Kentz Share Discussion Threads

[haywards26] 21/8/2013 20:35

I read that the Wood Group are on the acquisition trail also and that their CEO was asked if they would be interested entering the bidding for Ketz, his reply was that it would be inappropriate to make a comment.

hxxp://www.heraldscotland.com/business/company-news/wood-group-value-slashed-as-forecasts-for-growth-reduced.21925267

[dahhad] 21/8/2013 20:22

Minimal what makes you think that the shares could get to 650p? With sales going through as they are, is there not a real danger that no bid comes through and we are down to the depressed 440 level again? I would appreciate thoughts as I am trying to decide whether or not to take a 40% gain at the current level? Am I being greedy hanging on or just wisely running profits?

[jeffian] 21/8/2013 20:20

spob,

"dont mean to be rude Jeff but that is a load of codswallop

I expect that is the kind of thing you have read from a nice but dim analyst"

Nope. Made it all up myself. No offence taken!

8-)

AdamB1978 makes fair points in #4160. My comments did indeed relate to takeovers where the issue of shares is involved. I had a real bee in my bonnet when Interserve - then trading on a PER of 6x - made an offer for Mouchel valuing its earnings at 13x. Luckily the bid failed (as, I think?, did Mouchel!). Of course, if huge additional earnings can be generated from the combined companies by cost-savings and 'synergies', there may be a case for a lower-rated company to buy a higher-rated one, but the easier option is to do it the other way round! And I don't buy the argument that the market will necessarily re-rate the enlarged company towards the value of the acquired company.

All I was saying was that (IMHO, spob!) AMEC are unlikely to push the price too far (but there seem to be plenty of other interested parties).

[spob] 21/8/2013 16:32

Thanks for the info mamcw

[mamcw] 21/8/2013 16:29

A brief update on my post yesterday.


- Investec appear to have been appointed advisor and joint broker to Kentz alongside UBS
- Deutsche Bank for AMEC
- Bank of America Merril Lynch for M&W GmbH

In terms of shareholding movements among the big shareholders, Legal & General sold 1% and are down to 4.95%. NFU have emerged as a holder of 3.4% (this looks like a late disclosure as opposed to the purchase of a 3.4% stake in the last 48 hours). Otherwise only minor movements among the big holders, who own 46% of the company (ex the chairman):
Standard Life - 7.1%
Legal & General - 5.0%
Artemis - 4.5%
Henderson - 3.7%
Schroders - 3.6%
M&G - 3.5%
NFU - 3.4%
Majedie - 3.2%
Blackrock - 3.0% (net of shorts)
RLAM - 2.5%
Quilter Cheviot - 1.6%
BP Inv Mgmt - 1.6%
Smith & Williamson - 1.2%
State Street - 1.0%
Fidelity - 1.0%
Plus the chairman and his associates, who own a further 13.4%

[minimal] 21/8/2013 12:53

I don't think today is the day to sell. The market is jittery today about the US annoucements tommorow, and there is no new official news on the Takeovers. Let's see this share get to 650p at least.

[minimal] 21/8/2013 12:53

I don't think today is the day to sell. The market is jittery today about the US annoucements tommorow, and there is no new official news on the Takeovers. Let's see this share get to 650p at least.

[phoenix1234] 21/8/2013 10:57

Kentz - broker reaction to takeover approaches

[pyemckay] 21/8/2013 10:46

upside of 50p on a further bid , downside of 100p if no bid imo. cant see the risk reward after banking a 50% gain on monday.

700p pie in the sky unless 3 bidders emerge. M and G bid was well under amecs and most possibly opportunistic.

Ive left something for the next man. I hope a larger bid comes through for holders but im sceptical. Im also happy taking the 50%.

good luck.

[jscowi] 21/8/2013 10:28

More downside risk than up in the near term, thats the problem with holding for most PI's now.

[adsuk] 21/8/2013 10:05

As I originally thought. 620-630 a share and my holding is sold.

