Aveva
Value put on the company £1.3bn
There are two ways of looking at Aveva’s deal with Schneider Electric. You can see it as another high-tech British company being sold overseas; or you can see it as a chunk of British assets coming home and creating a genuine world-beater.
I incline towards the second view. Aveva will continue to be quoted, unless its independent directors choose the alternative, possibly a straight take-out at a figure some way in excess of the share price at the time.
The software assets bought by Schneider with Invensys in early 2014 will be merged with Aveva’s existing operations. This will mean less reliance on oil and gas, which has undermined the price in recent months.
Instead, the merged business will supply a wide range of industries and markets — the number of customers will rocket from 50,000 for Aveva now to more than one million, although this reflects the much smaller average sale on Schneider’s part. The idea is that, freed from the embrace of the French conglomerate, its software engineers and Aveva’s will be free to develop the business as entrepreneurs.
Investors get a continuing opportunity to benefit from this, because they retain 46.5 per cent of the combined business. As the deal pretty well doubles it in size, they stay roughly where they are in terms of assets held. In addition, there is a cash handout from Schneider and from Aveva’s spare reserves that should equate to a bit more than £10 a share.
There is not a lot to complain about in this deal, which gets round the usual cavils about British companies being taken off the market by investors with longer time-frames. I tipped Aveva as one of my shares for 2015 because I felt the market was undervaluing a global leader in its field because of short-term considerations.
The shares added 484p to £22.56. They are, therefore, 76 per cent ahead this year.
It is early days for the deal, which probably will not complete for a year, but back-of-the-envelope calculations suggest that the shares sell on perhaps 18 times’ combined group earnings for the year to March 2017, taking out the cash element. Nothing wrong with taking some profits, but I would be inclined to hang on for the long term.
My advice Hold
Why Investors could always lock in profits by selling in the market, but the combined business looks as if it has a promising future
IQE
Revenue £53.2m Net debt £31m
One has to wonder whether the next high-tech British company to be bought by overseas buyers might be IQE.
Based in Cardiff, this makes wafers for semiconductors, most of them making their way into telecoms. This is the basic business, providing four fifths of revenues. The technology has been extended into other areas, however, such as photonics and solar power. No one has any idea how important these could be, potentially.
IQE’s halfway figures undershot a touch because some orders from a big wireless customer were delayed into the third quarter, through no fault of the company. Operating profits were up by 5 per cent to £6.7 million and the slippage merely means a slightly higher weighting to the second half.
The stock market has never really appreciated IQE, which has just formed a joint venture with Cardiff University to develop semiconductor technology. There were mistaken fears a couple of years ago that a rival product could emerge.
I tipped the shares in September at 17¾p; even up ¼p at 24p, they still sell on ten times earnings, which looks attractive.
My advice Buy long term
Why Market is coming around to IQE’s qualities
British Land
Last published NAV 829p
It is hard to imagine what circumstance, or combination of circumstances, might call a halt to the London property boom. British Land reckons that central London has about a third less available office space than would be expected. Its Leadenhall Building, aka the Cheesegrater, is 90 per cent let.
The redevelopment of Broadgate is continuing. The next big project, Canada Water, is at the start of the planning stage — this potentially is as much as seven million sq ft of mixed property. Detailed planning permission will be applied for next year, there is no reason why it should not go ahead and the project will stretch over the next decade. One analyst thinks that even the first grant of planning permission could mean 40p a share on to net assets.
British Land’s trading statement showed no surprises and no indications that the London property boom will slacken off. Retail lettings or renewals over the first quarter to the end of June came in almost 10 per cent ahead of March values, but this is no surprise, given the recovery that is being seen in the retail market generally.
The performance in offices was more subdued, but plenty more space is coming forward at well ahead of March values. There is no lessening of demand from overseas investors, while any future rises in interest rates are unlikely to have much effect, if the past is any guide.
British Land’s last net asset figure was 829p and the company does not provide an update at the first-quarter stage. The share price, up ½p at 847p, is only at a small premium. The shares remain a long-term buy.
My advice Buy long term
Why London’s property boom looks set to continue
And finally . . .
Miles Roberts, chief executive of DS Smith, has sold about a third of his personal holding in the company, realising £2.75 million. The company says the sale is to pay a tax bill on shares awarded to him and his holding remains well ahead of what the packaging company expects senior executives to have invested. Mr Roberts has chosen a good time to sell; DS Smith shares are almost 70 per cent ahead of where they were in October. The share sale, though, would seem to have no negative implications for investors.
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