It’s been a relatively quiet week for company news, but a couple of updates on Friday have caught my eye.
Cash from waste
The proposed merger with the privately-owned Van Gansewinkel Groep (VGG) of the Netherlands and Belgium gave Shanks Group (LSE: SKS) shares a big boost. The waste disposal specialist’s shares were suspended when rumours emerged in May, but since the deal (regarded as a reverse takeover by FCA rules) was formally announced in July, the Shanks price has soared 27% to today’s 102.5p.
Friday’s update didn’t really move the shares, but it did expand on a few of the details of the transaction. The takeover should be worth €484m on a debt-free cash-free basis, and the balance of shares and cash has been adjusted to enable VGG’s existing debt to be repaid at completion — it’s sounding like around €286m in cash and the rest in shares.
Trading at Shanks is said to be in line with expectations, with VGG’s trading “significantly ahead of budget.” The merger is predicted to yield around €40m in annual cost savings within three years of completion, so does this look like a good investment now?
Shanks alone has an EPS rise of 6% forecast for this year with 18% next year, and the price hike has put the shares on P/E multiple of around 20 — but it’s going to take some time for the shape of the combined entity to come clear. It’s a profitable business, and the merger should make for a significant increase in efficiency. It’s definitely one to keep an eye one, I’d say.
Emerging markets bargain?
I’ve had my eye on Investec (LSE: INVP) for some time, as the specialist banking and asset management group’s shares have been pummelled by economic worries in its home country of South Africa — since a high in May 2015, the shares have shed 27% of their value to today’s 470p.
But with forecasts suggesting P/E multiples of only about 10 while dividends are predicted to yield around the 5% mark, has the downturn been overdone? I think it has, and Friday’s AGM trading update gives my optimism a bit of a boost.
Prior to first-half results due on 17 November, Investec admitted that it “continued to see high levels of macro uncertainty.” But despite that the company’s Asset Management and Wealth & Investment divisions are “expected to report results comfortably ahead of the prior year,” being buoyed by a recovery in equities and net inflows of funds.
Overall, “operating profit is expected to be slightly behind the prior year; albeit well ahead of [the second half to March 2016].” City tipsters are forecasting a 7% rise in EPS this year, though I do think that might turn out to be a bit optimistic — I’d be happy to settle for a flat year in the current climate.
I’m particularly encouraged by the return to net funds inflows from Investec’s customers, and I really can’t help seeing the depressed share price as an over-reaction to short-term problems. The South African economy is likely to remain rocky for a while, but in the long term I can only see Investec shares doing well — and those dividends look very tasty.