[spob] 21/8/2013 09:59

The price you pay for a company is determined by a whole range of factors such as the quality of that company, its future growth prospects, its financial condition, market position, quality of management etc etc etc


And If Amec can't afford to pay up, Kenz are in no need to sell.

[ygor706] 21/8/2013 09:30

Some interesting posts here this morning. Personally, I am not getting too carried away with the identity of the offeror at the moment as these things take time to seep through to Boardrooms and there will be quite a few bigger names looking at how the current proposals might affect their own competitive position. The recent acquisition of May Gurney by Kier is a good example of how a third party can suddenly appear out of the woodwork! The next important milestone will probably be the Kentz figures which I understand are imminent although I don't have the date. There could well be a good increase in the dividend to keep the share price bubbling away!

[adamb1978] 21/8/2013 09:29

Jeff - I'm sorry but you're point in 4150 only stands if you're talking about an all-share deal and only partly stands then!

Most acquirors will be looking to finance the bulk of an acquisition of KENZ with debt given low borrowing costs available today - there's no point financing it with paper unless you either cant borrow enough at sensible rates and/or if leverage would be too high. And even then it only works if you're UK listed as per AMEC given flowback issues which would result.

In an all-share deal, your point only partly stands because in theory the acquiror's multiple should be boosted if its buying a faster growing target - this isnt possible to gauge particuarly in advance however you can take the rule of thumd that the post-acquisition multiple would gravitate towards the weighted average of the two multiples prior to the offer

[wylecoyote] 21/8/2013 08:53

GPD, yeah thanks. I think what disappoints me is that the discount to the sector was because of it's low growth profile(what low growth? It was acheiving 20% on average) and a high backlog concentration(why is this a negative?). Interesting how different people percieve different things.

Also, it is a more realistic and balanced appraisal. So thanks

[apad] 21/8/2013 08:48

GDP2
Thanks for that. Good to see some financial views backed by functional arguments for a change.
apad

[gpd2] 21/8/2013 08:39

RBC View

What's in it for AMEC?
Our View: Our initial analysis of an offer by AMEC for Kentz suggests that
it could afford to pay a price somewhere north of 600p. However, we believe that this is not a "must-do" deal for AMEC and that its appetite for acquisition risk will wane quickly above 625p.

Key Points:
Earnings accretive over 600p - AMEC's indicative offer range is 565-580p and at the top end we believe that it could achieve 8% earnings accretion in 2014E. On our estimates, the deal metrics remain positive at 625p, but the risk / reward balance becomes more marginal. We do not see the acquisition of Kentz as a "must-do" deal for AMEC and believe that its management will be disciplined in its approach to valuation. This is particularly true since it has already tabled a share buy back as an alternative to M&A.

Target price increased to 600p - while AMEC could justify a bid up to 625p,
given the uncertainty still surrounding an offer, we increase our target price to 600p. This implies limited upside from the current share price and we reduce our recommendation to Sector Perform from Outperform.

At 600p, Kentz would be trading on a 2014E cash adjusted P/E of 9.8x compared to AMEC's 11.0x.

Complementary industry exposures - while AMEC and Kentz's business strategies are fairly different, with AMEC focused on engineering and project management, while Kentz derives much of its revenue from costreimbursable construction work, the two companies operate in similar industries, with around 60-70% of revenues coming from the Natural Resources industry including Oil & Gas and Mining. However, Kentz has a significantly greater exposure to Africa, the Middle East and Far East Russia than AMEC and this would boost AMEC's Growth Region from 13% to over 26% of revenues (2012A) and dilute its exposure to the Americas (where
AMEC faces a head wind from slowing oil sands industry spend) from ~60% to closer to 50% of revenues.

The attractions of Kentz and revenue synergies - Kentz offers AMEC additional exposure to gas liquefaction (LNG), electrical/instrumentation work and complex technical support services, as well as an arguably unique first mover advantage in the Mozambique Oil & Gas industry, which could prove a valuable entry point to this important market. While we do not expect these factors to drive significant near-term revenue synergies, at the right price, Kentz is clearly an attractive proposition.

