The FTSE 100 might be about to lose one of its constituents. French company Schneider said it was looking at making an offer to buy British software group Aveva (LSE:AVV). The Aveva share price soared by over 30% on this announcement.
No proposal has been formally made, but I’d note that Schneider already owns almost 60% of Aveva. Given the majority shareholding, my view is that this deal is likely to go ahead.
Aveva share price: too late to buy?
But what now? Is it too late for me to buy the shares?
As a long-term investor, I tend not to get involved with takeover news. Although the Aveva share price could rise further, I’d rather focus on other Footsie shares that might look attractive to suitors in the future. As such, I won’t be buying Aveva shares today.
But there is one FTSE 100 stock that I would buy.
FTSE 100 top pick
I’m referring to Howden Joinery (LSE:HWDN). Its shares are looking particularly attractive to me right now. Note that its share price has fallen by over 30% in the past year. Given the cost-of-living crisis and expectations of a housing downturn I’m not too surprised to see it tumble.
But the shares are now at levels seen three years ago, and I reckon it could be a good opportunity to buy some for my Stocks and Shares ISA.
Howden is a well-known kitchen supplier. It uses a distinct business model that focuses on the relationship with builders and fitters. By doing so, it creates repeat custom.
It also enables the business to streamline its structure and allows it to operate at low cost. That’s particularly the case when comparing it with competitors that require large and expensive showrooms.
Impressive metrics
It’s this model that gives Howden some impressive metrics. For instance, it has a return on capital employed of almost 30% and a profit margin of nearly 20%. In addition to a 3% dividend, these are impressive numbers that highlight the quality of its business.
It recently delivered a strong financial performance, well ahead of pre-Covid levels. And it looks like it is effectively managing through inflationary and supply chain pressures.
I do need to bear in mind that these pressures are ongoing. Any weakening consumer confidence could impact the demand for kitchens over the coming months. The Bank of England is expected to raise interest rates further this year, and the impact this has on the housing market and Howden’s business is uncertain.
That said, this is a resilient, profitable, and cash-generative business. With a price-to-earnings ratio of just 11 times, I’d say it’s also cheap. Lastly, it’s trading at an attractive share price, and I’d expect it to double within the next year or two.
That’s why I’d ignore the Aveva share price today and buy Howden Joinery instead.
