Small Cap Value Report (22 Nov 2016) - LVD
Good morning!
Great to see everyone at Mello Beckenham last night. Hopefully my presentation on Avesco (LON:AVS) was of interest. I've emailed the slides to PIWorld, who also filmed it, so will link to them once it's published.
We discussed potential takeover targets last night at Mello, but one we didn't mention was Lavendon (LON:LVD) (in which I hold a long position) - which has this morning received a 205p cash bid from a Belgian company. Lavendon is my 3rd largest long position, and has been languishing around 120-140p for some time. Therefore this bid looks very attractive to me.
However, management don't seem to agree, and they have rebutted the offer. That announcement also contains a positive trading update. That seems a mistake to me. Personally I would be very happy to accept 205p, because the market consistently undervalues this company.
I've got an 11:45 meeting in the City, then a 1pm, then a 3pm meeting, so unfortunately I'm going to have to down tools here now, and adjourn until this evening. Some interesting companies to see, so I shall report back if anything of interest surfaces.
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54 comments
LVD - Loxam again at 260p - market still pricing in a higher offer. Getting close now to the end game. Still holding.
Wow - TVH have come back after the close of trading for Christmas with an offer of 251p. A whole penny above the offer from Loxam.
Thank you Ebenezer!
LVD - at 261p the market clearly thinks this is not over yet. Just shows how low the original offer (205) was pitched and as I said at the time, was clearly opportunistic. Still holding.
The most interesting thing is that the word "final" does not appear either in the latest offer or in TVH's response.
Latest posting from Loxam this morning. Revised cash bid now at 250p per share.
http://www.investegate.co.uk/loxam-sas/rns/offer-for-lavendon-group-plc/201612160702040509S/
Gus.
Wish I'd held instead of bailing - but there you go
Still made a profit which you can't knock
EDIT: Deleted
Well I'm still here. The danger was always that the approaches might lapse.But in the case of Lavendon the valuation argument was and is compelling, which gave and gives scope to both parties to raise the ante. Still best to sit tight and wait on events.
Along with the BOO news its been a nice day so far!
Yes always best to disregard what the likes of Panmure Gordon is saying. Lavendon very much in play now.
New cash offer at 220p out this morning from Loxam.
http://www.investegate.co.uk/loxam-sas/rns/offer-for-lavendon-group-plc/201612140700088016R/
TVH have already responded to say they are considering their position. Well done to those with the patience to hold on. Sadly, not me .....
Best,
Gus.
New kid on the block this morning ....
http://www.investegate.co.uk/loxam-sas/rns/possible-cash-offer-for-lavendon-group-plc/201611280700082371Q/
Gus.
I sold all my LVD at between 190-195p, although the price action was so strong, it did occur to me that someone was buying more than sellers. So people who held on, probably did the right thing.
For me though, it's all about risk/reward, so banking the profits an moving on at 195p was more than acceptable to me. Each to their own.
Well done all round! Just shows - focus on the value, and ignore the background noise - worked in this case.
Regards, Paul.
Excellent posts. As there is no definitive way of knowing how things will unfold I suspect that another major factor is your appetite to risk.
Picking up on a couple of points-the shares won't' fall back to 130p if the bid fails. Secondly I think there are parties than Ashtead who might be interested.
I read a piece of Panmure Gordon research earlier in the week which suggested, in their view, that "fair" value might be about 236p but that given the chances of another bidder are limited (possibly Ashtead) a discount to the 236p in the order of 215-220p seemed likely as a compromise to get the reluctant shareholders into line. Given time value etc., not a whole lot more upside here in my view so just sold my entire holding (including a few speculatively bought in the low 180's when the bid was first announced) at a fraction over 205p. Happy with that outcome - my shares are now in the hands of the professional poker players!
Best,
Gus.
So what's the best course of action.? Continue to sit tight and await developments or sell in the market at anything over 202p on the assumption that there will not be another bidder and therefore your maximum exit will be 205p?
Looks like TVH have been parking their tanks on the Lavendon (LON:LVD) lawn.
http://www.investegate.co.uk/tvh-group/rns/tvh-acquires-c-9-0-per-cent--of-lavendon/201611251500432169Q/
Gus.
