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  • Writer's pictureMark Watson-Mitchell

Currys, Chemring, McBride, Macfarlane and REACT

Currys (LON:CURY) – 80p a share cash bid or a lot more?


In response to the mooted £700m approach by Elliott Advisors over the weekend, the shares of Europe’s leading electrical retailer rose nearly 40% on Monday.


The Elliott boys are clever and apparently have eyes and ears on all parts of the UK equity market – so it is perhaps not too surprising how they alighted upon the potential value of this group.


But then so too have others been sussing out prospective value – JD.com, the Chinese Amazon-type ecommerce group, swiftly declared their intention to consider further the likelihood of a bid for the company.


Therefore, the 140-year-old Currys company is now ‘in play’ and the market will stay agog, it has come a very long way since starting off selling bicycles in Leicester.


This is all good news for Mike Ashley’s Frasers Group (LON:FRAS) which holds around 11% of the group’s equity, while RedWheel, which is the renamed RWC Partners active investment management group, holds nearly 15% of the group’s 1.13bn shares.


The retailer has not been in a good shape for some time and its shares, which were up to 500p eight years ago, were a falling market from 2016 to the Covid-stalled 2020, reflecting severe problems within the group’s operations.


However, it is now getting itself back into shape.


Recent moves by the company’s Management to prop up its balance sheet and cut back on its outgoings, have included the £175m disposal of its Greek operation Kotsovolos, completion of which could be by the end of next month.


It is also getting its Nordic Region operations back on track – helping the group to guide a month ago that it was expecting current year adjusted pre-tax profits of between £105m to £115m.


The market is whispering that other Private Equity houses have been paying attention to what Currys could offer in upside, so too could any of its High Street and online rivals.


That the company’s Board rejected the Elliott £700m approach as being far too cheap prompted City reactions to eventually anticipate a ‘take-out’ of some £900m in value, which would equate to a cash bid of around 80p a share.


If you just think about the divestment of its Greek side, plus the ever-growing value of its very important ‘Care and Repair’ business that I wrote about last October, when I noted:


“The recent visit by Rishi Sunak to the Currys Repair and Customers Warehouse in Newark gave the company an ideal spotlight upon its centre, which is Europe’s largest tech repair facility that is now generating close to £700m a year in sales.


Over the last three years or so the retailer has widened its repair and returns services, including establishing a route of business with E-Bay for reselling used and refurbished electronics on its the marketplace platform.”


I understand that brokers Investec have put a valuation on this operation alone at around £667m.


Other potentially interested parties could be the US-based Best Buy group, the UK’s BT-owned EE, or even other telco’s like Three and Vodafone.


As I have stated so many times before, we really do have masses of ‘undervalue’ in our UK equity market – which must not be allowed to pass over into the hands of foreign operators.


Could a bidding war ensue?


The shares, which closed last night at 65p, are a very Strong Hold until more is known.


(Profile 10.07.23 @ 49p set a Target Price of 61p*)

(Profile 18.12.23 @ 50.05p set a Target Price of 61p-65p*)


Chemring Group (LON:CHG) – possibly awaiting another Record Order Book announcement


Expect a positive AGM Trading Update on Friday (23rd) from this Romsey-based group of aerospace and defence technology solutions businesses.


I am a long-time fan of the group, whose customer base spans national defence organisations, security and law enforcement agencies, together with space, medical and transport in some 50 countries across the world.


Its innovative products for sensor and detection systems, precision engineering and products, and (my favourite) countermeasures sell to a truly global market.


On a sales basis the group’s countermeasures and energetics division accounts for 60% of turnover, while the sensors and information segment make up the balance.


The group delivers profit from markets where its differentiators are its intellectual property, its niche technologies and also the high-cost barriers for new entrants into the same markets.


Some 7 analysts following the company have a consensus average Price Objective on the group’s shares of 419p, compared to last night’s close of 353p.


The Statement is sure to centre upon the group’s current record order book, which will, undoubtedly, give the broker’s analysts even more confidence in the future performance of its shares.


A very Strong Hold.


