12th July 2013
SVM UK Opportunities Fund manager Neil Veitch says that French conglomerate Schneider’s bid for Invensys may flush out other offers. It says the move by the French firm could prompt other bids and may encourage US industrials firm Emerson to revisit its earlier interest.
Veitch says: “When Invensys announced that it had reached an agreement to sell its rail division to Siemens for £1.7bn in November 2012, we believed further approaches may materialise. At that time, the company stated it would use a significant part of the proceeds to further de-risk its pension fund and return cash to shareholders.
“For some time Invensys’ structure had been obscuring the latent value residing within each of the different business units. The November announcement and, more importantly, the extremely respectable exit multiple (15x EV/EBIT) supported that view. Despite the very positive stock market reaction (+40% to the undisturbed price), we believed further upside remained.
Veitch says that post the disposal Invensys looked capable of delivering around 17p of earnings in the forthcoming financial year.
He adds: “Emerson, a large US industrial company, had previously expressed an interest in acquiring Invensys and with the group’s structure now considerably simplified, we believed it may be tempted to return.
“With Invensys having provided additional disclosure around divisional profitability since the Siemens announcement, we believe that the latest approach may flush out other bidders. Should this scenario materialise, the share price could go higher.”
At 4.6% Invensys is a top ten holding in the SVM UK Opportunities Fund. As at the 30 June 2013 the fund was up 17.52% year to date, compared with a rise of 8.50% for its benchmark, the FTSE All Share.