In all likelihood, Shawbrook Bank’s life as a listed company is coming to an end. The challenger lender’s private equity owners are in the strange position of bidding to take control of the business a little over two years after floating the company on the London market.
Yesterday, Marlin Bidco, the special vehicle established by BC Partners and Pollen Street Capital to buy out Shawbrook, raised its offer for the bank to 340p per share in a final push to get the 5 per cent of shareholders they require to hit the 50 per cent of the equity they must control to get the deal through.
At this price, Shawbrook is being valued at close to £870 million, this for a bank that already trades on a punchy 9.5 times its forecast earnings for 2017, a premium to peers such as One Savings and Aldermore. It leaves little upside without extraordinary growth assumptions. Views in the City on the takeover are largely hostile, judging the bid as an unnecessary distraction based on the dubious logic that taking Shawbrook back into private equity ownership is the best way to manage a turnaround of the bank without the scrutiny of public market investors.
Inevitably, Shawbrook has faced problems in the past year, just like any bank with a substantial business based on providing loans to buy-to-let borrowers with changes in stamp duty having hit the market.
In addition to this, there have been other slip-ups, such as a £9 million impairment against “irregularities” in the lender’s Scottish asset finance business.
However, the management team had begun to address these concerns and had come up with aggressive targets for loan growth by 2020, with customer loans planned to increase from £3.4 billion in 2015 to £8.5 billion in three years. The increase in loans last year by £700 million, a rise of 21 per cent year-on-year, demonstrates the sense of purpose behind the target.
Yet with private equity intent on taking out the business and the already high valuation, much of this advance is already in the price and there is little upside now in remaining a holder of the shares.
While Shawbrook could have made a decent long-term investment, at the moment the only sensible position is to be a seller. And, of course, it is inevitable that private equity will want to sell the business down the line, by which time valuations may have been reined in.
My advice Avoid
Why There is little upside in the shares and little hope of the bank remaining independent
Comptoir Group
Things can change quickly in the restaurant industry. Only 12 months ago, Comptoir Group, owner of the Comptoir Libanais chain, was riding high. It had just completed a successful IPO at 50p a share and over the next three months the price cantered to a high of 83½p, a decent premium by anyone’s standards, especially given the Brexit vote that came only two days after its admission to Aim.
Since then the shares, having drifted steadily downwards, have sunk below the issue price, dragged down by maiden full-year results in April that were accompanied by a profit warning. Yesterday, the share price took another pasting, sliding 28.6 per cent to 22½p.
Many of the problems outlined by the company are not unique to it. Wage costs are rising, the weak pound is affecting food and drink prices, rent and rates are both on the rise and consumer spending is weakening. Like-for-like sales and profits at some of its more mature units have fallen.
The group said that it remained confident in the brand’s appeal and that there was still scope for expansion, but it has taken its foot off the pedal after a busy opening schedule, with only three openings in the pipeline this year, plus its first international franchise in the Netherlands. A mooted sale and leaseback of its central processing unit provides breathing space, while the halving of the share price since IPO makes the stock look cheap. Yet it is far from clear that Comptoir has yet to put a lid on its problems.
My advice Avoid
Why Profit warnings often come in threes and the risk remains on the downside
Cape plc
The oil industry may not be in particularly rude health, especially in the North Sea, but Cape, which makes its money providing a range of services to big and small players, can still drum up a healthy business pipeline.
Whether it is insulation and specialist coatings that are needed or training and offshore power generation, Cape can solve the problem. A trading update yesterday showed that it had won several important contacts, including a three-year extension, admittedly at a tighter margin, of a £150 million deal with BP’s North Sea operations, and an insulation job on a big Australian liquefied natural gas project.
Even with the warnings of a more difficult year ahead, there appears to be no reason to panic and the immediate fall in the Cape share price might look like a buying opportunity. At a price-to-earnings multiple of about 6.6 times forecast 2017 figures and a dividend yield just below 3 per cent, Cape’s valuation, unlike the next 12 months, does not look particularly challenging. Of course, next year could bring a rerating if the market was to deteriorate further, but at the moment this looks like a potentially attractive investment.
My advice Buy
Why Valuation does not appear demanding and cashflows look good
And finally...
Fancy taking a punt on Domino’s Pizza sales in Turkey, Russia, Azerbaijan and Georgia? You won’t have to wait long as DP Eurasia has confirmed its plans for a London market listing. The company operates the world’s fifth largest franchise of the pizza brand with more than 570 stores, with the greatest number in Turkey. Investors will be buying into a rapid growth story as DP Eurasia plans to open about 70 stores this year, more than half of them in Russia. Afiyet olsun. Or Bon Appetit.
