17.2% to the closing price of ISG on 10 December.
This values ISG at £70.8m and with Cathexis already owning just under 30% of the business, it hopes the offer will provide ISG’s shareholders with a degree of certainty following a difficult period for the business. This included a pre-tax loss of £12.9m last year. And with the nature of ISG’s business being relatively uncertain and prone to extraordinary losses from time to time, selling out could be viewed as a positive move by risk-averse investors.
Bargain price?
But looking ahead to the current year, ISG is expected to move back into profitability with a pre-tax profit of £15.7m being forecast. This puts it on a forward price-to-earnings (P/E) ratio of just 6 using the offer price, which indicates that it may be valuing the company rather modestly. Further evidence of this can be seen in the company’s forward yield of 6.2%, which not only indicates impressive income prospects, but also a relatively appealing valuation.
Certainly, there are risks to the business and its share price performance has been hugely disappointing in recent months. In fact, it has fallen by 34% in the last month alone – even when today’s gain is taken into account. However, even factoring in the risks, the current margin of safety appears to be rather wide. As such, if the deal goes through then Cathexis may be picking itself up something of a bargain for the long term.
Hard to predict
Meanwhile, shares in investment company Concha (LSE: CHA) have been volatile this week, with them being down 43% since Monday but trading as much as 14% up at one point. The share price movement has been sufficiently volatile to prompt the company to release a statement in which it said it’s unaware of any press speculation that may have contributed to the recent volatility.
Concha also said it’s constantly reviewing multiple potential acquisition opportunities and that, as highlighted in its September update, discussions are still ongoing regarding a specific global opportunity within its investment scope.
Yes, Concha may have long term potential. But the fact that its shares have been so volatile of late and the company being a lossmaking entity, it seems that there may be better opportunities elsewhere within the small-cap space. That’s especially the case since there can be no guarantee that its aforementioned discussions will lead to an acquisition, thereby making the company’s future appear rather difficult to accurately forecast at the present time.
