Brammer tops up war chest

Industrial parts distributor Brammer (BRAM) has completed a share placing, raising around £54m. The placing, which was priced at 475p a share and represented around 10 per cent of share capital, was undertaken with various existing shareholders as well as with new institutional investors. The placing replenishes Brammer's firepower following its acquisition in January of Scandinavian distribution business Lonne for £19m in cash (plus £19 in debt), with a further £8m payment contingent on meeting profit targets.

At the time, analysts said the deal would increase Brammer's net debt to almost £90m from £53m at the end of 2013, with the group's net debt to cash profit ratio rising to 1.6 times from 1.2 times. While 1.6 times is not uncomfortable, it's clear that Brammer is in acquisitive mood and needs a little more headroom as it seeks to augment its organic growth. Management says it has signed letters of intent with a number of potential bolt-on targets across Europe and expects to have deployed most of the placing proceeds within the next six to 12 months.

Brammer also gave an update on current trading saying that, although the pace of European economic recovery remains uncertain, the current year was on track to meet current expectations.

Investec Securities says

Add. While the fundraising dilutes our 2014 and 2015 EPS forecasts by 3 per cent and 8 per cent to 25.1p and 27.2p, respectively, this should be more than recovered in forthcoming months from multiple earnings-enhancing acquisitions. We believe Brammer could in due course build an insurmountable pan-European network and offering which, despite markets remaining difficult, would allow the group to continue to grow its customer base and wallet share. Our target price rises to 500p from 485p due to a re-rating of its international peer group. We move to add from buy but remain positive on the long-term prospects.

N+1 Singer says

Sell. Brammer is a strong operator and raising additional funds to assist growth is a sound move. Management has also flagged a number of opportunities to expand its product or European footprint. We continue to expect improving newsflow from Europe so the timing looks good. Short-term, debt reduction means there will be earnings dilution, but this could, or should, be reversed once the deals are announced. The group's valuation, however, remains up with events and the large placing is likely to have satisfied a lot of investor appetite. We maintain our cautious stance and a target price of 440p.