For instance, small- and medium-sized enterprise (SME) finance company Inspired Capital exited at a 34 per premium to my advised buy-in price earlier this year; software company Anite attracted a recommended cash offer at a 37 per cent premium; and vehicle repair group Nationwide Accident Repair Services was bid for by private equity group Carlyle about 30 per cent above my advised buy-in price. To that list we can add environmental engineer Tinci (TNCI) which I advised buying shares in at the start of the year to capture a quickfire 12 per cent bid premium, and IT security firm Accumuli, which accepted a cash-and-shares bid from cyber security rival NCC (NCC). In fact, shares in NCC have re-rated since the bid went unconditional, which means that you will be showing a 76 per cent gain on your Acccumuli holding if you followed my original buy recommendation.
Other stock market exits include energy group Fortune Oil, albeit only 11 per cent above my advised buy-in price, and green energy company Greenko (GKO: 95p), which admittedly will delist after selling all its assets and returning far less cash to shareholders than my recommended buy-in price. Nonetheless, if you bought shares in all seven companies you will have made an average gain of 24 per cent on your holdings.
Realistically, there are decent prospects to capture further bid premiums, too, which is why I recommended buying shares in Renewable Energy Generation (WIND: 53p), an Aim-traded renewable energy company, after it received an unsolicited non-binding approach for its trading subsidiaries ('The takeover game', 11 No 2015). Since that article was published the company's board has confirmed that "discussions are ongoing with the potential buyer with a view to agreeing the terms of an offer for its trading subsidiaries...and anticipates receipt of a formal offer following conclusion of the buyer's due diligence, which is nearing completion". Given the indicative cash offer is 60p a share from the unnamed buyer, there is still a decent return to be made here if all goes to plan.
The same is true of Aim-traded Plethora Solutions (PLE: 5.75p), a UK-based speciality pharmaceutical company dedicated to the development and marketing of products for the treatment and management of urological disorders. I outlined the rational for playing the takeover situation in the same article as Renewable Energy earlier this month, and still believe that there could be a further 30 per cent upside if a formal bid is launched by Hong Kong-listed Regent Pacific (Hong Kong Stock Code: 575), the investment vehicle of Jim Mellon.
Last week I also made a strong case to buy shares in Bioquell (BQE:140p), a provider of specialist microbiological control technologies to the international healthcare, life science and defence markets, on the basis that a strategic review was likely to entail the sale of its last remaining business which led me to conclude that a fair value for the equity was between 180p to 185p a share ('Bug busting potential for short-term gains', 16 Nov 2015). The company's net cash position is 112p a share following the sale of its TRaC business earlier this year, so there is hefty asset backing. I note that a few days after the article was published that Bioquell's board appointed N+1 Singer as broker and adviser with immediate effect.
It's an interesting development given that analyst Elizabeth Klein at the broking house has previously advised clients that "peer valuation implies that the underlying (Biodecon and Defence) businesses are worth from £19m at the most conservative end using a peer earnings multiple of 16 times fiscal 2016 EPS of 2.8p, and up to £67m if presuming an enterprise value to sales take out multiple of two times for 2016. If the TRaC proceeds are added, this could value the business at between 150-262p."
That's reassuring to know given the broker's recent appointment and I am sure that Bioquell's board will let the strategic review progress to its natural conclusion. If anything, the appointment of N+1 Singer suggests that they are working hard to maximise cash proceeds for its shareholders, a point I made in my article last week.
Building up for the end game
Bioquell, Plethora Solutions and Renewable Energy Generation are not the only live bid situations at the moment I can see a decent profit materialising from. That's because investors are missing a trick at Ensor (ESR:99p), a Manchester-based products and services company focused on the manufacturing and supply of physical security products and packaging. Ensor's days as a listed entity are numbered after the board in effect put the company up for sale at the end of May.
I recommended buying the shares shortly after that announcement was made when the share price was 97p, targeting a minimum share price of 125p to reflect the value of the assets that could be sold ('Building up for a takeover', 22 Jun 2015). Investors cottoned on and Ensor's share price subsequently rallied to 123p in July before succumbing to profit taking. However, at the current offer price of 99p I firmly believe this is another great opportunity to buy into this M&A situation and one that is likely to reach a conclusion in the coming months.
Indeed, investors seem to have overlooked the fact that last month Ensor sold off its small buildings products business for £1.44m to management, equating to a £412,000 premium above book value, of which £1.24m of the cash consideration was received on completion and a further £200,000 will be received in April. This follows the sale of land in Woodville, Derbyshire and Stockport, which generated combined cash proceeds of £3.13m, a hefty £843,000 premium to book value. As a result, these three disposals have completely wiped out Ensor's net borrowings, which stood at £1.55m at the end of March 2015. After factoring in the company's net profit for the past half year, and an unwinding of working capital in the period, I reckon that net funds could easily be as high as £5m now, and rising.
