Hercules Props. Share Discussion Threads

[rivaldo] 19/9/2004 12:21

Good post topvest. I'm never sure about demergers - often the true value of the separate entities still remains untapped as one entity becomes unloved whilst the other does well, and the investor ends up in the same boat as before.

The insurance business is doing well, but the divisional turnover indicates the potential for turnaround in the other divisions, as insurance only contributes £18m out of the total £43.3m turnover, particularly as the resi division has been reorganised and has taken the brunt of one-off costs. This year should be the year of the pay-off in that area.

Still, I'm not bothered how they do it as long as they can create value - as you say, £3.50 should be a minimum price, and £4 would still be a steal based on a current year P/E of less than 11.

[topvest] 19/9/2004 11:29

The announcement sounded like talks were quite advanced. I'm not sure where Larry Lipman's overall strategy has got to at the moment. Get the feeling he is into a consolidation/taking profits stage at this point in the economic cycle. Over the last year he has had problems at Safeland and Tec-IS, but moved Hercules back into safe territory and progressed Bizspace well. Overall, the transaction flow for a "deal-maker" has been well down on what you might have expected. Personally, I think that they will sell out, but only if the price is good. The Lipman's have had approaches on BIZ and HPS before and managed to rebuff the buyer. This time, I think that it will succeed. At the end of the day, they have moved the price from 70p ish to over £3 and so an offer over £3.50 is likely to succeed imo.

On the results, HPS is doing ok but the business value is underpinned solely by the insurance business that makes most of the money. If it was an insurance company buying why would it want the other parts of the business?

All quite interesting - who is involved?.....a Lipman connected company (unlikely imo), ERG (possibly), an MBO (no as a shares deal), ROK (possibly, if they are looking to expand their business model), an insurance company (i'm not convinced) or maybe a new AIM investment vehicle (e.g.Conygar Inv. Co. - this sounds a possibility)?

Time will tell. I still prefer a demerger of the insurance business to add value.

[welsheagle] 18/9/2004 18:52

From Thursday's Daily Mail:-
'Auctioning and property consultant Hercules Property soared 30.5p to 310p on news of a bid approach. The offer under consideration would be at a premium to the current share price and be predominantly in shares'.

[simon gordon] 17/9/2004 13:33

I was looking at HPS's past history and the last time a bid was around it took the management three months to make a decision!

[acamas] 16/9/2004 21:56

Rivaldo,

I agree with your view. There seems to me to be a high stakes poker match going on here with one or two cards face up on the table and eight cards blind. On top of that we do not even know how many parties are seated around the table because we only know two for sure HPS(The Banker) and the Mystery Bidder. But there may be other players who will appear as the stakes increase. Its a little like Cluedo at the moment.

[rivaldo] 16/9/2004 19:19

Yes, I was slightly surprised about the insertion of the takeover news into the results RNS. Such announcements are normally reactive rather than pre-emptive - unless they're at an advanced stage. Maybe HPS are trying to flush out other interested parties.

But as others have said, there's surely no way the HPS directors will accept anything less than, say, 375p. And if things go well, 500p for a forward P/E of around 12.

[mymansam] 16/9/2004 17:12

thanks Acamas.......my understanding of the takeover code is that a company is only obliged to disclose takeovers and other price sensitive information if there has been a significant move in there share price (10% as a rule of thumb) or a statement needs to be made to avoid a false market developing in the company's shares.

However i agree with your views

[acamas] 16/9/2004 16:47

Simon,

While your statement is sound until we are advised of the name of the bidder it is hard to judge what is expensive and what is a valid price to pay. If the bidder is a conglomerate that is cash strapped but wishes to become involved
in property insurance this may be their only way into the market and they may be faced with paying a premium to get their hands on HPS and gain a foothold in this arena

[simon gordon] 16/9/2004 15:41

If you check the valuation of small insurance stocks in that sector then HPS could be judged as expensive!