This Lavendon bid situation can be simplified with an assumption that there are just three outcomes possible:
On an expected value basis, the current share price of 205p implies that the probability of a higher bid is 79% with a probability of just 21% that the bid fails
: (21% *130p) + (79% * 225p) = 205p
Of course there are other outcomes. You can calculate the implied probabilities on the back of any envelope.
Lavendon (LON:LVD) shares are up over 5% at 206.5p offered (i.e. above the 205p mentioned in the original RNS) on an otherwise quiet day in the markets. More froth or is something percolating up from discussions between the principals?
Gus.
Any other holders of VP think TVH could turn their attentions onto VP if they fail to secure LVD? It's a better quality business than LVD with much better operating margins
Paul,
If you're willing to share I'd be really interested in the results of your re-balancing considerations over the weekend?
Pete
FYI - Paul mentioned on the G4M thread on ADVFN yesterday where some of his money might be going.
DYOR.
Here's the video of Paul's presentation from last night's Mello:
He runs through the key features from his Avesco (LON:AVS) research, which gave him the conviction that this was a gem – in spite of the static share price for the last 18 months.
Very useful pointers in spotting the next Avesco!
http://www.piworld.co.uk/mello/2016/11/22/mello-20th-november-2016-paul-scott-avesco-avs-presentation
Presentation slides are below the video.
c. 40 mins
Thanks for the kind comments.
I've sold all my Lavendon (LVD) today - because it was a share that the market consistently undervalued at around 130p. So when it shot up to 194p on a takeover approach, I am happy to bank the gains, and leave the last bit for someone else.
Takeover situations are special, and it's not my bag. So I'm happy to bank the big gain, and then leave the arbitrage to the experts in that field.
This is getting a bit good! 2 favourite stocks here on SCVR both being bid for! I could get used to this!!
Best wishes, Paul.
Good evening Paul,
I wonder if Van Elle (VANL) is on your radar? It floated on AIM in October, but has been around and growing for the past 32 years. Market cap of about £90m, which appears to fall into your small cap range (?). You can find the float prospectus, including detailed financials for the last 3 years on their website: http://www.van-elle.co.uk.
The numbers look encouraging, but I don't have enough of your forensic approach to spot any worrying stuff lurking in the figures. I was confident enough to make a starter purchase this morning, would like to add if no issues.
Thanks for all your hard work over the years.
Nick
Just wanted to says thanks. I bought avesco 2 months ago almost entirely on stockopedia data and your research. Sold yesterday for 125% profit, I was not comfortable having it as almost 10% of my portfolio for an additional upside of something like 3%. Divided that win between 3 companies, one being lavendon, i was whining about the spread yesterday, sold this afternoon for what turned into 30+% profit in 24 hours.
Even without the winners your write ups are learning gold, thanks.
Well done Paul, you deserve a good reward.
As an afterthought to my earlier post Paul, what are you feelings on CAMB? Results today seemed good in retrospect but the market seems to fear for the future.
Thanks
Paul,
In March, you put Focusrite (LSE:TUNE) on your watchlist.
Results today are good. Profit up some 10%, dividends although small up as well and net cash. Their products are very very well reviewed and occupy a niche market.
Does today want to make you move this from the watch list??
Also worth adding some very positive sounding outlook comments from the post-reporting period...
Is the common theme here (Avesco (LON:AVS) and £LVD) that they were trading at net asset value? It certainly makes an acquisition easier if the business is thrown in for free. I will be interested to hear which companies your Avesco (LON:AVS) meeting identified as possible targets. My current money is on Somero Enterprises Inc (LON:SOM). While not trading at NAV it is still cheap and there has been some big trades in the last week. For a US buyer the weakness in sterling has made the purchase price 20% cheaper for the same earnings.
Avation (LON:AVAP) is trading below asset value and has an interested buyer for part of it's portfolio....
Here's a silly idea for the next Target. Card Factory (CARD). Not exactly undervalued by the standards of Avesco or Lavendon, but hugely cash generative. That would seem to be ripe for a Private Equity style bid, to take it off the market for several years, milk the cash, fill with debt, and return 'revitalised' for a new listing.
I am a holder.
