Companies with ambitions keep an eye out for takeover opportunities. Takeovers can be bad for consumers when the aim is to snuff out competition or acquire a start-up’s innovative ideas, a practice US tech giants have been accused of.
But the motivation isn’t always monopolistic. Swallowing a rival to create a stronger entity with a bigger reach is more often the strategy. That was the thinking behind Volex’s attempt to buy its smaller rival TT Electronics late last year.
The two businesses have a lot in common. Both broadly supply electrical components and applications, have a traditional manufacturing background, have moved into new markets over the years and expanded production and sales internationally.
Volex, which has a healthy appetite for acquisitions, has however outpaced TT Electronics. The latter has been grappling with a series of macro challenges in recent years and production setbacks in its US operation. But the down-on-its-luck company rejected the £250mn bid.
Lots of companies rebuff unwanted suitors, in the belief they can solve their own problems. Miner Anglo American rejected bids from BHP and has gone on to restructure itself. Property portal Rightmove turned down several bids from Australian company REA. Retailer Currys refused all efforts to take it over last year and has gone from strength to strength. Engineer Wood Group has also rejected bids in the past, including one offer for £1.6bn, preferring to overhaul itself instead. But events have overtaken it and this week it accepted a bid of £242mn plus funding to pay off debts.
TT Electronics continues to try to turn things around but problems have persisted and tariffs are a new spanner in the works. If it pulls it off, there’s plenty of upside potential in the shares, but in the meantime further bid speculation cannot be ruled out.
HOLD: TT Electronics (TTG)
Shares have been badly hit by Trump’s tariff plan, writes Arthur Sants.
TT Electronics might now regret its decision to turn down a takeover offer from Volex, which valued it at 135.5p a share. At the time, this was well below its historical average on a range of metrics and brokers were forecasting a strong recovery after a difficult period. However, the board didn’t know a tariff war was just around the corner.
The company makes electronic components, such as sensors and fuses, and sells them to industrial manufacturers spread across the world.
Given this, tariffs are not good news. Under its “going concerns” the company says the introduction of US tariffs “has led the board to conclude that it is not possible to be certain of meeting the covenant test in certain extreme scenarios”.
This comes off the back of an already tough year. In the year to December 2024, adjusted revenue dropped 15 per cent, while rising supply chain inflation pushed down operating profit by 21 per cent to £37.1mn. The board subsequently paused its final dividend.
North America was particularly hard hit, with revenue dropping 17 per cent. Management said order intake last year was up 10 per cent but that there would be no meaningful revenue growth in 2025. This was a silver lining of sorts, but tariffs will hinder any recovery.
Europe is the most promising region. Organic revenue increased 14 per cent driven by demand in aerospace and defence. Order intake was “strong” and revenue growth is expected in 2025. And now with the German debt handbrake off and promises of more spending on defence, Europe looks the strongest market.
The company is now valued lower than its net assets. This looks quite bleak, but at this value there is a case to be made for backing its European business. But there is a risk of a value trap, and we are going to cut our losses.
BUY: WHSmith (SMWH)
The company has written down the value of high street assets, writes Michael Fahy.
WHSmith may have been trading on the UK’s high streets for more than 230 years but its recently announced exit seems like the right move for all involved.
It’s been clear for a while that management has dedicated more of its time and effort into the more profitable travel business than the 480-strong high street chain — parts of which were looking dog-eared and dejected.
This is reflected in what is likely to be the final set of results before the business is offloaded to private equity firm Modella Capital — and in the price that it paid for the business.
Although a headline figure of £76mn featured in the sale announcement, WHSmith announced that it was only likely to receive about £25mn once separation and transaction costs are accounted for. Some of those costs, plus more than £60mn of impairments related to the high street business, were the reason why the retailer swung to a pre-tax loss of £42mn in its interim results, compared with a profit of £28mn last year. Underlying pre-tax profit was flat at £44mn, in line with expectations.
Management can point to the continued underperformance of the high-street arm as justification for the sale — the division’s revenue fell by 7 per cent, while that of the travel business rose by 6 per cent. In terms of trading profit, the travel business grew by 12 per cent to £56mn, while that of the high street fell by about a third to £15mn.
As analysts pointed out when the sale was announced last month, management was spending about half of its time on a business that is only generating around a fifth of the group’s profit, so the disposal should allow them to focus more on growth opportunities — it currently has a pipeline of 90 stores, 60 of which will open this year (although it is also closing 50 smaller sites).
The high street business should also benefit from a more committed operator, although its future will be of less concern to investors once the deal completes. When it does, WHSmith’s margins should improve and its balance sheet will look a little less daunting.
The shares, which have dipped post-deal over investor fears that a more belligerent US administration could deter tourists, should eventually re-rate from their current level of just nine times broker Peel Hunt’s forecast earnings.
HOLD: Everyman Media (EMAN)
The pre-tax loss is widening, but market share is rising, writes Christopher Akers.
Everyman Media delivered a more positive message about future trading alongside its annual results after a January profit warning, but the Aim-traded premium cinema operator’s pre-tax loss was its worst since 2020 due to cost pressures and interest charges.
Trading this year got off to a good start as Bridget Jones: Mad about the Boy drew in the punters. Chief executive Alex Scrimgeour is “confident of [a] strong performance in 2025, underpinned by a well-balanced, consistently phased film slate”.
The annual results were as expected after the poorly received January update, in which the group flagged a weak fourth quarter due to the underperforming Joker: Folie à Deux and lower spend per head.
Adjusted cash profits were flat at £16.2mn due to the effect of wage increases and higher utility bills, but underlying demand showed signs of strength despite the knock-on impact on release schedules of the 2023 US writers strikes.
Admissions rose 15 per cent to 4.3mn, helped by three organic venue openings in the period, and membership grew by more than 65 per cent to around 56,500. Market share improved by 13 per cent to 5.4 per cent.
Everyman is continuing to expand. A new Brentford cinema was opened in March, and a Bayswater site will open its doors in the third quarter.
Something to watch is Blue Coast Capital’s ownership stake. The private equity investor now owns more than 29 per cent of the shares, raising the prospect of a potential offer.
Everyman trades on just seven times house broker Canaccord Genuity’s 2026 earnings forecast. The shares have lost more than half their value since they listed in 2013, but their current level looks unjustified.