There is scope for further non-core asset sales, too. The company applied for residential planning permission to demolish buildings on its site Brackley, Northamptonshire, and build seven dwellings with landscaping and parking. For those that know the area, the land is close to the Great River Ouse at the former Hawkins Salmon site, Mill Lane, Brackley. It's valued in Ensor's accounts at £550,000, but with planning consent is worth significantly more to residential property developers. True, a planning application was rejected in the summer by South Northamptonshire Council, but this was more to do with the type of dwellings rather than residential use for the site. In fact, the site is located in what is now a largely residential district, so is no longer conducive to a variety of commercial uses. I would expect an update from the board with regards to maximising the value of the site in the forthcoming half-year results next month.
Update imminent on formal sale process
I would also expect an update on how the formal sale of the company is progressing given that BDO LLP were appointed advisors to conduct the sale process six months ago. Excluding the small buildings products business, which has just been sold, the remaining operations made operating profit of £3m in the fiscal year to the end of March 2015, so it's a highly profitable business to market to potential buyers. It has good prospects, too.
For example, Ensor's building & security products division posted turnover up almost 20 per cent to £32.6m in the last financial year, which delivered a near doubling of operating profit to £2.78m (including a £365,000 contribution from the business just sold). Prospects were robust at the time of the last trading update. The company's packaging subsidiary is also enjoying buoyant demand, specifically from the retail sector and has been benefiting from competitive sourcing of products through Ensor's offices in China.
The bottom line is that I believe these two divisions have to be worth a minimum of £30m, or just over 100p a share, given their profitability. Add to that Ensor's bumper cash pile, and non land assets, and it's easy to arrive at a break-up value of 125p a share. It's also worth noting that the Harrison family have four members on the board, led by 85-year old chairman Kenneth Harrison, and 60-year old chief executive Roger Harrison, and control 54 per cent of Ensor's issued share capital. They clearly have a vested interest in achieving the best prices possible for the company's assets. Buy.
Please note that I have written one other column today.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies in the past three weeks:
■ Redde: Run profits at 178.5p; Trakm8: Run profits at 250p; 32Red: Run profits at 95p; Manx Telecom: Run profits at 208p; Burford Capital: Run profits at 189p ('Five companies that keep on delivering', 3 November 2015)
■ Getech: Sell at 38p ('Getech warns', 3 November 2015)
■ Gresham House: Buy at 345p, 12-month target price 450p ('Sowing the seeds for growth', 9 November 2015)
■ Inland: Run profits at 73p, target 80p ('Tapping into hidden value', 9 November 2015)
■ K3 Business Technology: Run profits at 361p ('In the money, 9 November 2015)
■ Fairpoint: Run profits at 190p, target range 200p to 220p ('Riding a seven year high', 10 November 2015)
■ KBC Advanced Technologies: Buy at 129p, new target range 160p to 169p ('Running oily gains', 10 November 2015)
■ Epwin: Run profit at 138p ('Decked out for further gains', 10 November 2015)
■ Plethora Solutions: Speculative buy at 5p, target 7.5p; Renewable Energy Generation: Speculative buy at 49p, target 60p ('Playing the takeover game', 11 November 2015)
■ Trifast: Buy at 116p, target 140p ('Engineering a chart break-out', 12 November 2015)
■ Software Radio Technology: Speculative buy at 23.5p, target 40p ('Break-even beckons', 12 November 2015)
■ Bioquell: Buy at 137p, target range 170p to 185p ('Bug busting potential for short-term gains', 16 November 2015)
■ Communisis: Hold at 45p ('Communisis slammed for earnings miss', 16 November 2015)
■ AB Dynamics: Run profits at 320p; Stanley Gibbons: Hold at 90p; Pittards: Hold at 94p ('Bargain shares updates', 17 November 2015)
■ Bilby: Run profits at 133p ('Bilby's share price sparked alight', 18 November 2015)
■ GLI Finance: Buy at 45.25p ('High yield P2P play', 18 November 2015)
■ LMS Capital: Buy at 72p; Cenkos Securities: Buy at 180p ('Capitalising on tender offers', 19 November 2015)
■ Ensor: Buy at 99p, target 125p ('Bid watch', 23 November 2015)
■ Marwyn Value Investors: Buy at 216p ('Cashing in on a top performer', 23 November 2015)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
