Hercules Props. Share Discussion Threads

[simon gordon] 28/9/2004 08:04

I think you get the dividend and the ERG interim dividend paid in January - probably around 2p.

[penpont] 28/9/2004 08:04

Early indications make it look like we aren't gong to make much out of this - fall in ERG share price is effectively wiping out much of the potential gain we should have seen.

As a holder of a small amount of ERG and quite a large number of HPS I am actually LOSING money here!

[rivaldo] 27/9/2004 19:26

Good point about the divi topvest - ex div is around 10th November, so I s'pose that reduces the consideration and makes the offer even meaner!

As you say, tomorrow and the next few days will be interesting. I'm holding - I think we could well get more bidders showing their hand.

[topvest] 27/9/2004 19:00

I don't think the game is over here at all. Even Safeland haven't accepted. The Lipman's are basically saying we want out. £3.50 will do and is the reserve price. All other bidders welcome. Personally, £3.50 is not much of a premium, particularly in shares. This could get interesting!

Presumably there will now be no final dividend for HPS shareholders?

What is it worth - £1.385 * 2.183 + 45p = £3.47.

Tomorrow's share prices will tell the story though.

Also is Nigel Davis leaving Safeland, Bizspace etc? The ERG job looks a full time one to me!

[acamas] 27/9/2004 18:41

Rivaldo,

As you intermate "There is many a slip between cup and lip" so we live in hope of a white knight appearing in the arena. Thanks for your comments above. Whatever happens my bank account will wear a broader smile.

[rivaldo] 27/9/2004 18:24

Acamas, yep - can't complain! Will have to look at the combined entity as a package. I know ERG are ambitious, but they've had problems with their property management arm, Haywards, being suspended from the Managing Agents Association.

I assume the problems aren't too serious or HPS wouldn't have agreed to the takeover - presumably HPS think they can sort it out.

All my HPS shares are in PEPs and ISAs, so a nice tax-free bonus. If you do move on, IMO there's some good news to come at CEL, NRG and XKO, all ISA-ble and all solid profit-earners with minimal downside and good upside. But I'm probably wromg...

[simon gordon] 27/9/2004 17:41

Well folks if hold onto your shares welcome to Erinaceous.

[acamas] 27/9/2004 17:24

Hi Rivaldo,

I would have liked £3.85 but I am ever the optimist. Still almost £1 per share profit since March is nothing to sniff at. Will have to do some more research do I stay with the new company or look for other possible takeover targets. That is the question as Hamlet said(To move on or not to move on).

[rivaldo] 27/9/2004 16:43

Wahey! 350p offer from ERG - not bad:



Mostly in shares, so the price probably won't reflect the full 350p initially but will stop at, say, 340p? It's agreed as well, so a counterbidder is unlikely.

Nice and quick as well. Excellent uplift from 260p-odd just a few weeks ago. I'd have liked £4 but you can't win 'em all.

[rivaldo] 23/9/2004 14:48

Mymansam, don't remember you here before? It's been all of 8 days since HPS announced takeover talks, so I feel a little bit more patience might be necessary!

You can't argue with the share price, so you could be right. Still, an extra 7% in a few weeks is fine by me. I feel downside if the bid falls away is minimal (5%-10%) since the P/E rating is so low, whereas upside could be 10%-30%+ within a short period. So the risk/reward is pretty good IMO.

[simon gordon] 23/9/2004 11:47

This is taken from the Deacon website:

We specialise in insuring flats, and are confident that you will be impressed by the quality of our service, and the comprehensive cover and value for money we offer. We advise on and arrange cover and, in most cases, process and pay claims. We are part of the Hercules Property Services Group, and in July 2004 merged with Cadogan Insurance Services to create one of the UK's top 3 property insurance brokers.

As an intermediary, rather than a broker, we have negotiated special policy terms and conditions with insurers to provide all the cover a block of flats needs - yet our premiums remain highly competitive. We work with a wide range of leading insurers, so that our underwriting staff can find the right combination of premium and cover for each building. We also process and pay over 85% of claims ourselves - and fast!

[simon gordon] 23/9/2004 11:00

Tom

Thank you for the excellent views and now it makes more sense.

[mymansam] 23/9/2004 09:43

And then there was silence!!!!...............takeovers of these smaller companies have all been a very dissapointing premiums of late......eg yates etc, i am not a big shareholder here and so i have decided to take my 305p and run......last time it was 3 months before a deal was rejected and look what happend to the share price then.

Good luck everyone..........but even if this goes through you may not see anymore than 325p.

