I see this FTSE 250 company as a top takeover target

This FTSE 250 stock is one of the cheapest in London. It’s also the right size to attract buyers from rival firms or buyout groups. And I already own it!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Asian man looking concerned while studying paperwork at his desk in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Hardly a week of 2023 has passed without another takeover bid arriving for a UK-listed company. And since 2021, a string of FTSE 100 and FTSE 250 companies have attracted merger and acquisition activity.

Selling the UK cheaply

With the UK stock market looking cheap in historical and geographical terms, foreign bidders have flocked back to these shores.

Over the past five years, private-equity firms have spent nearly £80bn taking UK-listed companies private. And with the pound worth $1.24, deal-making by cash-rich US groups is rising.

Should you invest £1,000 in Unite Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Unite Group Plc made the list?

See the 6 stocks

At end-2022, the private-equity industry had a record $3.7trn of dry powder — that is, investable cash. Partners in these firms are keen to invest this money and earn higher management fees.

The buyout boom is back

With both stocks and bonds recording big losses last year, 2020-21’s frenzied deal-making dwindled in 2022. Yet the past week has seen approaches for several UK companies, mostly in the FTSE 250.

Obviously, bidding groups aim to buy companies trading on low or depressed valuations. After taking these businesses private, they cut costs and hope to drive up growth, generating big profits for partners.

When bidders launch takeovers, they usually offer large premiums to companies’ previous share prices. For example, way back in 2002, I bought shares in one UK-listed firm. The next day, a US giant bid to buy this company at a price 25% higher than the previous day’s close. That was nice.

Could this FTSE 250 firm be a target?

At present, my wife and I own three FTSE 250 stocks — and I think one might attract bidding attention from larger US rivals or buyout firms. The company in question is ITV (LSE: ITV), owner of the UK’s largest terrestrial commercial television network.

My wife bought ITV shares last June at 68.7p a share. As I write, the share price stands at 82.4p, up 20% since we bought. But I expect much bigger gains from this mid-cap stock in future.

Three reasons we bought ITV

We bought ITV shares because they traded on a low price-to-earnings ratio and high earnings yield. Even after recent rises, these numbers are just 7.8 and 12.8% — far cheaper than the wider market.

Also, ITV shares offer a market-beating dividend yield of 6.1% a year, covered 2.1 times by historic earnings. To me, this income is a nice reward for owning this stock.

Third, with a market value of £3.3bn, it could be a tasty morsel to be gobbled up by, say, a giant US media company or buyout group. Were this to happen, I’d expect the firm to be valued well over £4bn.

Who needs a takeover?

Of course, any potential bid is pure speculation on my part and I don’t buy stocks just for their takeover prospects. Then again, on market rumours of a coming takeover, the share price did hit a 52-week high of 96.62p on 9 February. But I don’t care if an ITV bid never arrives. To me, these unloved shares are cheap.

Then again, analysts have warned of falling advertising revenues and increasing spending on ITV’s streaming hubs in 2023. And I fully expect the group’s earnings per share to be lower this year. Even so, I’m quite happy to own this FTSE 250 stock for the long haul — with or without a bid!

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in ITV shares. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such, as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

Analysts have upgraded this FTSE 100 stock to Buy. What should investors do?

Associated British Foods shares have been uninspiring for some time. But is it finally time to consider buying the FTSE…

Read more »

Man changing battery on electric bicycle
Investing Articles

Prediction: in 12 months the sizzling National Grid share price could turn £10,000 into…

It's been another solid year for the National Grid share price and the dividend yield is decent too. So why…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 185% in 3 years, why does the market love this FTSE 250 stock

Over the past three years, this stock has vastly outperformed the FTSE 250. Dr James Fox takes a closer look…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

Looking for growth, dividends, or value? These 3 ETFs could be smart ideas to consider

Exchange-traded funds (ETFs) provide a way for investors to spread risk without sacrificing the possibility of huge long-term returns.

Read more »

Happy couple showing relief at news
Investing Articles

Is the Rolls-Royce share price fast becoming a joke?

The FTSE 100 engineering titan has done brilliantly in recent years. But our writer wonders whether the Rolls-Royce share price…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

Is there a ‘best age’ to start buying shares?

Christopher Ruane weighs some possible pros and cons of waiting to start buying shares for the first time, versus starting…

Read more »

piggy bank, searching with binoculars
Investing Articles

Is it time to look again at the FTSE 250’s worst performers?

Our writer considers the prospects for two of the worst-performing shares on the FTSE 250, with falls of at least…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing For Beginners

Down over 40% in the past year, I think investors should consider these value shares

Jon Smith points out two value shares that have fallen heavily over the past year but are starting to look…

Read more »