As I noted when I initiated coverage at 97p ('Building up for a takeover', 22 Jun 2015), Ensor's days as a listed entity are numbered after the board put the company up for sale. I subsequently reiterated that advice at 99p a fortnight ago ('Bid watch', 23 Nov 2015).
I can now report that the board are in discussions with a number of potential trade buyers in order to maximise the value in the individual businesses owned rather than seeking a sale of the company itself. This makes complete sense especially as the half year report highlighted that all four divisions are performing well. I still feel that this sale process will reach a successful conclusion in the coming months.
Bearing this in mind, the board have decided to buy an annuity which will secure all future liabilities of the group pension scheme, as a precursor to a buyout and wind up of the scheme. The cost of this will be between £5.5m to £6m in cash, a premium to the £2m gross liability in the balance sheet, and will be funded by cash on Ensor's balance sheet and short-term borrowings which will then be repaid from asset sales.
Ensor had net funds on its balance sheet of £1.4m at the end of September 2015, and has since received £1.24m of cash consideration following the sale of a small buildings products business in October. A further £200,000 will be received in April. True, net cash is less than I had anticipated, but this is mainly because Ensor has reduced trade payables by £1.1m since the end of March.
More important is that I expect Ensor to negotiate decent sale prices with trade buyers especially as the company's first half pre-tax profit of £1.5m, excluding a £793,000 gain on disposals, was marginally ahead of the bumper profit posted in the first half last year. I reckon that Ensor's remaining operations are generating annual operating profit of £3m, so are attractive to potential buyers. They have good prospects, too. In fact, my view is that Ensor's building & security products division and its packaging subsidiary could be worth north of £33m, or 110p a share, especially as they will now be sold without the liabilities of the pension fund.
So after factoring in the cost of the annuity purchase, net profits earned by the company until the sales conclude, and non-core land assets, then I reckon a realistic break-up value could now be between 110p to 115p a share, albeit this is less than my original estimate of 125p. It's 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. It's clearly in their interest in achieving the best prices possible for the remaining businesses.
The bottom line is that if you followed my previous advice to buy Ensor shares at 97p and 99p, I would definitely hold onto them at the current price of 90p ahead of news of further disposals. The shares only trade on 10 times underlying earnings for the businesses being sold, hardly a punchy valuation when the board are aiming to maximise value of the company's assets through trade sales. Hold.
End game for Renewable Energy
In the same article last month, I noted that the shares in Renewable Energy Generation (WIND: 59.5p), an Aim-traded renewable energy company, were still worth buying as its days as a listed entity looked numbered after it had received an unsolicited takeover approach. Since that article was published the board has announced the recommended disposal of the entire business of the company for cash in a transaction with a fund managed by BlackRock that values its equity at £64m. Following completion of the sale and delisting of the shares, it is proposed that liquidators be appointed to oversee a liquidation process.
The target initial (and likely final) liquidation distribution is expected to be 60p per share which should be payable to shareholders on or around 29 January 2016. On conclusion of the liquidation a maximum final distribution (if any) of up to a further 0.3p per share will be made too. It's a decent result and one that provides a 22 per cent short-term gain if you followed my advice to buy Renewable Energy's shares at 49p last month ('The takeover game', 11 November 2015). The share price has adjusted and on a bid-offer spread of 57.5p to 59.75p, it makes sense to hold onto your shares for the 60p distribution at the end of January rather than take the lower market bid price in the market now. Hold.
Please note that for a limited period of time, my book Stock Picking for Profit is being offered for sale at a promotional price of £11.99 plus postage, subject to availability, full details enclosed below.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies since the start of last week:
■ First Property: Run profits at 47.5p ('Investing for bumper gains', 30 Nov 2015)
■ Paragon: Run profits at 384p; Redde: Run profits at 174p; Fairpoint: Run profits at 175p ('Capitalising on investor overreactions', 1 Dec 2015)
■ LMS Capital: Tender your pro-rata allocation ('LMS tender on the money', 1 Dec 2015)
■ Vertu Motors: Buy at 78p, new target range of 85p to 90p ('In the fast lane', 2 Dec 2015)
■ MS International: Run profits at 210p, target bull market high of 240p ('Engineered recovery', 2 Dec 2015)
■ Mountview Estates: Buy at 11,500p ('Mountview's accounts reveal hidden value', 2 Dec 2015)
■ Character: Buy at 485p, new target 600p ('Playtime for a popular Character', 2 Dec 2015)
■ UK housebuilding sector: Buy and hold until end March 2016 ('Time to start building once more', 7 December 2015)
■ GLI Finance: Recovery buy at 35p ('Refinancing for GLI Finance', 9 December 2015)
■ Ensor: Hold at 90p and await news of disposals; Renewable Energy Generation: Await capital payout of 60p a share in January 2016 ('M&A updates', 9 December 2015)
■ Non-Standard Finance: Buy at 89p and take up open offer; Arbuthnot Banking: Buy at 1,530p, break-up value 2,200p ('Speciality finance plays', 9 December 2015)
■ For a limited period and strictly subject to stock availability, Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com at a special promotional price of £11.99, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
