It’s been a relatively quiet week for company news, but a couple of updates on Friday have caught my eye.
Cash from waste
The proposed merger with the privately-owned Van Gansewinkel Groep (VGG) of the Netherlands and Belgium gave Shanks Group (LSE: SKS) shares a big boost. The waste disposal specialist’s shares were suspended when rumours emerged in May, but since the deal (regarded as a reverse takeover by FCA rules) was formally announced in July, the Shanks price has soared 27% to today’s 102.5p.
Friday’s update didn’t really move the shares, but it did expand on a few of the details of the transaction. The takeover should be worth €484m on a debt-free cash-free basis, and the balance of shares and cash has been adjusted to enable VGG’s existing debt to be repaid at completion — it’s sounding like around €286m in cash and the rest in shares.
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Trading at Shanks is said to be in line with expectations, with VGG’s trading “significantly ahead of budget.” The merger is predicted to yield around €40m in annual cost savings within three years of completion, so does this look like a good investment now?
Shanks alone has an EPS rise of 6% forecast for this year with 18% next year, and the price hike has put the shares on P/E multiple of around 20 — but it’s going to take some time for the shape of the combined entity to come clear. It’s a profitable business, and the merger should make for a significant increase in efficiency. It’s definitely one to keep an eye one, I’d say.
Emerging markets bargain?
I’ve had my eye on Investec (LSE: INVP) for some time, as the specialist banking and asset management group’s shares have been pummelled by economic worries in its home country of South Africa — since a high in May 2015, the shares have shed 27% of their value to today’s 470p.
But with forecasts suggesting P/E multiples of only about 10 while dividends are predicted to yield around the 5% mark, has the downturn been overdone? I think it has, and Friday’s AGM trading update gives my optimism a bit of a boost.
Prior to first-half results due on 17 November, Investec admitted that it “continued to see high levels of macro uncertainty.” But despite that the company’s Asset Management and Wealth & Investment divisions are “expected to report results comfortably ahead of the prior year,” being buoyed by a recovery in equities and net inflows of funds.
Overall, “operating profit is expected to be slightly behind the prior year; albeit well ahead of [the second half to March 2016].” City tipsters are forecasting a 7% rise in EPS this year, though I do think that might turn out to be a bit optimistic — I’d be happy to settle for a flat year in the current climate.
I’m particularly encouraged by the return to net funds inflows from Investec’s customers, and I really can’t help seeing the depressed share price as an over-reaction to short-term problems. The South African economy is likely to remain rocky for a while, but in the long term I can only see Investec shares doing well — and those dividends look very tasty.