Target Price/ Base Case
Our target price is based upon a valuation at which we believe the risk / reward of an offer by AMEC is attractive. This factors in little in terms of revenue synergies but 15% cost savings on Kentz's central costs. It implies earnings accretion to AMEC of 8% in 2014E and a cash adjusted 2014E P/E for Kentz of 10.8x compared to AMEC's P/E of 11.0x.

Upside Scenario
Our upside scenario is based upon the price at which a deal becomes ~5% accretive to AMEC in 2014E. It implies a 2014E P/E for Kentz of 11.6x, a small premium to AMEC's valuation.

Downside Scenario
Our downside scenario assume that Kentz either receives no firm offers or that management rejects the offers and a deal is off the table. In this case, we believe the shares would fall to the level at which they traded prior to today's announcement at around 400p.

Investment Thesis
Kentz has historically traded at a significant P/E discount to the UK sector due to its relatively low earnings growth profile combined with a high backlog concentration and uncertainty over the use of its considerable net cash.

Prior to the announcement of potential offers for the company, we believed that these issues would have been addressed in the coming 12 months, with its own acquisitions that could have added 40%+ to its EPS. Along with solid execution on key contracts and a healthy order intake, our standalone thesis was for a re-rating, taking the share price towards our previous target price of 550p.

Our take-out valuation of Kentz is 600p, although we see some upside to 650p if AMEC is minded to accept a lower level of accretion. This implies between 4 and 13% upside from the current share price and with considerable uncertainty over the potential offer, our recommendation is downgraded to Sector Perform.

[apad] 21/8/2013 08:38

jeff
Re. your per point (4150).
I don't think this drives AMEC interest. Plumbers always make more than general builders, but if AMEC can offer their joint customers both services they will have a much more dominant market position. This might also prompt the interest of other gorillas who don't want this to happen. Kentz is a tiddler so the PER and short term financial considerations may not dominate. There is also the ego of CEOs:-)
apad

[wylecoyote] 21/8/2013 08:38

GPD - what does that mean? neutral from overweight?

[steeplejack] 21/8/2013 08:23

Legal and General sold a few on the bid approach RNS on Monday.Has dampened down speculation by all accounts first thing.

[rivaldo] 21/8/2013 06:56

From the Express - Oriel go for 715p:

hxxp://www.express.co.uk/finance/city/423303/Takeover-battle-for-proud-Kentz

"Takeover battle for proud Kentz

A BIDDING war may be about to break out for oil and gas engineering group Kentz Corporation after it snubbed two takeover approaches worth up to £683million.
By: Philip Waller
Published: Tue, August 20, 2013

Kentz builds pipelines and infrastructure for the oil and gas industries

Kentz, which builds pipelines and infrastructure for the oil and gas, mining, petrochemical and power industries, said yesterday the offers from rivals Amec and Germany's M+W Group undervalued it.

FTSE100-listed Amec offered 565-580p per share on August 5 and they closed on Friday at 476p.

Kentz said that the M+W bid was lower than Amec's.

It also said it had a substantial order book, a strong line-up of potential projects and a robust balance sheet.

A spokesman said: "Kentz has a strong and consistent track record of revenue and earnings growth since its IPO in 2008. The company has strong growth prospects."

Its shares surged 115p to 591p.

The news has sparked speculation that other rival engineers such as Bechtel, Fluor and Jacobs, all of the US, could make competing offers.

Oriel Securities said: "We have long argued that Kentz's value was being overlooked by the market although in our view this offer still does not give full value for Kentz's high-growth business.

"These offers should set a new floor and we would not rule out another offer.

"We believe a more realistic bid price would be 715p."

Credit Suisse analyst David Thomas said: "Now that Kentz has emerged as a target, we think a competitive bidding war could evolve.""