Paul. You are on quite a run with Avesco and Lavendon (LON:LVD). Well done. From the Bidder TVH's release, it seems both the two shareholders who have given irrevocables and the management were prepared to accept the offer even at 200p. Only when TVH could not get more irrevocables did they in raise the offer to 205p. But seemingly the Pru (18.9%) was still not prepared to accept (presumably against management's expectations.) With the main shareholder not on board, I can understand why management will not recommend and why it might be difficult to get to 50% acceptances. Given TVH has done 3 weeks of due diligence and had access to the books, this should give some comfort over the trade receivables in Saudi (some comfort if the bid ultimately fails).
Lavendon (LON:LVD) is an unusual situation. It would appear the board was willing to recommend 200p but at least one of the approached shareholders was unwilling to accept. The offer was upped to 205p which was acceptable to at least two shareholders representing 12%. It would appear that 18.6% shareholder Prudential (http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/other/13043228.html) rejected both 200p and 205p. Presumably, prior to approaching shareholders, TVH intended to go down the path of a scheme of arrangement. A scheme requires both 75% of the number of shares voted and 50% of the number of shareholders voting in order to pass. Prudential's shareholding would almost certainly be able to vote down a scheme by themselves. The board would look decidedly stupid recommending a scheme that was likely to be voted down. So they, rightly, decided they couldn't recommend a scheme. But they've also not recommended an offer with a 75% acceptance condition (instead of the usual 90%). The Lavendon announcement says that they encouraged TVH to approach more shareholders but that TVH declined to do so. Presumably, the board would have felt more confident recommending an offer at 205p if they knew more than just 12% supported an offer at that price.
An unrecommended offer that's not hostile. A "final" offer which can't increase in the absence of another bid. A board who thinks 205p is a fair price but a large shareholder who doesn't.
An unrecommended offer that's not hostile. A "final" offer which can't increase in the absence of another bid. A board who thinks 205p is a fair price but a large shareholder who doesn't.
This is a really good synopsis of the situation. I dumped all my Lavendon (LON:LVD) at 198p. Everything has it's price. Now all I need to do is find a suitable vehicle for re-investment of the proceeds... problems, problems :-)
All the best, Si
Strangely, the success of the offer is now down to the shareholders other than Pru.
If TVH can get to 75% acceptances then Pru will almost certainly have to accept. Otherwise, at 75%, TVH can delist Lavendon and leave Pru holding 18.6/25=74%+ of the free float in an unlisted company. At 75% of a private company, TVH can do nasty things to the other shareholders if they want to.
The grey area is between 50-75%. At 50%+, TVH can declare the offer unconditional buy those shares and take control. Depending on TVH's appetite for criticism, they can make life uncomfortable for the remaining Lavendon shareholders. For starters, I imagine the dividend would be cancelled. You might then also find that TVH determines that Lavendon should forego current profitability to invest for the future.
Pru will be desperately hoping that another bidder emerges.
The grey area is between 50-75%. At 50%+, TVH can declare the offer unconditional buy those shares and take control. Depending on TVH's appetite for criticism, they can make life uncomfortable for the remaining Lavendon shareholders. For starters, I imagine the dividend would be cancelled. You might then also find that TVH determines that Lavendon should forego current profitability to invest for the future.
Pru will be desperately hoping that another bidder emerges.
TVH looks a soundly run private company and I really can't see them going hostile and getting nasty with other shareholders. Given that the discount to the 205p bid was so small around 3pm yesterday, and that the LVD board have previous form for seeing off bids, it was an easy decision to sell.
Of course, all bets are off if another bidder appears but it seems one of the most likely llisted buyers (Ashtead) only yesterday completed the acquisition of the leftovers of Hewdens.
All the best, Si
Si: "Now all I need to do is find a suitable vehicle for re-investment of the proceeds... problems, problems :-)"
Let us know what you decide :-)
Very annoying, I was close to buying Lavendon yesterday, even had my finger poised over the purchase button with a quote on-screen! Well don't to all existing shareholders though.
Thanks for the heads up on LVD Paul. A tidy profit which more then covers my recent subsciption with plenty left over for the next winner. when it turns up.
Paul - what an amazing year you've had! Now Lavendon too! Well deserved.
Thanks for flagging Lavendon which has helped me too. I sold this morning as I think there's a good chance the management will see off the offer and 190p+ is a pretty decent return. There are a lot of institutions that have circa 1% holding so I don't consider the 12% backing particularly significant.