[acamas] 16/9/2004 09:39

MyManSam,

The company do not have to accept the takeover. They can recommend we reject the bid. It is only at an early stage perhaps when more information is available other bidders may appear who are prepared to offer cash. One thing this should establish is a true worth of the company to any prospective buyer. I believe the share price still fails to show HPS's real value. I think it is closer to £4 currently. Prospects for the world economy in 2005 are brighter than this year so I would expect shares in general to rise, even more so if Bush is re-elected because people feel more confident when they do not have to face change.

I still look forward to HPS being around £5 in 2005 if they have not been taken over before they have a chance to reach £5

Why make the statement probably they had to under MMC or Stock Exchange rules and regs. They may have preferred not to at this time but as they had been approached their hand was forced. Comments on the above please

[mymansam] 16/9/2004 09:04

if its shares only (without a cash underwritten alternative) i will be a bit worried......it raises a bit of a question mark over the quality of the bidders paper......also why make a statement........the share price had not moved.......i would have been happier if they had waited until talks were a bit more conclusive.

[rivaldo] 15/9/2004 18:52

Thx Penpont - I should have remembered it was Galliford. The Galliford share price has performed pretty well recently from memory, so maybe they're back for another go?

[doobydave] 15/9/2004 17:39

I've made it easy for you, but I'm not doing your work for you, Simon! You DYOR.

[simon gordon] 15/9/2004 15:04

DoobyDave as a big fan of HPS I would have thought you knew the answer to such a vital question.

[simon gordon] 15/9/2004 14:42

Hi Penpont

I agree to a degree because if you look closely at HPS they are an insurance company who do a bit of property servicing.

They should be listed in the insurance sector not support services.

Maybe an insurance company will buy them?

[penpont] 15/9/2004 13:35

To be honest I dont think either Rok or Erg are likely candidates.

Rok really have a different business flavour as far as I can see - construction, commercial property development, facilities management etc, so I don't think HPS is a totally natural fit. I also think that the way Rok hiked the divi last results and laid out a revision of the divi policy makes it unlikely they'd go for something as big as HPS.

(as far as I know rivaldo, Rok have never bid for HPS - aren't you thinking of last years abortive go at Galliford Try?)

ERG are only themselves marginally bigger in market cap terms and HPS looks too big an operation for them to take on at this stage in their development.

I'd have thought a reasonably big player from the real estate sector who's directly involved in property management might be likely and that leaves quite a few options.

Should say I hold both Rok and Erg (and HPS!) ......probably means it will be one of them!

[doobydave] 15/9/2004 13:23

Best ring their FD, Simon, on 020 8420 7600.

[simon gordon] 15/9/2004 12:36

Trying to work a valuation I am confused by the balance sheet.

They state net debt is 15.6m but hold IBA cash balances of 8.8m - is it HPS's money or held on behalf of clients?

Profit before tax and after interest is 9m.
Equity is valued now at £59m.
Net debt is either 15.6m or 24.4m.

Management services, auctions and surveying are going backwards profit wise only insurance is going up.

Once I am clear on the net debt I can come to a valuation.

[acamas] 15/9/2004 11:55

Rivaldo,


Thats probably why HPS is so attractive to the bidder. I think the interested party can see around £4.50p in the company before Easter 2005 and growth after that date as well.

[rivaldo] 15/9/2004 11:45

Thx for the new thread DD.

As I said on the other thread, it's likely to be either ROK or ERG IMO (of the quoted rivals anyway) - didn't ROK come in for HPS before?

I agree Simon, since ERG's rating is not that high they may not wish to issue a huge dollop of shares. But it may be that there's only so much organic growth that you can achieve before you have to look elsewhere, and as you say this would propel ERG (and ROK) forward.

Let's hope for a bidding war! But I'm confident the current price still understates the possible offer potential by a reasonable amount.

[rivaldo] 15/9/2004 11:42

Testing again!