(Profile 20.06.19 @ 177p set a Target Price of 300p*)

(Profile 20.10.23 @ 278p set a Target Price of 350p*)


McBride (LON:MCB) – heading towards my 99.5p Target Price


Last July I suggested that Master Investor subscribers should be looking to ‘pick up a fallen knife’ in the shape of the shares of this Manchester-based cleaning products maker.


Its shares had just reacted with a 20% gain after a positive Trading Update.


The impact of the high-cost inflation and post-Covid supply chain disruptions hit the group in 2021/2022.


But a return to profitability was then underway, with the better results expected come last September.


Within days the shares had moved up from the then 31.15p to 45p, before a short period of profit-clipping brought them back to 37.25p.


They gradually advanced again to 46p prior a pull-back to 31.40p by mid-October, just days before a Trading Update suggesting that despite tricky conditions it was some £8m ahead of internal forecasts in the first three months of the current year.


Although it was still suffering higher material costings, the late November AGM Update outlined the continuation of the previous positive trend.


The shares touched 62p in response and proceeded to move up to 93p within the next month or so.


The Trading Update for the Interim Results to end December, issued on 16th January guided that the figures would be slightly ahead of previous expectations.


The shares have subsequently traded in the 68p to 80p range.


So now what are we waiting for?


The half-year results will be declared next Tuesday morning (27th).


I have been following this company for decades, it is a very well-run business and is today the leading manufacturer and supplier of private label and contract manufactured products in Europe, specialising in the domestic household, professional cleaning and hygiene markets.


Analysts that know the group have a consensus average Price Objective of 104p on the shares, which closed last night at just 75.60p.


My view is that the shares, having more than doubled my Target Price set last July, actually came to within just 4p off my first Target Price, however I now feel that they could well get through that barrier within the next year or so.


(Profile 10.03.21 @ 79.5p set a Target Price of 99.5p)

(Profile 17.07.23 @ 31.15p set a Target Price of 38p*)


Macfarlane Group (LON:MACF) – finals due at the end of next week


Already it looks as though Thursday 29th February will be a busy corporate news day.


One company I will be looking out for is this Glasgow-based product packaging group.


It is due to declare its 2023 Final Results, which the group late last November guided would be better than its 2022 performance, despite the challenging conditions.


It has two main divisions – Manufacturing Operations, and Packaging Distribution.


Employing over 1,000 people, the group has some 39 different sites across the UK, the Netherlands, Germany and Ireland.


Analysts Robin Speakman and Akhil Patel at Shore Capital Markets have estimates out for the year to end December last of lower revenues of £280.0m (£290.4m) but with adjusted pre-tax profits improving to £25.0m (£23.5m), earnings of 11.9p (12.1p) but with a dividend of 3.6p (3.4p) per share.


The analysts see £290.2m sales this year, £26.3m profits, 12.4p earnings and a 3.7p dividend per share.


In describing Macfarlane as a resilient, profitable and higher-quality business the brokers give the group a 150p to 155p per share cash flow-based valuation.


They closed last night at around 124p, giving the company a market tag of £195m.


I feel that these shares are capable of continuing the rise that started last October.


(Profile 08.07.20 @ 77p set a Target Price of 100p*)


REACT Group (LON:REAT) – well worth tucking away


After hitting 1.50p early last week, after my Profile on this unique quoted cleaning services group, it was only to be expected that the shares would ease back somewhat.


Last night they closed at 1.35p after having dipped back to a February low of 1.20p.


I fancy this group’s shares for another early run up, possibly ahead of the end March AGM.


If only these shares were not totally classed within the ‘penny-stock’ bracket.


As I have said previously it would be a good idea to bulk up the shares into a less ‘spivy’ concentration – a share consolidation would make sense and give the company more credibility, especially as it pursues its policy of further growth by accretive acquisitions.


The group has aims to get up to a £50m valuation within the next few years and I have a certain confidence that the REACT Group Management will achieve their target earlier than the market might be expecting.


The group currently has a £14.4m market capitalisation, with some £2.1m cash in the bank, its shares are well worth tucking away at these lower levels.



(Profile 29.01.21 @ 1.5p set a Target Price of 2.5p*)

(Profile 31.10.22 @ 0.80p set a Target Price of 1.60p)

 

(Asterisks * denote that Target Prices have been achieved since Profile publication)

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