[tom.muir] 22/9/2004 16:50

Insurance intermediaries such as HPS take none of the risk. To take risk a company has to be a registered insurer. HPS will earn commission on the premiums that they influence to the Insurers. They will probably also be on other perks such as a profit sharing agreement. These operate in cases were the intermediary can influence large blocks of Insurance to the Insurer. They then receive a percentage of the profit that the Insurer makes. They may also do some of the underwriting within set limits and prepare documentation. For this they also will receive payment from the Insurer. Hope this helps. Tom

[acamas] 22/9/2004 13:57

Simon,

If that is the case concerning reserves for HPS they may in effect be acting as insurance brokers and taking a commission on all insurance premiums they collect of say 15% and reinsuring the whole risk at Lloyds of London. I do not know this to be the case but it would be one way for HPS to earn good profit with no risk to themselves whatsoever.

[simon gordon] 22/9/2004 11:12

ACAMAS

Thank you for the explanation - looking at the HPS balance sheet they don't have much in the way of reserves, so if a giant storm or a £20m building went up in smoke I am thinking that the profits could get hammered.

I presume that is why insurance companies are so lowly valued due to the inherent risk. Logically HPS is not going to be highly valued!?

[greatbear] 21/9/2004 20:34

I'm looking at £4.70 as a fair value price, but this is taking into account the 3%+ divi. However, if we are looking at a fair PE of 10 on 12 months EPS growth then we are perhaps looking at £3.87.

I am assuming that we may have to accept shares in the takeover/merger company as part of the deal, or am I mis understanding?

GB.

[acamas] 21/9/2004 18:39

Simon,
I am sure Rivaldo will give you a much better answer than I can. But if you look at your household policy some people pay premiums for 40 years and never make a claim. Most insurance companies then invest this money at compound rates so over the 40 years you may give them £5000 but they may well have compounded this up to £100,000 and it is the so called reserves that accommodate the hurricane Ivan's of this world. Then up go the premiums to replenish the reserves. In commercial property you may well have 20 occupants in one building all paying premiums sometimes more than is necessary. This all ends up as profit for the insurance company. Also if the risk is to high for the Company at present they as you said they re-insure. That is my understanding of how it works in theory.

[simon gordon] 21/9/2004 17:52

Hi Rivaldo

Thank you.

I wonder how they can make such a juicy profit margin if they are not taking risk as logically competition would enter and drive margins down. Can you please explain how they do it.

Say for instance we had a giant storm this winter and a lot of insured buildings needed repaired at a high cost, even if HPS underwrote some of the risks would they be liable. Like insurance companies with hurricane Ivan they have some re-insured but still they are hurting on the bottom line. For if they totally underwrite the policies they would not make a profit.

If I go one about this it is because I am here to learn not rant!!!

[rivaldo] 21/9/2004 15:00

Acamas, yep, I'm hoping for a bid of £4 or more, hoping being the operative word. After all, the broker forecasts are for 37.92 EPS this year and 41.57p EPS next year - so a forward P/E of around 10 or 11 would hardly be excessive.

Most bids seem to be at a premium of around 25%-30% to the previous closing price. So a target price of around 360p wold seem to be about right. But when the target company is trading at a low, recovery-type rating to start with then perhaps the bid premium could be more. We'll soon see.

[acamas] 21/9/2004 12:25

Rivaldo,

You reckon £4 or more. I hope you are correct, myself I would go in with around £3.65 and see the reaction from HPS's Directors. Then if it was rejected come back a month later at say £3.85 and hope to win the day

[rivaldo] 21/9/2004 11:41

Simon, Cadogan are brokers, so no risk at all. Deacon are a mix of intermediary and insurer, so my understanding is that in the latter case there is a risk in such a remote eventuality. But I guess HPS have probably laid off that risk anyway to other insurers to minimise it.

Penpont, good post - the latest bid statement is definitive. Let's hope for a quick resolution, though these things often take a couple of months to finalise with due diligence etc. If it's the same offeror as before, then that diligence can be greatly reduced and we could get a much quicker settlement - hopefully around £4 or more.

[simon gordon] 21/9/2004 10:56

Hi Folks

Could someone explain to me how the insurance profit works. Is it commission or do they take on the risk if say a building is blown up, do HPS pay the insurance claim, are they liable?

I am interested to understand how this profit line works and how secure it is!

Cheers!!!

[penpont] 19/9/2004 19:48

I agree with you topvest that the phrasing this time sounds as if things are fairly advanced.

Mention has been made in a previous post regarding the length of time - 3 months - HPS took to decide when last in a bid situation.

This was the phrasing then:

April 03

'The Board can confirm that it has received a very preliminary approach that may
or may not lead to an offer being made for the Company.'

Compared to now:

Sep 04

'The Company also announces today that it is in talks in relation to a potential offer being made for the entire issued and to be issued share capital of the Company. The offer under consideration would be at a premium to the current share price and would be predominantly in shares. A further announcement in relation to these talks will be made in due course.'

The differnce is plainly evident.

I have to admit I haven't had much experience of takeover situations, but in a case like this, where directors have hardly any shares, surely then discussions with major holders (eg M&G Investment Man. with 12%) must have already taken place?

I certainly hope we have this settled within weeks at most - I feel the price could drift a bit otherwise.