Things are starting to really heat up on the takeover front. FTSE 100 boxmaker DS Smith leapt last week after it confirmed rival Mondi was taking a look. And today (19 February), the Currys (LSE:CURY) share price has surged as talk of a potential bidding war for the retailer heats up.
The FTSE 250 firm has batted back a 62p per share takeover attempt from US investment firm Elliott Advisors, it announced today. It said that the deal — which would attribute a value of £700m on the electricals retailer — has “significantly undervalued” the company and its future prospects.
Also on Monday, Chinese e-commerce giant JD.com declared that “it is in the very preliminary stages of evaluating a possible transaction that may include a cash offer for the entire issued share capital of Currys“.
How high will it go?
At 63.75p, Currys’ share price has surged by 35% in start-of-week business. But it still trades around 15% more cheaply than it did 12 months ago.
The electricals giant has struggled more recently. This reflects depressed consumer spending in its UK, Scandinavian and (soon to be divested) Greek operations. But the company remains a market leader and still has considerable long-term potential.
In fact, one of Curry’s largest investors have put a price tag of 75p per share on the business, Sky News reports. This would value the firm at around £800m.
Another takeover target?
With many UK shares trading at big discounts, I expect takeover activity to continue to accelerate. One FTSE 250 share I think could attract the interest of suitors before long is QinetiQ (LSE:QQ.).
As the chart shows, this defence stock has been rising sharply since the end of 2023. And it could continue rising should the worsening geopolitical landscape keep driving arms spending northwards.
Yet at 378p per share, the company — with its forward price-to-earnings (P/E) ratio of 12.8 times — carries a lower valuation than other industry heavyweights, and especially those in the US. This makes it look very attractive on paper.
In descending order: Northrop Grumman, RTX Corportation, Lockheed Martin and BAE Systems. Chart by TradingView
QinetiQ, which has a £2.2bn market cap, is a master in the field of advanced robotics and drones. These technologies are playing an increasingly important role in the way wars are fought, as the UK firm’s January trading update showed: for the nine months to December it booked a whopping £1.35bn worth of orders.
Encouragingly for the company, industry experts expect demand for this sort of hardware to continue soaring, too. Spherical Insights & Consulting analysts expect the military drone market to grow at an annualised rate of 11.9% during the decade to 2023.
Balance sheet strength
QuietiQ may also become a takeover target thanks to its impressive financial standing. Cash generation remains strong and came in “significantly above” 100% in the December quarter, it said last month.
Net debt to EBITDA, meanwhile, remains super low and stood at just 0.9 times as of September 2023.
I believe QinetiQ might become one of the hottest takeover targets in the UK. But whether or not this scenario transpires, I’d be happy to add it to my portfolio today.
