Small Cap Value Report (15 Jul 2015) - AGA, CARR + Video

15th Jul '15 by Paul Scott

17 comments 22269 reads

Good morning!

ShareSoc Seminar

Last call for this investor event, which is tonight!

There are still a few places left I am told. Kick-off is 4:30pm this afternoon, location is FinnCap's offices in London (map link). Booking details are here, but you'll have to be quick!

I can't attend unfortunately, which is a pity as I would have been interested in hearing from Idox (LON:IDOX) in particular, which is starting to look potentially interesting in my view. So any feedback from the seminar would be useful.

AGA Rangemaster (LON:AGA)

Share price: 181p (up 19% today)
No. shares: 69.3m
Market cap: £125.4m

Recommended offer - I reported here on 17 Jun 2015 that Aga had announced a potential takeover approach from US firm Middleby. AGA shares rose 28% to 133p at the time, and have risen another 20% today to 182p as a cash offer at 185p is announced by Middleby.

This is a cracking deal for AGA shareholders, at a big premium - 77% above the share price just before the potential offer was first announced, and an 87% premium to the preceding three months. Nobody can complain about that!

As I mentioned in my earlier report, what is all the more surprising about this generous takeover deal, is that AGA has certainly the largest pension fund, relative to its market cap, that I can recall ever seeing. So it would have probably been the last company I would have expected to receive a takeover approach (since big pension funds in deficit would normally deter a bidder in the first place, and the pension fund trustees could block any deal).

Indeed, section 4 of today's announcement mentions how AGA's pension schemes have constrained the business, increased risk, and prevented the payment of dividends:

New pension settlement - section 10 of today's document details the agreement reached between Middleby and the AGA pension trustees. The deal involves an immediate payment of £10m by Middleby, another £10m by 15 Jan 2016, and £2.5m p.a. for 6 years after the 3rd anniversary of the acquisition.

Given that the market cap at the takeover price is just over £128m, then the immediate and Jan 2016 payments into the pension scheme combined (£20m) are 15.6% of the amount being paid for the company. Not bad really.…

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CliveBorg

15th Jul '15

Surely Middleby are ultimately going to regret taking on such a huge pension liability? Or perhaps they're so rich and confident that they might consider making a takeover offer on various aegean territories? In other news, I hear that all new euros are being made from Greece-proof paper ..

Graham Neary

So the company is a cash drain by itself, but if you buy a lot of similar companies then you can make it up on volume!

LancashireLad

hi Paul

Any views on BEG which reported this week?

Thanks

bobo

Carr, is on my list. Regular boring divi increases, dull and comfortable, allmost acceptable ROCE

Rusty2

Maybe USA companies view pension deficit differently, or maybe UK companies look cheap compared to the US market?

brucepackard

Yes. Not just the Aga pension deficit, but paying a whopping 87% premium to the preceding three months, suggests this is an unusual deal. I'm not sure it is a game changer, for precisely that reason. Just because one company gets bid for at a 87% premium, I wouldn't be so sure that I would extrapolate from that swallow to get a summer.
That said, still kicking myself for not being long Alent, which was on my buy list but just trying to time the purchase. Therefore feel free to ignore me!
NB Entu share price movement (-10% in 2 days) looks a bit funny.

hawkipa

HI Paul, I was just reading your article on Carr's. Can I just check where you get the numbers from as the Stockopedia numbers don't match up. I'm trying to better understand your process as I really like the way you look at things. So in learning I would very much like to be able to look at the same numbers.
Thanks for the daily report btw. Always interesting.
Paul

aiminvesting

Thanks Paul for your report. I had the luck to hold Carr's in the past, when the share price appreciated from 900p to 1500p (before the share consolidation). It is a sound business, thus the Stock rank, but I think it is valued at the right price for the time being and see no reason for a revaluation in the near future, and the dividend is not a reason to buy it either. I still have it on my wath list though.
Thomas

I think Entu sp fall is because the Govt. Green Deal is being cut back and will finish in 2017. Article in FT about it.

Paul Scott

Hi hawkipa,

Sorry I should have made it clear in the article. When I mention Balance Sheets, I always go back to the most recent published accounts. So in the case of Carr's (LON:CARR) I used the most recent interim results.

Thx for the positive feedback on these articles, much appreciated!

Regards, Paul.

jonesj

Another view on BEG would be much appreciated. I'm very tempted to top up my holding on the basis the dividends can keep me going until interest rate rises result in more business coming their way.

Hi,

Several people have asked me to look at Begbies Traynor (LON:BEG) so I have covered it in today's video.

Regards, Paul.

Hi Paul,

Thank you for covering Begbies in the video.

best regards

Jeff

Gostevie

16th Jul '15

Hi Paul,

Just a quick note to say thank you for the videos. They are really enjoyable and informative.

Steve

LeeWilliam25

AGA has an incredibly strong and recognisable brand, selling the English country cottage dream cooker to Americans no doubt has legs, but I'm not sure I'd be too quick to apply the takeover potential to other less notably marketable companies with large pension deficits.

Thanks Paul. Have a good weekend.

Paul Burkitt

17th Jul '15

I bought AGA last year, despite the pension issue. Did not like the look of it at the end of April. Intraday looked awful, but then suddenly recovered. I did wonder what was going on, and fortunately sat on my hands. So more by luck that judgement I am now a happy boy!! Middleby must see the opportunity to ramp up sales of Aga, through their existing distribution channels. The Pension Fund and pensioners are probably delighted and sad at the same time!!
what's the next target?

Small Cap Value Report (15 Jul 2015) - AGA, CARR + video

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AGA Rangemaster (LON:AGA)

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Paul Scott

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