Good morning
So, a bid or bids for Kentz have been announced this morning, this comes as no great surprise, see excerpts from my blog of 8th August below.
But to stop unnecessary back patting what does one do from here? Kentz are today trading at 573p, a tad below our target price of 590p and almost on the high end of the indicated level of the Amec bid and well above the indicated M&W Group offer. As far as I am aware the company is not ‘for sale’, there is a strategic review taking place but only to run the company better and provide industry beating returns to shareholders.
First thing is not to sell any shares at these levels, I know some people might be tempted but despite having reached out target price there is much to go for both on trading grounds as well as bid valuations.
On trading grounds I expect more positive news when the interims come out next Tuesday but recent trading updates have been only positive, expect that trend to continue. I was lucky enough to have a couple of days on the road recently with CEO Chris Brown and the institutions we visited were extremely impressed.
As a bid candidate things change dramatically in terms of valuation and I am not surprised to see the Kentz board summarily despatch the indicated bid of 565-580p without having to think too hard about it. At the current price (573p), the shares are on a P/E of 13.5x for this year and 12.3x for next year, hardly dear given the order book and prospects and below the Amec multiple as well so any deal would be likely earnings enhancing from that point of view.
Don’t forget that Kentz has a handy cash pile, forecast to be $270m at the year end, of which their ‘own cash’ will be around $220m which they are planning to use on acquisitions, any bidder for Kentz at the moment is getting 30% of the market cap in cash, very handy for Amec for example. Strip out the cash and the rest of the business is in for not very much.
We know that in addition to the announced ‘indicated’ bids from Amec and M&W Group there are likely to be other interested parties out there, not an exclusive list but perm any from CB&I, Fluor, Bechtel and even Jacobs and of course relationships with Halliburton and other engineers/service companies are very good.
According to all these bits and pieces I would think it criminal if Kentz were to go out for anything less than 750p, I am quite surprised that the shares haven’t gone higher still this morning, maybe the arbs and hedgies are on holiday and there’s me who always thought that money never sunbathed. The stock is still a BUY.
More later I hope with view on Amec, I am hoping to chat to Chris Brown in Canada later today.
Amec from blog of 8th August
Amec throws off cash, so the perennial question is what to do with it? The buyback last year was as a result of not finding enough acquisitions to make during the year and this year will be no different. Decision time will be in the fourth quarter which isn’t far away so watch this space, no deals and the money comes back, either by buyback or special dividend and we know the CFO likes the earnings enhancing former route..
One other thing, they still claim to have a ‘good pipeline’ of potential deals all of which are in the oil and gas sector, also they would like them to be in engineering and good ‘geographic spread’ would be ‘helpful’. I am sure that Amec has spoken to Kentz in the past but I wonder if the CFO’s slide rule has been out again?
The bottom line is that with drags on the revenue as Mining and oil sands the rest of the business is going to have to motor hard to effectively stand still but the existing conventional oil and gas is good and growing well. The likelihood of some sort of corporate activity in the last quarter may hold the price up but the fundamentals look dull to me at the moment.
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