Here are their list of major shareholders: http://investors.morningstar.com/ownership/shareholders-major.html?t=XLON:LVD®ion=GBR
I see an old favourite of these pages Zanaga Iron Ore (LSE:ZIOC) is on the move again.
I sold Zanaga Iron Ore (LON:ZIOC) in 2014 when the management awarded themselves huge options. The SP was then 14p. Is there any evidence that they are now managing the company for shareholders, rather than for themselves?
I think the trading news from Lavendon is not new -it merely quotes the ceo's comments from the recent results.
Probably best to sit and wait on events-but difficult to call how this will pan out.
I have sold my Lavendon in the market. Think the bid may fail, and the market may readjust and give me another chance (or not). Have left money on the table, but hey ho. I was influenced by the Stockopedia Ranks when I bought, and balancing with my other sector exposures. I was worried by the Middle East levels of debt, but was encouraged by Paul's review of value.
So thanks to Stockopedia and Paul. Certainly paid for my subscription.
Useful Panmure note out this morning highlighting the 205p offer values LVD at 4.7x EV/EBITDA which is a nice premium on the 12 month average of 3.7x but is in line with the 3yr average of 4.6x.
https://www.research-tree.com/companies/uk/support-services/lavendon-group/research/cash-offer-from-tvh/44dc2543-1c3e-4031-a542-f4a0a7de5576
It also flags that other trade buyers may be thin on the ground but it could be of interest to PE, especially given the strong asset backing (1.6x P/B)...
But as Paul indicates, a bird in the hand etc...
Re LVD, management casts doubt on the ability of the Offeror to complete. Market response seems to agree and discount a further bid.
Paul,
Renew Holdings (LON:RNWH) today as well. You don't like the balance sheet but that last time that we discussed this one I pointed out that their large trade creditors are mainly their sub-contractors who they pay after they've collected payment on their own contract.
On Lavendon (LON:LVD), I note that the offer today is described as "final", which, given the tone and contents, suggests a high risk that LVD don't recommend and the offer falls away.
JakNife
The Lavendon (LON:LVD) offer seems rather opportunistic to me, but I also think management will rebuff it largely in their own interests. Some years ago there was an offer at 700, and the management managed to fend that off too. Given the yield here, I am still content to sit and wait.
Of interest to some may be Charles Taylor (LON:CTR) . There is an update today that suggests earnings will be at the bottom of expectations. A 10% drop has resulted. The figures still remain attractive though (PER= 12, PEG = 1, yield = 2.5%, no extravagant debt levels).
Paul,
What do you think of Victoria (LON:VCP) interims? (If you could cover VCP in the report, it would be greatly appreciated!)
I felt the figures were very good and overall positive
Congrats to Lavendon (LON:LVD) holders.
Joe
Prelims from Cambria Automobiles (LON:CAMB) today too. The market seems to have taken the uncertainties in the outlook statement as a mild profit warning. I'm holding, as I think the management here are well able to manage their way through whatever issues the fall in Sterling and the Brexit negotiations create. Anyway, I'm expecting a long Brexit transition period to be negotiated, in which case any bears are likely to get bored.
Well done to Lavendon (LON:LVD) holders, I sold out a few months ago.
Paul, if you get a chance Severfield (LON:SFR) half year figures are out today, revenue only up marginally but underlying profit up 69%. "With the strongest order book for over six years and steady pipeline, the outlook is very good."
Shares are up 10%.
I wonder if Lavendon will flush out any more interest e.g. From Ashtead? I'm hanging on to see what happens. I see the bid price as fair value but not a proper bid premium.
Couldn't agree more. The market has consistently undervalued LVD and ignored positive trading. This bid appears opportunistic and is using the undervaluation to offset the modest premium. Have held LVD for well over 10 years and am prepared to be patient as eventually true value will be appreciated.
Paul
I note the company's response included that they had invited the bidder to talk to share holders to gauge interest and the offer fell on deaf ears. Further more they only have 12.5% confirmed. That suggests a degree of optimism in terms of medium term expectation. I think I am prone to hold on and see what materialises. The Middle East appears to be a strong factor in bidders thinking.